ACC5200 Financial Reporting Assignment

1
ACC5200 Financial Reporting
Assignment 2
Due Date: 16th May, 2020 Marks: 105 Weighting: 35%
Question 1 30 marks
A. On 30th June, 2017 Utensilite Ltd had the following Motor Vehicle assets:
Vehicle
Number
Purchase
Date
Cost Estimated
Life
Residual
Value
Depreciation
Method
Accumulated
Depreciation to
30/6/17
1 1/01/2016 42,000 10 years 2,000 Straight Line 6,000
2 1/07/2015 50,000 10 years 5,000 Straight Line 9,000
On 1st July 2017 Utensilite Ltd acquired a 3rd Motor Vehicle for $45,000 paying cash of
$12,500 and negotiating a loan for the balance. The estimated life of the vehicle was
12 years and residual value $3,000. The vehicle was to be depreciated at the rate of
30% using the declining balance method.
Depreciation is recorded on 30th June each year.
On 30th September, 2017 and 30th September, 2018 all three vehicles were serviced
at a cost of $5,400.
On 31st March, 2019 Vehicle No 1 is sold to Extratta Traders because for $8,000.
You are required to:
a. Prepare an extract from the Balance Sheet dated 30th June, 2017 to show the
Motor Vehicles account; 3 marks
b. Record all the journal entries that took place from 1st July 2017 to 30th June
2019 (ignore GST and show all calculations). 17 marks
c. If revenue for the financial year 2018 was $61,500, prepare an extract from the
Profit and Loss Statement at 30th June 2018 indicating associated
expenses for motor vehicles for the year. 3 marks
d. Prepare an extract from the Balance Sheet dated 30th June, 2019 to show the
Motor Vehicles account. 3 marks
B. Why would Utensilite choose the two methods of depreciation it has? What is
the impact of each method on Profit figures over the life of the asset? Describe
two other depreciation methods that could have been used to depreciate the
motor vehicles. Which of the four methods do you believe is most appropriate
for motor vehicles and why? 4 marks
2
Question 2 20 marks
A. What, if anything is the difference between cost, recoverable amount and fair
value and why is this important in relation to non-current assets?
4 marks
B. How is ‘impairment of an asset’ different from ‘amortisation of an asset’? Give
an example that enhances your explanation. 2 marks
C. Describe three incentives that management might have to revalue assets?
3 marks
D. Who should be responsible for providing valuations on which to base
revaluations and how should they be derived? What are the disclosure
requirements for these valuations? 3 marks
E. Mattamax Ltd owns two buildings acquired in 2016 for the purpose of future
development. Building A cost $290,000 and Building B cost $330,000.
Valuations of the blocks are undertaken by an independent valuer on 30th June
2018 and 2020. The assessed values are as follows:
2018 valuation $ 2020 valuation $
Building A 270,000 310,000
Building B 350,000 320,000
(a) Provide the journal entries for the revaluations that were undertaken in
2018 and 2019 for the buildings. 6 marks
(b) What might the economic consequence of asset revaluations be for the
business? 2 marks
3
Question 3 20 Marks
A. What is the difference between internally generated intangible assets and those
generated through external transactions? Discuss with examples.
3 marks
B. Do you think recognising internally generated intangible assets leads to
incorrect reporting of intangible assets? Give an example to support your
answer. 2 marks
C. Innovation Ltd reports the following intangible assets
$m
Licence at cost 15
Less Accumulated amortisation 5
Goodwill at cost 60
Brand Name 90
Trademarks at cost 25
Patents at directors’ valuation 125
Less Accumulated amortisation (50)
The following information is available:
(i) Patents were acquired at a cost of $95m and were revalued soon
afterwards. They have an estimated life of 20 years of which 15
remain.
(ii) The trademark can be renewed indefinitely subject to continued use.
The costs were for registration fees which were initially expenses but
recognised five years later as the trademark became recognised by
consumers.
(iii) Goodwill has been purchased 3 years ago and will be amortised on
the straight line basis.
(iv) The brand name has been internally generated and is stated at fair
value.
(v) The licence has a 15 year life of which 10 years remain. It can be
traded in an active market and has a fair value of 25m.
You are required to:
a. State how each asset or class of asset, should be reported in accordance with
AASB 138. 5 marks
b. Apply AASB 138 and state the carrying amount and whether each asset/asset
class should be amortised. As part of this answer specify any choice of
methods permitted for Iinvent Ltd. 5 marks
4
(NOTE: in completing your answers state any assumptions you might make)
Question 4 20 Marks
A. In 2019 AASB 16 the Leasing standard changed. You are required to research
the implications of the AASB 16 standard in terms of the questions below
(maximum 400 words).
