Act204 financial accounting assignment in accordance with

FINANCIAL ACCOUNTING Assignment-

PART A-

Q1. Wanguri Ltd enters a lease agreement to lease equipment to Rapid Creek Ltd. The lease term is for 5 years and the equipment has a fair value at the start of the lease on 1st July 2016 of $45,236. The equipment is expected to have a useful life of 6.5 years at which time the estimated residual value will be $2,600. The residual value at the end of the lease term is $9,360 of which 50% is guaranteed.

The lease agreement requires annual lease payments of $10,400 starting on 30th June 2017. The interest rate implicit in the lease is 9%. Rapid Creek Ltd has the right to cancel the lease at any time. This is conditional upon a payment of 50% of the total lease payments being paid to Wanguri Ltd.

Rapid Creek Ltd will be returning the equipment to Wanguri Ltd at the end of the lease term. The legal and set up costs of the lease incurred by Wanguri Ltd amounted to $1,300. The equipment was purchased just before the start of the lease for $45,236.

Required:

A. Explain why the lease should be classified as a finance lease by both the lessor and lessee.

B. Prepare a schedule of lease payments and the journal entries for Rapid Creek Ltd in respect of the lease for the lease term.

C. Prepare a schedule of lease receipts and the journal entries for Wanguri Ltd in respect of the lease for the lease term.

D. Prepare an appropriate note to the financial statements for both companies as at 30 June 2017.

Q2. On 1 October 2015, Tenant Creek Exploration Ltd, an Australian company, entered a loan agreement with the Island of Mull Banking Corporation to borrow £3,500,000 for a period of 5 years. The interest on the borrowings is payable half-yearly in arrears at the fixed interest rate of 10% p.a. with interest payments of £175,000 (i.e. £3,500,000 × 10% × ½ year) due on 31 March and 30 September each year.

The functional currency of Tenant Creek Exploration Ltd is the Australian dollar. It has reporting periods ending on 31 December and 30 June. The relevant rates of exchange during the financial period ending 30 June 2016 were as follows:

1 October 2015                  Aus$1 = £0.555

31 December 2015             Aus$1 = £0.537

31 March 2016                   Aus$1 = £0.512

30 June 2016                     Aus$1 = £0.485

Required:

In accordance with AASB 121, prepare the entries of Tenant Creek Exploration Ltd to record the borrowing transaction, the borrowing costs expense, the borrowings costs paid and the re-measurement of the borrowings at the end of the reporting period at 30th June 2016.        

Q3. The following information has been extracted from the plant register of Aquifer Ltd. This class of plant is expected to depreciate on a straight line basis. A revaluation method has been adopted.

 

1st July 2015

Cost

Expected useful life

Machine 5921

 

$90,000

5 years

Machine 5922

 

$54,000

3 years

Machine 5923

30th June 2016

 

 

 

Fair Value

$75,600

$34,200

 

Expected useful life

4 years

2 years

 

1st January 2017

 

 

 

Cost

 

 

$72,000

Expected useful life

 

 

4 years

30th June 2017

 

 

 

Fair Value

$54,900

 

$61,650

Expected useful life

3 years

 

1.5 years

This additional information is relevant:

On 1st July 2015 Machines 5921 and 2922 were purchased for cash. On 1st January 2017 Machine 5922 was sold for $26,100 and Machine 5923 was purchased. Both were cash transactions. At this time Aquifer Ltd made a bonus issue of 9 000 shares at $1 per share, using $7200 from the general reserve and $1800 from the asset revaluation surplus created as a result of measuring Machine 5921 at fair value.

Aquifer has a reporting date of 30th June.

Required: Prepare the journal entries to reflect these events from 1st July 2015 to 30th June 2017. (Ignore taxation).

Q4. Whilst you have been assisting Berrimah Line Painting Ltd to produce the financial statements for the year ended 30th June 2016 you have discovered the following information about events that occurred after the end of the reporting period.

On 10th July 2016, a fire in a neighbouring property spread to the paint store and destroyed inventory and two line painting machines. The damage was estimated at $320,000. The insurance company has agreed to pay $240,000 but because the serious crimes squad is investigating the fire, the insurance payment has been delayed. The loss of the inventory and the machines has had a serious impact upon the business's ability to service its existing contracts.

