Assessment item 3
Assignment 2
Value: 15%
Due date: 21-Sep-2015
Return date: 12-Oct-2015
Submission method options
Alternative submission method
Task
This assessment task consists of four (5) questions. A total of 75 marks are allocated to the questions below, which will then be converted to a mark out of 15%.
All workings, when appropriate, must be shown to substantiate your answers.
Question 1 [12 marks]
Events after the reporting period
Boots Ltd is finalising its financial statements for the reporting period ending 30 June 2015. On 20 September 2015, before the financial statements have been finalised and authorised for issue, the company’s directors became aware of the following situations:
a. a) The company owns a factory in Sydney that was completely destroyed by a severe hail storm on 10 July 2015. The factory had a carrying amount in the draft financial statements of $600,000. The factory was insured for $600,000, and Boots Ltd expects to receive this money from the insurer in October 2015.
a. b) On 12 July 2015, the financial cost of inventory shipped from overseas is determined. The inventory was received in June 2015 and the cost was estimated for accounting purposes. The revised cost is $200,000 lower than the prior estimate.
a. c) On 15 July 2015, Smith Ltd, a major customer of Boots Ltd, indicated that it was bankrupt. At this date, Smith Ltd owed $45,000 to Boots Ltd. This amount was owed to Boots Ltd from a sale made to Smith Ltd in June 2015.
a. d) It is discovered, on 18 July 2015, that a divisional manager has been under-depreciating plant and equipment. The motivation of the manager was to maximise the division’s profit figure in order to
Charles Sturt University Subject Outline
ACC514 201560 SM I-1 July 2015-Version 1 Page 12 of 32
maximise his bonuses. The carrying amount of the relevant plant and equipment in Boots’ draft financial statements is $2,500,000. An investigation by the company’s internal audit division, presented to Boots’ directors on 25 July 2015, suggests that the plant and equipment has a recoverable amount of $1,500,000.
Assume all amounts are material for financial statement purposes.
Required:
With reference to AASB 110, explain whether the above events will be classified as either adjusting or non-adjusting events after the end of the reporting period, providing reasons for your decision. State the appropriate accounting treatment for each event in Boots Ltd’s 2015 financial statements.
Marking Guide - Question 1 Max. marks awarded
Classification as adjusting or non-adjusting events 4
Discussion and reasons to support classification
decision 4
Appropriate accounting treatment
Total
Question 2 [16 marks]
Sugar Ltd was incorporated on 1 July 2014. The following transactions and events occurred during the year ended 30 June 2015:
1 Aug 2014: Sugar Ltd makes an offer to the public for investors to subscribe for 10,000,000 shares, at an issue price of $3.00 per share, with $1.50 payable on application, $1.00 being payable within one month of allotment, and $0.50 payable on a call to be made at a later date. The issue is underwritten at a commission of $2,000.
31 Aug 2014: Applications close, with applications received for 9,500,000 shares.
2 Sep 2014: Shares are allotted, and the underwriter forwarded the application and allotment money due on the 500,000 shares less their commission.
2 Oct 2014: All allotment money is received.
30 Nov 2014 : The call is made, with money due by 31 December 2014.
31 Dec 2014: All call money is received except for holders of 20,000 shares who fail to meet the call.
20 Jan 2015: The shares on which call money was not received are forfeited and sold as fully paid. An amount of $2.60 is received for each share sold. Costs of the forfeiture and reissue amount to $6,000, and are paid. The constitution does allow the refund of any balance in the forfeited shares account after reissue to former shareholders.
Required:
Prepare the journal entries to record the transactions of Sugar Ltd up to and including that which took place on 20 January 2015. Show all relevant dates, narrations and workings.
Question 3 [17 marks]
Accounting for income tax
Fresh Ltd commences operations on 1 July 2014 and presents its first statement of profit or loss and other comprehensive income and first statement of financial position on 30 June 2015. The statements are prepared before considering taxation. The following information is available:
Extract from statement of profit or loss and other comprehensive income for the year ended 30 June 2015
$ $
Gross profit 380,00 0
Other income:
Interest revenue 2,000
Government grant (exempt from income tax) 10,000
Expenses:
Administration expenses 145,000
Doubtful debts expense 6,000
Salaries 130,000
Rent 26,000
Annual leave 3,000
Entertainment expenses (not tax deductible) 5,000
Warranty expenses 12,000
Depreciation expense – plant 40,000
Insurance 10,000
Accounting profit before tax 15,000
Assets and liabilities as disclosed in the Statement of Financial Position as at 30 June 2015
$ $
Assets:
Cash 35,000
Inventory 120,000
Accounts receivable 50,000
Less Allowance for doubtful debts (5,000) 45,000
Interest receivable 1,000
Prepaid insurance 5,000
Plant – cost 200,000
Less Accumulated depreciation (40,000) 160,000
Total assets 366,000
Liabilities:
Accounts payable 40,000
Provision for warranties 8,000
Rent payable 6,000
Loan payable 200,000
Provision for annual leave 2,000
Total liabilities 256,000
Net assets 110,000
Additional information:
All administration and salaries expenses incurred have been paid as at year end. Tax deductions for annual leave, warranties, insurance and rent are available when the amounts are paid, and not as amounts are accrued.