Make sure you reference any material used in your answer and include the
reference list at the end of your answer.
a. Describe major changes to be adopted under standard AASB16 in terms of
agreements that meet the definition of a lease? For example what key
evaluations will need to be made in order to apply the definition? 3 marks
b. Which businesses will be affected under AASB16? 3 marks
c. Are there any exceptions from lease accounting? For example will hire
purchases agreements and rights held under licencing agreements such as
motion picture films, patents and copyrights be caught by AASB16? 3 marks
d. What are the impacts of AASB 16 in terms of how leases are reported on the
Income Statement and Balance Sheet? 3 marks
B. Determine for each of the following arrangements the manner in which the
relevant lease should be classified by the lessor according to IFRS 16/AASB 16.
Give reasons for your answers.
(i) Company A enters into a non-cancellable lease for machinery with a term
of 8 years. The machinery has a useful economic life of 12 years.
Company A as an option to renew the lease with the same rental for a
further four years, even though market rentals are expected to increase
with inflation over the next decade. The present value of the lease
payments is 70% of the fair value of the machinery.
4 marks
(ii) Company B enters into a non-cancellable lease with a 7 year term for an
item of plant which has a useful life of 10 years. The present value of
future lease payments is equal to 75% of the fair value of the asset at
the date of inception of the lease. The residual value accounts for the
remaining 25%. So confident is the lessor that the plant will retain its
value that it is guaranteeing 50% of the residual value, with the lessee
being responsible for guaranteeing the remaining 50% of the residual
value. 4 marks
5
Question 5 15 Marks
a. What is a provision and how is it measured? 1 mark
b. What is a ‘contingent liability’ and how will it be disclosed in the financial
reports? 2 marks
c. Surfcom makes powered surf boats. At the end of the reporting period data
provided suggests:
(i) If small defects arise with all of the products that have been sold, the
related repair costs would be $3.5 million.
(ii) If significant defects arise with all of the products sold the related
costs would be $12 million.
(iii) Based upon past experience within the company and within the
industry, it is believed that 75% of all products will have not defects,
15% will have small defects and 10% will have significant defects.
Required:
a. Show calculations to determine what the balance for provision for
warranty repairs should be. 3 marks
b. What journal entry would be made to record this? 1 mark
d. The draft financial statement for the year ending 30 June 2019 for Greenwood
Ltd are being completed. You have been informed that a senior employer who
was dismissed in January 2019 has taken action against the company alleging
wrongful dismissal and claiming damages of $600,000. Greenwood Ltd’s
lawyers are not sure of the likelihood that the former employee will be
successful with the claim but they think the probability is less than 25%. The
outcome of the action is expected to be settled by December 2019. Legal
costs, not recoverable, are estimated at $150,000 regardless of the outcome of
the action. Of this amount $30,000 has already been incurred in the months to
June 30, 2019. This amount has not yet been paid as at 30th June.
(i) Explain how the above matter should be treated within the financial
statements and accompanying notes of Greenwood Ltd for the year
ending 30th June, 2019. 5 marks
(ii) Record any necessary journal entries. 3 marks1
ACC5200 Financial Reporting
Assignment 2
Due Date: 16th May, 2020 Marks: 105 Weighting: 35%
Question 1 30 marks
A. On 30th June, 2017 Utensilite Ltd had the following Motor Vehicle assets:
Vehicle
Number
Purchase
Date
Cost Estimated
Life
Residual
Value
Depreciation
Method
Accumulated
Depreciation to
30/6/17
1 1/01/2016 42,000 10 years 2,000 Straight Line 6,000
2 1/07/2015 50,000 10 years 5,000 Straight Line 9,000
On 1st July 2017 Utensilite Ltd acquired a 3rd Motor Vehicle for $45,000 paying cash of
$12,500 and negotiating a loan for the balance. The estimated life of the vehicle was
12 years and residual value $3,000. The vehicle was to be depreciated at the rate of
30% using the declining balance method.
Depreciation is recorded on 30th June each year.
On 30th September, 2017 and 30th September, 2018 all three vehicles were serviced
at a cost of $5,400.
On 31st March, 2019 Vehicle No 1 is sold to Extratta Traders because for $8,000.
You are required to:
a. Prepare an extract from the Balance Sheet dated 30th June, 2017 to show the
Motor Vehicles account; 3 marks
b. Record all the journal entries that took place from 1st July 2017 to 30th June
2019 (ignore GST and show all calculations). 17 marks
c. If revenue for the financial year 2018 was $61,500, prepare an extract from the
Profit and Loss Statement at 30th June 2018 indicating associated
expenses for motor vehicles for the year. 3 marks
d. Prepare an extract from the Balance Sheet dated 30th June, 2019 to show the
Motor Vehicles account. 3 marks
B. Why would Utensilite choose the two methods of depreciation it has? What is
the impact of each method on Profit figures over the life of the asset? Describe
two other depreciation methods that could have been used to depreciate the
motor vehicles. Which of the four methods do you believe is most appropriate
for motor vehicles and why? 4 marks
2
Question 2 20 marks
A. What, if anything is the difference between cost, recoverable amount and fair
value and why is this important in relation to non-current assets?
