Question 1

It is argued by some researchers that even in the absence of regulation, organisations will have an incentive to provide credible information about their operations and performance to certain parties outside the organisation; otherwise, the costs of the organisation's operations will rise. What is the basis of this belief?

Question 2

On 1 July 2013, Bells Beach Tourist Operations acquired an aircraft that can be used for taking wealthy surfers to remote surfing destinations with lovely waves and limited crowds. The aircraft cost $12 000 000. An engineer's analysis commissioned by the company determined that the aircraft could be broken down into the following components: airframe, engines and fittings. The airframe comprised 55 per cent of the cost, while the engines were 40 per cent of the cost, with the fittings comprising 5 per cent of the cost.

The airframe is estimated to have a useful life of 15 years. At the end of its useful life it will have an estimated scrap value of $150 000. The engines have an estimated useful life of 20 000 hours, while fixtures and fittings are expected to have a useful life of 5 years. Both the engines and fixtures and fittings are expected to have no residual value at the end of their useful lives. During the first year the aircraft was operating for 2920 hours.

REQUIRED

Prepare all journal entries necessary to account for the acquisition of the aircraft, and its depreciation, for the year ending 30 June 2014.

Question 3

Burt Ltd enters into a non-cancellable five-year lease agreement with Earnie Ltd on 1 July 2015. The lease is for an item of machinery that, at the inception of the lease, has a fair value of $1294384.

The machinery is expected to have an economic life of six years, after which time it will have an expected residual value of $210000. There is a bargain purchase option that Burt Ltd will be able to exercise at the end of the fifth year for $280000.

There are to be five annual payments of $350000, the first being made on 30 June 2016. Included within the $350000 lease payments is an amount of $35000 representing payment to the lessor for the insurance and maintenance of the equipment. The equipment is to be depreciated on a straight-line basis.

REQUIRED

(a) Determine the rate of interest implicit in the lease and calculate the present value of the minimum lease payments.

(b) Prepare the journal entries in the books of Burt Ltd for the years ending 30 June 2016 and 30 June 2017.

(c) Prepare the portion of the statement of financial position for the year ending 30 June 2017 relating to the lease asset and lease liability.

(d) Prepare the journal entries of Burt Ltd for the years ending 30 June 2016 and 30 June 2017 assuming that Burt Ltd classifies the lease as an operating lease.

Question 4

What is an active market, and is an active market likely to exist for intangible assets such as brand names or development related expenditures? Explain your answer.