Financial Accounting Issues Assignment
Question 1 -
On 1 July 2017, Mining Ltd commenced operation of an oil rig site. At the end of the 10 year tenure period, they are required to restore the environmental damage done to the area. As at 1 July 2017, the best estimate to restore the environmental damage is $8 500 000. The pretax rate that reflects the current market assessments of the time value of money and the risks specific to the liability is 8%. On 30 June 2018, the best estimate is still $8 500 000, and the appropriate discount rate is still 8%.
Required:
a) Provide the appropriate journal entries (including narrations) for Mining Ltd for the year ending 30 June 2018. Show all calculations and workings.
b) Explain your treatment of the provision by referring to the Accounting Standards.
c) Explain why the restoration costs are recognised as a provision rather than being disclosed as a contingent liability by referring to the Conceptual Framework and/or Accounting Standards.
Question 2 -
Prepare a short argument (maximum 350 words) providing reasons both FOR and AGAINST the recognition of internally generated goodwill in the financial statements of an entity. Refer to the Conceptual Framework and/or Accounting Standards where appropriate to support your argument.
Question 3 -
Woobits Ltd issues $10m in convertible bonds on 1 July 2017. They are issued at their face value for a term of five years. They pay an interest rate of 3% annually in arrears. The bonds may be converted to shares at any time in the next five years. Organisations similar to Woobits Ltd have recently issued similar debt instruments (without the conversion option) with an interest rate of 5%.
On 30 June 2020, all the holders of the convertible notes elect to convert the bonds to shares in Woobits Ltd.
Required:
Provide the appropriate journal entries (including narrations) for Woobits Ltd in relation to the convertible notes for the period 1 July 2017 to 30 June 2020. Show all calculations and workings.
Question 4 -
On July 2018 Double Island Ltd enters into an agreement to borrow £2 million from Point plc (UK). Point plc sends the loan money to Double Island Ltd's Australian bank account. The loan is for four and requires the payment of interest at the rate of 8 per cent on 30 June each year. Double Island Ltd's reporting date is 30 June. The relevant exchange rates are:
1 July 2018 A$1.00 = UK£0.48
30 June 2019 A$1.00 = UK£0.50
Required:
Provide the necessary journal entries that would be made in the books of Double Island Ltd to account for the above transaction for the year ending 30 June 2019.