Question 1
Background
Cochlear Limited is a publicly listed company on the ASX (Australian Securities Exchange) which makes hearing aids. Since December 2008 it has been involved in a lawsuit based on alleged infringement of patents and has recorded a contingent liability in the annual reports from 2008 onwards.
In response to the court case Cochlear released the following announcement to the ASX on the 24th of January 2014.
Required:
In approximately 500 words you are to:
With reference to AASB 137 critically evaluate whether a liability exists and therefore determine the appropriate accounting treatment for the outcome of the court case assuming that the financial statements will need to be prepared on the basis of the information provided above.
Where any reference is made to the accounting standards, the framework, textbooks etc it needs to be appropriately referenced. Please note APA referencing style is to be used.
Question 2
Foret Ltd issued a prospectus dated 1 July 2013 which invites the public to apply for 2,000,000 ordinary shares at $15 per share with $8 payable on application with a due date of 1 September 2013, $4 on allotment with a due date of 12 October 2013 and $3 on the first and only call.
On 1 September 2013 applications close. Total applications had been received for 2,700,000 shares. Of those applications, applications totalling 400,000 shares were received with the total $15 per share, with the remainder only paying the application money. Shares were allotted on 1 October 2013.
If the issue is oversubscribed the directors can make a pro-rata issue of shares. The directors decide in this case to issue 400,000 shares to the applicants that paid in full and pro-rata to the remaining applicants. Any excess application money will be applied to allotment and calls. All allotment money was received by the due date. Share issue costs directly associated with the issue were also paid on 12 October 2013 and totalled $140,000.
The first and only call was made on 1 December 2013 with the money due by 31 December 2013. All of the money was received except for the call on 65,000 shares. The shares were forfeited on the 5 January 2014 and reissued on 15 January 2014 as paid to $15 for $14 cash with costs associated with the forfeited shares of $10,000 paid on 15 January 2014.
Any refund owing with respect to the forfeited shares was refunded to the former shareholders on 20 January 2014.
Required:
Prepare journal entries for the above transactions.