4 marks
B. How is ‘impairment of an asset’ different from ‘amortisation of an asset’? Give
an example that enhances your explanation. 2 marks
C. Describe three incentives that management might have to revalue assets?
3 marks
D. Who should be responsible for providing valuations on which to base
revaluations and how should they be derived? What are the disclosure
requirements for these valuations? 3 marks
E. Mattamax Ltd owns two buildings acquired in 2016 for the purpose of future
development. Building A cost $290,000 and Building B cost $330,000.
Valuations of the blocks are undertaken by an independent valuer on 30th June
2018 and 2020. The assessed values are as follows:
2018 valuation $ 2020 valuation $
Building A 270,000 310,000
Building B 350,000 320,000
(a) Provide the journal entries for the revaluations that were undertaken in
2018 and 2019 for the buildings. 6 marks
(b) What might the economic consequence of asset revaluations be for the
business? 2 marks
3
Question 3 20 Marks
A. What is the difference between internally generated intangible assets and those
generated through external transactions? Discuss with examples.
3 marks
B. Do you think recognising internally generated intangible assets leads to
incorrect reporting of intangible assets? Give an example to support your
answer. 2 marks
C. Innovation Ltd reports the following intangible assets
$m
Licence at cost 15
Less Accumulated amortisation 5
Goodwill at cost 60
Brand Name 90
Trademarks at cost 25
Patents at directors’ valuation 125
Less Accumulated amortisation (50)
The following information is available:
(i) Patents were acquired at a cost of $95m and were revalued soon
afterwards. They have an estimated life of 20 years of which 15
remain.
(ii) The trademark can be renewed indefinitely subject to continued use.
The costs were for registration fees which were initially expenses but
recognised five years later as the trademark became recognised by
consumers.
(iii) Goodwill has been purchased 3 years ago and will be amortised on
the straight line basis.
(iv) The brand name has been internally generated and is stated at fair
value.
(v) The licence has a 15 year life of which 10 years remain. It can be
traded in an active market and has a fair value of 25m.
You are required to:
a. State how each asset or class of asset, should be reported in accordance with
AASB 138. 5 marks
b. Apply AASB 138 and state the carrying amount and whether each asset/asset
class should be amortised. As part of this answer specify any choice of
methods permitted for Iinvent Ltd. 5 marks
4
(NOTE: in completing your answers state any assumptions you might make)
Question 4 20 Marks
A. In 2019 AASB 16 the Leasing standard changed. You are required to research
the implications of the AASB 16 standard in terms of the questions below
(maximum 400 words).
Make sure you reference any material used in your answer and include the
reference list at the end of your answer.
a. Describe major changes to be adopted under standard AASB16 in terms of
agreements that meet the definition of a lease? For example what key
evaluations will need to be made in order to apply the definition? 3 marks
b. Which businesses will be affected under AASB16? 3 marks
c. Are there any exceptions from lease accounting? For example will hire
purchases agreements and rights held under licencing agreements such as
motion picture films, patents and copyrights be caught by AASB16? 3 marks
d. What are the impacts of AASB 16 in terms of how leases are reported on the
Income Statement and Balance Sheet? 3 marks
B. Determine for each of the following arrangements the manner in which the
relevant lease should be classified by the lessor according to IFRS 16/AASB 16.
Give reasons for your answers.
(i) Company A enters into a non-cancellable lease for machinery with a term
of 8 years. The machinery has a useful economic life of 12 years.
Company A as an option to renew the lease with the same rental for a
further four years, even though market rentals are expected to increase
with inflation over the next decade. The present value of the lease
payments is 70% of the fair value of the machinery.
4 marks
(ii) Company B enters into a non-cancellable lease with a 7 year term for an
item of plant which has a useful life of 10 years. The present value of
future lease payments is equal to 75% of the fair value of the asset at
the date of inception of the lease. The residual value accounts for the
remaining 25%. So confident is the lessor that the plant will retain its
value that it is guaranteeing 50% of the residual value, with the lessee
being responsible for guaranteeing the remaining 50% of the residual
value. 4 marks
5
Question 5 15 Marks
a. What is a provision and how is it measured? 1 mark
b. What is a ‘contingent liability’ and how will it be disclosed in the financial
reports? 2 marks
c. Surfcom makes powered surf boats. At the end of the reporting period data
provided suggests:
(i) If small defects arise with all of the products that have been sold, the
related repair costs would be $3.5 million.
(ii) If significant defects arise with all of the products sold the related
costs would be $12 million.
(iii) Based upon past experience within the company and within the
industry, it is believed that 75% of all products will have not defects,
15% will have small defects and 10% will have significant defects.
