Question 1 - During the reporting period ending 30 June 2018, Midnight Boil Ltd constructed a nuclear power generator just outside of Melbourne. The cost of the power generator and associated technology amounted to $12,550,000. Other costs associated with the construction amounted to:
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$
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Costs incurred in obtaining access to the site
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2,500,500
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Power permits
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400,500
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Engineer's fees
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1,100,500
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4,001,500
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The want was ready to start generating power on 1 July 2018, with actual generation starting on 1 October 2018. Ai the end of the power plant's useful life, which is expected to be 10 years, Midnight Boil Ltd is required by the government to dismantle the plant, remove it, and return the site to its original condition. After consulting its own engineers and environmentalists. Midnight Boil Ltd estimates these costs to be:
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$
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Dismantling the plant
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750,500
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Environmental remediation costs
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1,249,500
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Replacement of flora and fauna
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100,000
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2,100,000
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Midnight Boil Ltd uses a discount rate of 10 per cent.
REQUIRED - Prepare the journal entries necessary to account for the power plant for the years ended 30 June 2018, 30 June 2019 And 30 June 2024. Ignore depreciation.
Question 2 - On 1 July 2015 Sprintfast Couriers Ltd. Which has a year-end 30 June, purchased a delivery truck for use in its courier operators at a cost of $65,000. At the end of the truck's useful life it is expected to have a residual value of $5,000. During its six-year useful life, Sprintfast Couriers Ltd expected the truck to be driven 246,000 kilometers.
REQUIRED - Calculate the annual depreciation charge for each of the six years of the truck's life using the following methods:
(a) the straight-line method
(b) the sum-of-digits method
(c) the declining-balance method
(d) the units-of-production method using kilometres as the basis of use and assuming the following usage:
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Year
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Kilometres
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2016
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28,000
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2017
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34,000
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2018
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42,000
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2019
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55,000
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2020
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68,000
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2021
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19,000
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246,000
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Question 3 - On 1 July 2016 Big Wednesday Ltd acquired land at a cost of $1,000,000. Big Wednesday Ltd makes the following estimates of the value of the land:
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Net selling price
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Value in use
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Fair value
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30 June 2017
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$900,000
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$1,050,000
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$950,000
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30 June 2018
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$900,000
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$960,000
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$950,000
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30 June 2019
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$920,000
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$900,000
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$970,000
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REQUIRED -
(a) Determine the recoverable amount of the land for each reporting date.
(b) Assume that Big Wednesday Ltd uses the cost method. For each year, calculate the carrying amount of the land. Prepare the journal entries necessary to effect any adjustments required by accounting standards.
(c) Assume that Big Wednesday Ltd revalues its land at the end of each year. For each year, calculate the carrying amount of the land. Prepare the journal entries necessary to effect any adjustments required by accounting standards.
Question 4 - Tamarama Ltd acquires 100 per cent of Bronte Ltd on 1 July 2017. Tamarama Ltd pays the shareholders of Bronte Ltd the following consideration:
Cash - $70,000
Plant and equipment - fair value $250,000; carrying amount in the books of Tamarama Ltd $170,000
Land - fair value $300,000; carrying amount in the books of Tamarama Ltd $200,000
There are also legal fees of $35,000 involved in acquiring Bronte Ltd.
On 1 July 2017 Bronte Ltd's statement of financial position shows total assets of $700,000 and liabilities $300,000. The fair value of the assets is $800,000.
REQUIRED - Has any goodwill been acquired and, if so, how much?
Question 5 - On 1 July 2018 Michaela Ltd issues $1 million in five-year debentures that pay interest each six months at a coupon rate of 10 per cent. At the time of issuing the securities, the market requires a rate of return of 8 per cent. Interest expense is determined using the effective-interest method.
REQUIRED -
(a) Determine the issue price.
(b) Provide the journal entries at:
(i) 1 July 2018
(ii) 30 June 2019
(iii) 30 June 2020.
Question 6 - When a lease transaction is to be capitalised, how do we determine the value of the leased asset, and the lease liability?
Question 7 - Lehman Ltd sells some printed material to an organisation in the United States on 1 July 2019. The price is denominated in US dollars and is US$500,000. It is to be paid on 1 September 2019. The amount is guaranteed by a local bank so that payment is deemed to be very certain. The spot rate on the date of the transaction is A$1 = US$0.70.
Worried about fluctuations in the value of the Australian dollar, Lehman decides to enter a forward rate agreement with the bank in which the latter agrees to buy US$500000 from Lehman Ltd on 1 September at an agreed forward rate of US$0.72.
(a) Describe how entering a forward rate agreement will reduce the risk of Lehman Ltd.
(b) How much money, in Australian dollars, will Lehman Ltd ultimately receive from the sale?
Question 8 - On 1 July 2019 Lurline Ltd provides its managing director with a share-based incentive according to which she is offered a bonus that is calculated as 100,000 times the increase in the fair value of the entity's share price above $5.00. When the bonus was offered the share price was $4.50. If the managing director does not leave the organisation the accrued entitlement will be paid after three years. However, if she leaves the organisation the accrued entitlement will be paid out upon departure-that is, the benefit will not be forfeited.
Other information
- The share price at 30 June 2020 is $4.00.
- The share price at 30 June 2021 is $5.50.
- The share price at 30 June 2022 is $6.00.
- The managing director stays for three years and is paid the bonus on 1 July 2022.
Required - Prepare the journal entries that would appear in the accounting records of Lurline Ltd to account for the issue of the share appreciation right.
Question 9 - At the end of the reporting period of a reporting entity, are any adjustments necessary in relation to the reporting entity's foreign currency monetary items? How should any adjustments (if necessary) be treated within the statement of profit or loss and other comprehensive income purposes?
Question 10 - On 1 March 2018 Kanga Ltd, an Australian entity, places an order for UK£1.5 million of inventory with Ferrell plc, a UK supplier. The goods will be purchased FOB Liverpool. A decision is made to take out a foreign exchange forward-rate contract for UK£1.5 million on 1 March 2018 with The Bank in which The Bank agrees to supply Kanga Ltd with UK£1.5 million on 1 August 2018. The goods are shipped on 1 June 2018 and are paid for on 1 August 2018.
Additional information
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Date
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Spot rate
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Forward rate
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1 March 2018
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£0.45
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£0.42
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1 June 2018
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£0.43
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£0.40
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30 June 2018
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£0.39
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£0.36
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12 August 2018
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£0.41
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£0.41
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REQUIRED - Assuming that the hedging arrangement satisfies the requirements for hedge accounting as stipulated in AASB9, and the management of Kanga Ltd adopts cash flow hedge accounting, provide the necessary journal entries for Kanga Ltd to account for both the purchase transaction with Ferrett plc and the forward-rate contract with. The Bank.