Charles Sturt University Subject Outline
ACC514 201560 SM I-1 July 2015-Version 1 Page 14 of 32
Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.
Interest income is taxed when amounts are received, and not as amounts are accrued. The plant is depreciated over five years for accounting purposes, but over four years for taxation purposes.
The tax rate is 30%.
Required:
i) Determine the balance of any current and deferred tax assets and liabilities as at 30 June 2015, in accordance with AASB 112. Show all necessary workings.
(14 marks)
ii) Prepare the journal entries to record the current tax liability and deferred tax assets and liabilities.
(3 marks)
Marking Guide – Question 3 Max. marks awarded
Determination of taxable income and current tax
liability 6
Deferred tax worksheet 8
Journal entries
Total
Question 4 [15 marks]
Property, plant and equipment
Storm Ltd commences operations on 1 July 2013, and on this date, acquires two items of plant:
Plant A: $120,000
Plant B: $350,000
Both assets are depreciated on a straight-line basis. Plant A has an estimated useful life of 10 years, and an estimated residual value of $20,000. Plant B has an estimated useful life of 5 years, and an estimated residual value of $0.
At 30 June 2014, Storm Ltd decides to use the revaluation model for the plant. The fair value of Plant A is $80,000, and the fair value of Plant B is $300,000. The remaining useful life and residual value of each item has not changed.
At 30 June 2015, the fair value of Plant A is $75,000, and the fair value of Plant B is $200,000.
Assume a tax rate of 30%.
Required:
Prepare journal entries for Storm Ltd at 1 July 2013, 30 June 2014 and 30 June 2015 to record the above. Show narrations and all relevant workings.
Marking Guide - Question 4 Max. marks awarded
Journal entries (including narrations) 12.5
Workings 2.5
Total 15
Charles Sturt University Subject Outline
ACC514 201560 SM I-1 July 2015-Version 1 Page 15 of 32
Question 5 [15 marks]
Impairment of assets
Rosie Ltd has a division that represents a separate cash generating unit. At 30 June 2014, the carrying amounts of the assets of the division, valued pursuant to the cost model, are as follows:
Assets: $
Cash 5,000
Plant and equipment 200,000
Less: accumulated depreciation (60,000)
Land 300,000
Inventory 30,000
Accounts receivable 35,000
Patents and trademarks 60,000
Goodwill 10,000
Carrying amount of cash generating unit 580,000
The receivables were regarded as collectable, and the inventory’s fair value less costs to sell was equal to its carrying amount. The patents and trademarks have a fair value less costs to sell of $50,000, and the land has a fair value less costs to sell of $280,000.
The directors of Rosie estimate that, at 30 June 2014, the fair value less costs to sell of the division amounts to $520,000, while the value in use of the division is $530,000.
As a result, management increased the depreciation of the plant and equipment from $30,000 p.a. to $40,000 for the year ended 30 June 2015.
By 30 June 2015, the recoverable amount of the cash generating unit was calculated to be $28,000 greater than the carrying amount of the assets of the unit.
Required:
Determine how Rosie Ltd should account for the results of the impairment test at 30 June 2014 and 30 June 2015, and prepare any necessary journal entries. Provide explanations where appropriate to support your answer. Show all workings.
Marking Guide - Question 5 Max. marks awarded
Journal entries, calculations and workings for 2014 7.5
Journal entries, calculations and workings for 2015 7.5
Total 15
Rationale
This assessment task is designed to assess your understanding of topics 3 to 7, and the following subject learning outcomes:
be able to prepare basic financial statements for reporting entities; be able to discuss critically and comprehensively the statutory and professional requirements upon which published financial statements are based; be able to explain the form and content of financial statements; be able to interpret and apply generally accepted accounting principles and specific financial reporting standards relating to concepts of recognition, measurement, disclosure, revaluation and impairment of key financial statement elements.