Required:
a. Show calculations to determine what the balance for provision for
warranty repairs should be. 3 marks
b. What journal entry would be made to record this? 1 mark
d. The draft financial statement for the year ending 30 June 2019 for Greenwood
Ltd are being completed. You have been informed that a senior employer who
was dismissed in January 2019 has taken action against the company alleging
wrongful dismissal and claiming damages of $600,000. Greenwood Ltd’s
lawyers are not sure of the likelihood that the former employee will be
successful with the claim but they think the probability is less than 25%. The
outcome of the action is expected to be settled by December 2019. Legal
costs, not recoverable, are estimated at $150,000 regardless of the outcome of
the action. Of this amount $30,000 has already been incurred in the months to
June 30, 2019. This amount has not yet been paid as at 30th June.
(i) Explain how the above matter should be treated within the financial
statements and accompanying notes of Greenwood Ltd for the year
ending 30th June, 2019. 5 marks
(ii) Record any necessary journal entries. 3 marks1
ACC5200 Financial Reporting
Assignment 2
Due Date: 16th May, 2020 Marks: 105 Weighting: 35%
Question 1 30 marks
A. On 30th June, 2017 Utensilite Ltd had the following Motor Vehicle assets:
Vehicle
Number
Purchase
Date
Cost Estimated
Life
Residual
Value
Depreciation
Method
Accumulated
Depreciation to
30/6/17
1 1/01/2016 42,000 10 years 2,000 Straight Line 6,000
2 1/07/2015 50,000 10 years 5,000 Straight Line 9,000
On 1st July 2017 Utensilite Ltd acquired a 3rd Motor Vehicle for $45,000 paying cash of
$12,500 and negotiating a loan for the balance. The estimated life of the vehicle was
12 years and residual value $3,000. The vehicle was to be depreciated at the rate of
30% using the declining balance method.
Depreciation is recorded on 30th June each year.
On 30th September, 2017 and 30th September, 2018 all three vehicles were serviced
at a cost of $5,400.
On 31st March, 2019 Vehicle No 1 is sold to Extratta Traders because for $8,000.
You are required to:
a. Prepare an extract from the Balance Sheet dated 30th June, 2017 to show the
Motor Vehicles account; 3 marks
b. Record all the journal entries that took place from 1st July 2017 to 30th June
2019 (ignore GST and show all calculations). 17 marks
c. If revenue for the financial year 2018 was $61,500, prepare an extract from the
Profit and Loss Statement at 30th June 2018 indicating associated
expenses for motor vehicles for the year. 3 marks
d. Prepare an extract from the Balance Sheet dated 30th June, 2019 to show the
Motor Vehicles account. 3 marks
B. Why would Utensilite choose the two methods of depreciation it has? What is
the impact of each method on Profit figures over the life of the asset? Describe
two other depreciation methods that could have been used to depreciate the
motor vehicles. Which of the four methods do you believe is most appropriate
for motor vehicles and why? 4 marks
2
Question 2 20 marks
A. What, if anything is the difference between cost, recoverable amount and fair
value and why is this important in relation to non-current assets?
4 marks
B. How is ‘impairment of an asset’ different from ‘amortisation of an asset’? Give
an example that enhances your explanation. 2 marks
C. Describe three incentives that management might have to revalue assets?
3 marks
D. Who should be responsible for providing valuations on which to base
revaluations and how should they be derived? What are the disclosure
requirements for these valuations? 3 marks
E. Mattamax Ltd owns two buildings acquired in 2016 for the purpose of future
development. Building A cost $290,000 and Building B cost $330,000.
Valuations of the blocks are undertaken by an independent valuer on 30th June
2018 and 2020. The assessed values are as follows:
2018 valuation $ 2020 valuation $
Building A 270,000 310,000
Building B 350,000 320,000
(a) Provide the journal entries for the revaluations that were undertaken in
2018 and 2019 for the buildings. 6 marks
(b) What might the economic consequence of asset revaluations be for the
business? 2 marks
3
Question 3 20 Marks
A. What is the difference between internally generated intangible assets and those
generated through external transactions? Discuss with examples.
3 marks
B. Do you think recognising internally generated intangible assets leads to
incorrect reporting of intangible assets? Give an example to support your
answer. 2 marks
C. Innovation Ltd reports the following intangible assets
$m
Licence at cost 15
Less Accumulated amortisation 5
Goodwill at cost 60
Brand Name 90
Trademarks at cost 25
Patents at directors’ valuation 125
Less Accumulated amortisation (50)
The following information is available:
(i) Patents were acquired at a cost of $95m and were revalued soon
afterwards. They have an estimated life of 20 years of which 15
remain.
(ii) The trademark can be renewed indefinitely subject to continued use.
The costs were for registration fees which were initially expenses but
recognised five years later as the trademark became recognised by
consumers.
