Question 1 -

The following questions are unrelated except that they all apply to non-current assets and intangible assets:

1. The manager of Golf Gear often debits the cost of repair or maintenance of equipment to Plant and equipment. Is this a violation of accounting standards and accepted good practice? Why would the manager do that?

2. The manager of Castle Industries often buys plant and equipment and debits the cost to Repairs and maintenance expense. Does this action violates accounting standards and accepted good practice? Why would he do that?

3. Some people suggest that, since many intangible assets have no value except to the business that owns them, e.g. the website, they should be valued at $1.00 or zero on the balance sheet. Many accountants disagree with this view. Which view do you support? Why?

Question 2 -

On 1 March 2017, Hope Investments (HI) issued 7%, 20-year debentures with maturity value of $500 000. The debentures pay interest on 28 February and 31 August. HI amortizes debenture premium and discount by the straight-line method. The financial year ends on 31 December.

Requirements -

1. If the market interest rate is 6.5% when HI issues its debentures, will the debentures be priced at maturity (par) value, at a premium or at a discount? Explain.

2. If the market interest rate is 8% when HI issues its debentures, will the debentures be priced at par, at a premium or at a discount? Explain.

3. Assume that the issue price of the debentures is 95. Journalise the following debenture transactions:

a) issue of the debentures on 1 March 2017

b) payment of interest and amortisation of discount on 31 August 2017

c) accrual of interest and amortisation of discount on 31 December 2017

d) payment of interest and amortisation of discount on 28 February 2018.