Marking criteria
Charles Sturt University Subject Outline
ACC514 201560 SM I-1 July 2015-Version 1 Page 16 of 32
The assessment rubric for this assessment task is provided below. The detailed allocation of marks for each question has been provided above for your information.
Criteria HD D CR PS
Question 1: Determine how Determine how Determine how events Determine how events
Apply relevant events after reporting events after reporting after reporting period after reporting period
accounting period are to be period are to be are to be classified and are to be classified and
principles in classified and classified and accounted for, with accounted for, with a
accounting for accounted for accounted for, with some errors. number of errors.
events after the without flaw. minor flaws. Many of the key Some references to
reporting period. All key references to Most of the key references to AASB AASB 110 are provided.
AASB 110 are references to
AASB 110 are provided. Explanations shown are
provided. 110 are provided. Explanations shown basic.
Explanations shown Explanations shown are adequate.
are exemplary and are clear and succinct.
clear.
Question 2: All entries made are All entries made are Most of the entries Most of the entries
made
Prepare journal accurate accurate with some made are correct. but contain errors.
entries to account Dates shown are minor flaws. Dates shown are Dates shown are mostly
for share issue correct for the Dates shown are mostly correct for the correct for the
transactions. transactions. correct for the transactions. transactions.
Narrations are transactions. Narrations are shown. Narrations are shown
shown. Narrations are shown. Some workings are but lack detail or are
Appropriate Appropriate workings shown. unclear.
workings are
shown. are shown. Some workings are
shown but lack detail or
are unclear.
Question 3: Determine current Determine current Determine current and Determine current and
Apply relevant and deferred tax and deferred tax deferred tax balances deferred tax balances
accounting balances without balances with minor with some errors. with a number of errors
principles in flaw flaws. Workings shown are made.
recognising and Workings shown
are Workings shown
are logical and well Workings are shown but
measuring
income logical and well logical and well presented. contain errors or lack
tax. presented. presented. Journal entries made detail.
All journal entries All journal entries contain some errors. Journal entries made
made are accurate. made are accurate / contain some errors.
with minor flaws.
Question 4: All entries made are All entries made are All entries made are Most entries are made
Apply relevant accurate. accurate but with mostly correct with but contain errors.
accounting Appropriate minor flaws. some errors. Some workings are
principles in workings are shown Appropriate workings Appropriate workings shown.
accounting for and accurate. are shown and are shown. Narrations are shown
property, plant Narrations are accurate. Narrations are shown. but lack detail or are
and equipment. shown. Narrations are shown. unclear.
Question 5: Apply the Apply the Apply the requirements Apply the requirements
Apply relevant requirements of requirements of of AASB136 to of AASB136 to
accounting AASB136 to AASB136 to calculate and account calculate and account
principles for calculate and account calculate and account for the impairment of for the impairment of
impairment of for the impairment of for the impairment of cash generating units, cash generating units,
assets. cash generating cash generating units, with some errors / with a number of errors
units, without
flaw. with minor flaws. flaws. / flaws.
All journal entries All journal entries Journal entries made Journal entries made
made are accurate. made are accurate / contain some errors. contain some errors.
Explanations and with minor flaws. Explanations and Explanations and
workings
presented Explanations and workings presented workings presented
show mastery of
the workings presented shows adequate shows a basic
topic. show a thorough understanding of the understanding of the
understanding of
the topic. topic.
topic.
Presentation
Charles Sturt University Subject Outline
ACC514 201560 SM I-1 July 2015-Version 1 Page 17 of 32
Physical presentation of assignments
It is essential that presentation of assignments adheres to accepted standards in relation to neatness and layout, as you are practicing to present material in a work situation. Correct formatting and referencing procedures of material should be strictly adhered to for essays. You should submit a proper reference list (using APA referencing style) for all essay type assignments. A reference list contains only those works cited or quoted from in your essay. A bibliography is acceptable for practical-type assignments.
For practical questions:
All journal entries must include narrations unless otherwise specified;
Any ledger accounts should preferably be shown in 'T' account format and dates and descriptions are included;
Journal entries and ledger accounts must reflect the strict order of sequence of events; financial statements (including extracts) should include proper headings and accord with presentation standards.
Penalties will be incurred if material is not correctly referenced and if presentation is not of an acceptable standard.
Please also note the following:
Journal entries, ledger accounts, worksheets and financial statements should always balance. If you have to submit a piece of work that does not balance because you cannot detect your error please include some comment about the source of your problem so the marker can provide appropriate feedback.
Include workings where appropriate. Partial marks can be allocated for workings where the final answer is incorrect.
Requirements
You must submit your assignment via Turnitin using a 'Word' only.