(iii) Goodwill has been purchased 3 years ago and will be amortised on
the straight line basis.
(iv) The brand name has been internally generated and is stated at fair
value.
(v) The licence has a 15 year life of which 10 years remain. It can be
traded in an active market and has a fair value of 25m.
You are required to:
a. State how each asset or class of asset, should be reported in accordance with
AASB 138. 5 marks
b. Apply AASB 138 and state the carrying amount and whether each asset/asset
class should be amortised. As part of this answer specify any choice of
methods permitted for Iinvent Ltd. 5 marks
4
(NOTE: in completing your answers state any assumptions you might make)
Question 4 20 Marks
A. In 2019 AASB 16 the Leasing standard changed. You are required to research
the implications of the AASB 16 standard in terms of the questions below
(maximum 400 words).
Make sure you reference any material used in your answer and include the
reference list at the end of your answer.
a. Describe major changes to be adopted under standard AASB16 in terms of
agreements that meet the definition of a lease? For example what key
evaluations will need to be made in order to apply the definition? 3 marks
b. Which businesses will be affected under AASB16? 3 marks
c. Are there any exceptions from lease accounting? For example will hire
purchases agreements and rights held under licencing agreements such as
motion picture films, patents and copyrights be caught by AASB16? 3 marks
d. What are the impacts of AASB 16 in terms of how leases are reported on the
Income Statement and Balance Sheet? 3 marks
B. Determine for each of the following arrangements the manner in which the
relevant lease should be classified by the lessor according to IFRS 16/AASB 16.
Give reasons for your answers.
(i) Company A enters into a non-cancellable lease for machinery with a term
of 8 years. The machinery has a useful economic life of 12 years.
Company A as an option to renew the lease with the same rental for a
further four years, even though market rentals are expected to increase
with inflation over the next decade. The present value of the lease
payments is 70% of the fair value of the machinery.
4 marks
(ii) Company B enters into a non-cancellable lease with a 7 year term for an
item of plant which has a useful life of 10 years. The present value of
future lease payments is equal to 75% of the fair value of the asset at
the date of inception of the lease. The residual value accounts for the
remaining 25%. So confident is the lessor that the plant will retain its
value that it is guaranteeing 50% of the residual value, with the lessee
being responsible for guaranteeing the remaining 50% of the residual
value. 4 marks
5
Question 5 15 Marks
a. What is a provision and how is it measured? 1 mark
b. What is a ‘contingent liability’ and how will it be disclosed in the financial
reports? 2 marks
c. Surfcom makes powered surf boats. At the end of the reporting period data
provided suggests:
(i) If small defects arise with all of the products that have been sold, the
related repair costs would be $3.5 million.
(ii) If significant defects arise with all of the products sold the related
costs would be $12 million.
(iii) Based upon past experience within the company and within the
industry, it is believed that 75% of all products will have not defects,
15% will have small defects and 10% will have significant defects.
Required:
a. Show calculations to determine what the balance for provision for
warranty repairs should be. 3 marks
b. What journal entry would be made to record this? 1 mark
d. The draft financial statement for the year ending 30 June 2019 for Greenwood
Ltd are being completed. You have been informed that a senior employer who
was dismissed in January 2019 has taken action against the company alleging
wrongful dismissal and claiming damages of $600,000. Greenwood Ltd’s
lawyers are not sure of the likelihood that the former employee will be
successful with the claim but they think the probability is less than 25%. The
outcome of the action is expected to be settled by December 2019. Legal
costs, not recoverable, are estimated at $150,000 regardless of the outcome of
the action. Of this amount $30,000 has already been incurred in the months to
June 30, 2019. This amount has not yet been paid as at 30th June.
(i) Explain how the above matter should be treated within the financial
statements and accompanying notes of Greenwood Ltd for the year
ending 30th June, 2019. 5 marks
(ii) Record any necessary journal entries. 3 marks1
ACC5200 Financial Reporting
Assignment 2
Due Date: 16th May, 2020 Marks: 105 Weighting: 35%
Question 1 30 marks
A. On 30th June, 2017 Utensilite Ltd had the following Motor Vehicle assets:
Vehicle
Number
Purchase
Date
Cost Estimated
Life
Residual
Value
Depreciation
Method
Accumulated
Depreciation to
30/6/17
1 1/01/2016 42,000 10 years 2,000 Straight Line 6,000
2 1/07/2015 50,000 10 years 5,000 Straight Line 9,000
On 1st July 2017 Utensilite Ltd acquired a 3rd Motor Vehicle for $45,000 paying cash of
$12,500 and negotiating a loan for the balance. The estimated life of the vehicle was
12 years and residual value $3,000. The vehicle was to be depreciated at the rate of
30% using the declining balance method.
Depreciation is recorded on 30th June each year.