On 12th July 2016, a major competitor introduced a new method for line printing using new and improved paints and applicators. To maintain Berrimah Line Painting Ltd's share of the market severe discounting has had to be implemented. This has resulted in the selling price of its paints being reduced to 50% of cost. The inventory in stock at 30th June 2016 had been recorded at a cost of $122,400.

On 12th August 2016, the Environmental Protection Agency gave notice to the company that, due to a leakage that had been traced to a paint store at the Bark Hut depot, toxic material had seeped into a local watering hole. The leakage happened on 8th July 2016. An infringement notice had been issued and the matter was due to be heard in the local court. If the company is found to be negligent legal advice has suggested that the company will have to pay a fine of $280,000 together with legal fees and clean-up costs which could amount to $200,000.

On 13 August 2017, you discovered that inventory purchase invoices, totalling $30,120, relating to purchases made in June had not been entered onto the system.

On 30 August 2017, the company issued a prospectus offering 2,400 10% debentures of $100 each for public subscription. The debentures are redeemable on 1 October 2025. Interest is payable annually in arrears. The debentures are secured by a floating charge over the company's assets.

Assume all events and transactions are material. Required

A. Examine the above events and identify which should be treated as adjusting events and which are non-adjusting events. You should provide a detailed justification for your classification.

B. Having determined the course of action that you would take based upon your classification prepares the necessary journal entries or note disclosures to comply with the requirements of AASB 110.

Q5. Dragons R Us Ltd runs a dragon fruit plantation in Howard Springs. In June 2015 the CFO predicted that its assets may be impaired due to a change in policy by the Northern Territory government when granting water licences. This could impact the income streams from the export and local markets by reducing Dragons R Us Ltd's ability to service those markets.

Dragons R Us Ltd values land at fair value. At 30 June 2015 and independent valuer assessed the land to have a fair value of $222,000. A previous revaluation had increased the land value by $37,000.

As a result of its impairment testing, Dragons R Us Ltd calculated that the recoverable amount of the entity's assets was $2,693,600.

The carrying amounts of the assets of Dragons R Us Ltd prior to adjusting for the impairment test and the revaluation of the land were as follows:

Non-current assets

Production shed and farm shop

 

1572500

Accumulated depreciation

-358900

Land (at fair value 1/7/14)

236800

Harvesting equipment

2689900

Accumulated depreciation

-1387500

Goodwill

111000

Accumulated impairment losses

-81400

Dragons R Us Brand Name and Logo

148000

Current assets

 

Cash

12950

Trade Receivables

16650

Required:

A. Complete the journal entries to reflect the changes in valuation at 30th June 2015.

B. After the apportionment of the impairment loss, the harvesting equipment was written down to $1,184,000. The fair value less costs of disposal of the harvesting equipment was valued at $ 1,110,000. What adjustments, if any, that would need to be made to the journal entries in part A of this question, and explain why the adjustments are or are not required.

Q6. Glitterati Ltd Trial Balances as at 30 June

 

2015

Dr $

 

Cr$

2016

Dr $

 

Cr$

Cash

65

 

65

 

Accounts receivable

16996

 

28535

 

Allowance for doubtful debts

 

1300

 

2600

Inventory

47471

 

78751

 

Plant and machinery

64740

 

101920

 

Accumulated depn -   p & m

 

7137

 

14482

Fixtures and fittings

13000

 

10140

 

Accumulated depn - f&f

 

3770

 

3900

Accounts payable

 

16258

 

15382

Bank overdraft

 

3614

 

21923

Current tax liability

 

7800

 

10400

Share capital

 

78000

 

117000

General reserve

 

13000

 

19500

Retained earnings (opening)

 

9290

 

11393

Sales revenue

 

221000

 

260000

Gain on sale of machinery

 

 

 

130

Cost of sales

78000

 

91000

 

Salaries and wages expenses

123035

 

129852

 

Doubtful debts expense

3900

 

4420

 

Depreciation expense

6630

 

7995

 

Income tax expense

7332

 

7132

 

Dividend declared and paid

 

 

10400

 

Transfer to general reserve

 

 

6500

 

 

361169

361169

476710

476710

Additional information

1) Fixtures and fittings which had cost $2860 and with accumulated depreciation of $520 were sold during the year in a cash sale.