On 30th September, 2017 and 30th September, 2018 all three vehicles were serviced
at a cost of $5,400.
On 31st March, 2019 Vehicle No 1 is sold to Extratta Traders because for $8,000.
You are required to:
a. Prepare an extract from the Balance Sheet dated 30th June, 2017 to show the
Motor Vehicles account; 3 marks
b. Record all the journal entries that took place from 1st July 2017 to 30th June
2019 (ignore GST and show all calculations). 17 marks
c. If revenue for the financial year 2018 was $61,500, prepare an extract from the
Profit and Loss Statement at 30th June 2018 indicating associated
expenses for motor vehicles for the year. 3 marks
d. Prepare an extract from the Balance Sheet dated 30th June, 2019 to show the
Motor Vehicles account. 3 marks
B. Why would Utensilite choose the two methods of depreciation it has? What is
the impact of each method on Profit figures over the life of the asset? Describe
two other depreciation methods that could have been used to depreciate the
motor vehicles. Which of the four methods do you believe is most appropriate
for motor vehicles and why? 4 marks
2
Question 2 20 marks
A. What, if anything is the difference between cost, recoverable amount and fair
value and why is this important in relation to non-current assets?
4 marks
B. How is ‘impairment of an asset’ different from ‘amortisation of an asset’? Give
an example that enhances your explanation. 2 marks
C. Describe three incentives that management might have to revalue assets?
3 marks
D. Who should be responsible for providing valuations on which to base
revaluations and how should they be derived? What are the disclosure
requirements for these valuations? 3 marks
E. Mattamax Ltd owns two buildings acquired in 2016 for the purpose of future
development. Building A cost $290,000 and Building B cost $330,000.
Valuations of the blocks are undertaken by an independent valuer on 30th June
2018 and 2020. The assessed values are as follows:
2018 valuation $ 2020 valuation $
Building A 270,000 310,000
Building B 350,000 320,000
(a) Provide the journal entries for the revaluations that were undertaken in
2018 and 2019 for the buildings. 6 marks
(b) What might the economic consequence of asset revaluations be for the
business? 2 marks
3
Question 3 20 Marks
A. What is the difference between internally generated intangible assets and those
generated through external transactions? Discuss with examples.
3 marks
B. Do you think recognising internally generated intangible assets leads to
incorrect reporting of intangible assets? Give an example to support your
answer. 2 marks
C. Innovation Ltd reports the following intangible assets
$m
Licence at cost 15
Less Accumulated amortisation 5
Goodwill at cost 60
Brand Name 90
Trademarks at cost 25
Patents at directors’ valuation 125
Less Accumulated amortisation (50)
The following information is available:
(i) Patents were acquired at a cost of $95m and were revalued soon
afterwards. They have an estimated life of 20 years of which 15
remain.
(ii) The trademark can be renewed indefinitely subject to continued use.
The costs were for registration fees which were initially expenses but
recognised five years later as the trademark became recognised by
consumers.
(iii) Goodwill has been purchased 3 years ago and will be amortised on
the straight line basis.
(iv) The brand name has been internally generated and is stated at fair
value.
(v) The licence has a 15 year life of which 10 years remain. It can be
traded in an active market and has a fair value of 25m.
You are required to:
a. State how each asset or class of asset, should be reported in accordance with
AASB 138. 5 marks
b. Apply AASB 138 and state the carrying amount and whether each asset/asset
class should be amortised. As part of this answer specify any choice of
methods permitted for Iinvent Ltd. 5 marks
4
(NOTE: in completing your answers state any assumptions you might make)
Question 4 20 Marks
A. In 2019 AASB 16 the Leasing standard changed. You are required to research
the implications of the AASB 16 standard in terms of the questions below
(maximum 400 words).
Make sure you reference any material used in your answer and include the
reference list at the end of your answer.
a. Describe major changes to be adopted under standard AASB16 in terms of
agreements that meet the definition of a lease? For example what key
evaluations will need to be made in order to apply the definition? 3 marks
b. Which businesses will be affected under AASB16? 3 marks
c. Are there any exceptions from lease accounting? For example will hire
purchases agreements and rights held under licencing agreements such as
motion picture films, patents and copyrights be caught by AASB16? 3 marks
d. What are the impacts of AASB 16 in terms of how leases are reported on the
Income Statement and Balance Sheet? 3 marks
B. Determine for each of the following arrangements the manner in which the
relevant lease should be classified by the lessor according to IFRS 16/AASB 16.
Give reasons for your answers.
(i) Company A enters into a non-cancellable lease for machinery with a term
of 8 years. The machinery has a useful economic life of 12 years.
Company A as an option to renew the lease with the same rental for a
further four years, even though market rentals are expected to increase
with inflation over the next decade. The present value of the lease
payments is 70% of the fair value of the machinery.
4 marks
(ii) Company B enters into a non-cancellable lease with a 7 year term for an
item of plant which has a useful life of 10 years. The present value of
future lease payments is equal to 75% of the fair value of the asset at
the date of inception of the lease. The residual value accounts for the
remaining 25%. So confident is the lessor that the plant will retain its
value that it is guaranteeing 50% of the residual value, with the lessee
being responsible for guaranteeing the remaining 50% of the residual
value. 4 marks
5
Question 5 15 Marks
a. What is a provision and how is it measured? 1 mark
b. What is a ‘contingent liability’ and how will it be disclosed in the financial
reports? 2 marks
c. Surfcom makes powered surf boats. At the end of the reporting period data
provided suggests:
(i) If small defects arise with all of the products that have been sold, the
related repair costs would be $3.5 million.
(ii) If significant defects arise with all of the products sold the related
costs would be $12 million.
(iii) Based upon past experience within the company and within the
industry, it is believed that 75% of all products will have not defects,
15% will have small defects and 10% will have significant defects.
Required:
a. Show calculations to determine what the balance for provision for
warranty repairs should be. 3 marks
b. What journal entry would be made to record this? 1 mark
d. The draft financial statement for the year ending 30 June 2019 for Greenwood
Ltd are being completed. You have been informed that a senior employer who
was dismissed in January 2019 has taken action against the company alleging
wrongful dismissal and claiming damages of $600,000. Greenwood Ltd’s
lawyers are not sure of the likelihood that the former employee will be
successful with the claim but they think the probability is less than 25%. The
outcome of the action is expected to be settled by December 2019. Legal
costs, not recoverable, are estimated at $150,000 regardless of the outcome of
the action. Of this amount $30,000 has already been incurred in the months to
June 30, 2019. This amount has not yet been paid as at 30th June.
(i) Explain how the above matter should be treated within the financial
statements and accompanying notes of Greenwood Ltd for the year
ending 30th June, 2019. 5 marks
(ii) Record any necessary journal entries. 3 marks1
ACC5200 Financial Reporting
Assignment 2
Due Date: 16th May, 2020 Marks: 105 Weighting: 35%
Question 1 30 marks
A. On 30th June, 2017 Utensilite Ltd had the following Motor Vehicle assets:
Vehicle
Number
Purchase
Date
Cost Estimated
Life
Residual
Value
Depreciation
Method
Accumulated
Depreciation to
30/6/17
1 1/01/2016 42,000 10 years 2,000 Straight Line 6,000
2 1/07/2015 50,000 10 years 5,000 Straight Line 9,000
On 1st July 2017 Utensilite Ltd acquired a 3rd Motor Vehicle for $45,000 paying cash of
$12,500 and negotiating a loan for the balance. The estimated life of the vehicle was
12 years and residual value $3,000. The vehicle was to be depreciated at the rate of
30% using the declining balance method.
Depreciation is recorded on 30th June each year.
On 30th September, 2017 and 30th September, 2018 all three vehicles were serviced
at a cost of $5,400.
On 31st March, 2019 Vehicle No 1 is sold to Extratta Traders because for $8,000.
You are required to:
a. Prepare an extract from the Balance Sheet dated 30th June, 2017 to show the
Motor Vehicles account; 3 marks
b. Record all the journal entries that took place from 1st July 2017 to 30th June
2019 (ignore GST and show all calculations). 17 marks
c. If revenue for the financial year 2018 was $61,500, prepare an extract from the
Profit and Loss Statement at 30th June 2018 indicating associated
expenses for motor vehicles for the year. 3 marks
d. Prepare an extract from the Balance Sheet dated 30th June, 2019 to show the
Motor Vehicles account. 3 marks
B. Why would Utensilite choose the two methods of depreciation it has? What is
the impact of each method on Profit figures over the life of the asset? Describe
two other depreciation methods that could have been used to depreciate the
motor vehicles. Which of the four methods do you believe is most appropriate
for motor vehicles and why? 4 marks
2
Question 2 20 marks
A. What, if anything is the difference between cost, recoverable amount and fair
value and why is this important in relation to non-current assets?
4 marks
B. How is ‘impairment of an asset’ different from ‘amortisation of an asset’? Give
an example that enhances your explanation. 2 marks
C. Describe three incentives that management might have to revalue assets?
3 marks
D. Who should be responsible for providing valuations on which to base
revaluations and how should they be derived? What are the disclosure
requirements for these valuations? 3 marks
E. Mattamax Ltd owns two buildings acquired in 2016 for the purpose of future
development. Building A cost $290,000 and Building B cost $330,000.
Valuations of the blocks are undertaken by an independent valuer on 30th June
2018 and 2020. The assessed values are as follows:
2018 valuation $ 2020 valuation $
Building A 270,000 310,000
Building B 350,000 320,000
(a) Provide the journal entries for the revaluations that were undertaken in
2018 and 2019 for the buildings. 6 marks
(b) What might the economic consequence of asset revaluations be for the
business? 2 marks
3
Question 3 20 Marks
A. What is the difference between internally generated intangible assets and those
generated through external transactions? Discuss with examples.