2) Plant which cost $13000 was purchased in exchange for the issue of 13000 shares at a price of $1 each.

3) The bank overdraft is to be included in cash equivalents.

Required: Prepare a Statement of Cash Flows for Glitterati Ltd for the year ended 30th June 2016 using the direct method. The Statement should be accompanied by all the relevant notes including the indirect method.

Q7. Georgetown Ltd is a company that is based in Penang, Malaysia.  It purchased the issued shares of Darwin Ltd, an Australian company on 1st July 2015 for $800,000. The trial balances at the 30 June 2016 for the two companies are found below:

 

Georgetown Ltd

Malaysian Ringit MYR

Darwin Ltd

Australian Dollar Aus$

Cash

128940

42000

Accounts receivable

203420

161000

Inventory

154000

112000

Shares in Darwin Ltd

470400

0

Buildings (net)

117600

308000

Machinery

588000

560000

Accumulated depreciation - machinery

294000

224000

Provisions

63000

42000

Payables

19600

56000

Share capital

784000

490000

Retained earnings as at 1/7/15

462000

238000

Sales

868000

434000

Dividend revenue

0         8960

0

Cost of sales

546000

168000

Depreciation - machinery

119000

56000

Tax expense

32200

21000

Other expenses

70000

14000

Dividend paid

28000

14000

Dividend provided

42000

28000

 

2499560    2499560

1484000         1484000

The following information is also provided:

1. Sales, cost of sales and expenses were incurred evenly throughout the year to 30th June 2016. The dividend was paid by Darwin Ltd on 1st January 2016, and the final dividend was declared on 30th June 2016.

2. Aus$ 140,000 was spent on new machinery by Darwin Ltd on 1st January 2016. Aus$ 11,200 was included in the year's depreciation expense for this additional machinery.

3. The functional currency of Darwin Ltd is the Australian Dollar.

4. The relevant rates of exchange during the financial period ending 30 June 2016 were as follows:

1 July 2015                      Aus$1 = MYR3.26

1 December 2015             Aus$1 = MYR3.45

1 January 2016                Aus$1 = MYR3.50

30 June 2016                   Aus$1 = MYR3.60

Average for the year

ended 30th June 2016     Aus$1 = MYR3.43

Required:

A. Translate the balances of Darwin Ltd into Malaysian Ringit so that they can be included in the consolidated financial statements of Georgetown Ltd.

B. Verify the translation adjustment.

PART B-

Q8. From the following link download the annual report for 2015 -http://www.api.net.au/investor/annual-reports/

Look at the Notes to the Financial Statements for Intangible Assets.

Required:

A. Using AASB 138 and AASB3 explain how the brand names were recognised and measured as assets.

B. What can you deduce from the fact that the values are the same in both years?          

Q9. From the following link download Woolworths Limited's annual report for 2015 -http://www.woolworthslimited.com.au/icms_docs/182381_Annual_Report_2015.pdf

Go to page 58 where you will find the financial statements

In the 2014 annual report the financial statements can be found on page 96 http://www.woolworthslimited.com.au/annualreport/2014/ebook/#96

You will need the 2014 results when calculating average inventory and average receivables for the 2014 efficiency ratios.

You can access the closing market price of Woolworth's shares at https://au.finance.yahoo.com/q/hp?s=WOW.AX

When downloading the annual reports it's good not to print the whole report as they can be over 100 pages long.

Required:

A. Calculate the following ratios for 2015 and 2014:

Current and Acid Test ratios

Inventory turnover and days in inventory

Gross profit percentage, accounts receivable turnover and days sales in receivables

Debt ratio and debt to equity ratio

Rate of return on net sales ratio and rate of return on total assets ratio

Asset turnover ratio and the rate of return on ordinary shareholders equity

Dividend yield and dividend payout.

B. Using the ratios calculated in Part A and information gathered from elsewhere in the Annual Reports write a report to a potential investor with your recommendations as to whether Woolworths Limited would make a good investment.

C. As a rule of thumb the Current Ratio for businesses should be 2:1 and the Acid Test between 1.5 to 1:1. How would you explain these ratios for Woolworths Limited when compared to this rule?

Your report should be written as a business report with an executive summary, an introduction, the main findings, a conclusion and references. Marks will be awarded to reflect presentation, business English, content and referencing.

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