3 marks
B. Do you think recognising internally generated intangible assets leads to
incorrect reporting of intangible assets? Give an example to support your
answer. 2 marks
C. Innovation Ltd reports the following intangible assets
$m
Licence at cost 15
Less Accumulated amortisation 5
Goodwill at cost 60
Brand Name 90
Trademarks at cost 25
Patents at directors’ valuation 125
Less Accumulated amortisation (50)
The following information is available:
(i) Patents were acquired at a cost of $95m and were revalued soon
afterwards. They have an estimated life of 20 years of which 15
remain.
(ii) The trademark can be renewed indefinitely subject to continued use.
The costs were for registration fees which were initially expenses but
recognised five years later as the trademark became recognised by
consumers.
(iii) Goodwill has been purchased 3 years ago and will be amortised on
the straight line basis.
(iv) The brand name has been internally generated and is stated at fair
value.
(v) The licence has a 15 year life of which 10 years remain. It can be
traded in an active market and has a fair value of 25m.
You are required to:
a. State how each asset or class of asset, should be reported in accordance with
AASB 138. 5 marks
b. Apply AASB 138 and state the carrying amount and whether each asset/asset
class should be amortised. As part of this answer specify any choice of
methods permitted for Iinvent Ltd. 5 marks
4
(NOTE: in completing your answers state any assumptions you might make)
Question 4 20 Marks
A. In 2019 AASB 16 the Leasing standard changed. You are required to research
the implications of the AASB 16 standard in terms of the questions below
(maximum 400 words).
Make sure you reference any material used in your answer and include the
reference list at the end of your answer.
a. Describe major changes to be adopted under standard AASB16 in terms of
agreements that meet the definition of a lease? For example what key
evaluations will need to be made in order to apply the definition? 3 marks
b. Which businesses will be affected under AASB16? 3 marks
c. Are there any exceptions from lease accounting? For example will hire
purchases agreements and rights held under licencing agreements such as
motion picture films, patents and copyrights be caught by AASB16? 3 marks
d. What are the impacts of AASB 16 in terms of how leases are reported on the
Income Statement and Balance Sheet? 3 marks
B. Determine for each of the following arrangements the manner in which the
relevant lease should be classified by the lessor according to IFRS 16/AASB 16.
Give reasons for your answers.
(i) Company A enters into a non-cancellable lease for machinery with a term
of 8 years. The machinery has a useful economic life of 12 years.
Company A as an option to renew the lease with the same rental for a
further four years, even though market rentals are expected to increase
with inflation over the next decade. The present value of the lease
payments is 70% of the fair value of the machinery.
4 marks
(ii) Company B enters into a non-cancellable lease with a 7 year term for an
item of plant which has a useful life of 10 years. The present value of
future lease payments is equal to 75% of the fair value of the asset at
the date of inception of the lease. The residual value accounts for the
remaining 25%. So confident is the lessor that the plant will retain its
value that it is guaranteeing 50% of the residual value, with the lessee
being responsible for guaranteeing the remaining 50% of the residual
value. 4 marks
5
Question 5 15 Marks
a. What is a provision and how is it measured? 1 mark
b. What is a ‘contingent liability’ and how will it be disclosed in the financial
reports? 2 marks
c. Surfcom makes powered surf boats. At the end of the reporting period data
provided suggests:
(i) If small defects arise with all of the products that have been sold, the
related repair costs would be $3.5 million.
(ii) If significant defects arise with all of the products sold the related
costs would be $12 million.
(iii) Based upon past experience within the company and within the
industry, it is believed that 75% of all products will have not defects,
15% will have small defects and 10% will have significant defects.
Required:
a. Show calculations to determine what the balance for provision for
warranty repairs should be. 3 marks
b. What journal entry would be made to record this? 1 mark
d. The draft financial statement for the year ending 30 June 2019 for Greenwood
Ltd are being completed. You have been informed that a senior employer who
was dismissed in January 2019 has taken action against the company alleging
wrongful dismissal and claiming damages of $600,000. Greenwood Ltd’s
lawyers are not sure of the likelihood that the former employee will be
successful with the claim but they think the probability is less than 25%. The
outcome of the action is expected to be settled by December 2019. Legal
costs, not recoverable, are estimated at $150,000 regardless of the outcome of
the action. Of this amount $30,000 has already been incurred in the months to
June 30, 2019. This amount has not yet been paid as at 30th June.
(i) Explain how the above matter should be treated within the financial
statements and accompanying notes of Greenwood Ltd for the year
ending 30th June, 2019. 5 marks
(ii) Record any necessary journal entries. 3 marks

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