ACC3700 Financial Accounting Theory and Practice
ACC3700 Financial Accounting Theory and Practice
Alternative Assessment Task [Standard], Semester 1, 2020
This is your Blackboard component of the alternative assessment task for semester 1, 2020.
All assessment task questions in this document must be answered in this paper, in the spaces provided. Your completed paper must be submitted by the assignment manager link [where you downloaded this document].
Question Number |
Total Possible Marks |
1 |
18 |
2 |
26 |
3 |
40 |
4 |
20 |
5 |
5 |
6 |
6 |
7 |
20 |
Total Raw Mark |
135 |
Adjusted to Mark out of 50 |
? |
Question 1: Answer this question in this Word document.
Marks: 18
On July 1, 2023, Air West Coast Ltd decided to lease an aircraft from Dubai Aerospace Enterprise, an enormous conglomerate in the aircraft leasing space who purchased the aircraft for cash. The term of the lease is 20 years. The implicit interest rate in the lease is 10 per cent. It is expected that the aircraft will be scrapped at the end of the lease term. The fair value of the aircraft at the commencement of the lease is $2,428,400. The lease is non-cancellable, Air West Coast Ltd returns the aircraft to Dubai Aerospace Enterprise at the end of the lease, Dubai Aerospace Enterprise requires a lease payment of $300,000 on the inception of the lease on July 1, 2023, and lease payments of $250,000 on June 30 each year, starting on June 30, 2024. There is no residual payment required.
Required
- Provide the journal entries for the lease in the books of Air West Coast Ltd as at July 1, 2023.
- Provide the journal entries for the lease in the books of Dubai Aerospace Enterprise as at July 1, 2023.
- Provide the journal entries in the books of Air West Coast Ltd in the final year of the lease, i.e., in 20 years.
- Provide the journal entries in the books of Dubai Aerospace Enterprise for the final year of the lease, i.e., in 20 years.
(a) Provide the journal entries for the lease in the books of Air West Coast Ltd as at July 1, 2023. No post ref. required. Refer to the provided Chart of Accounts for the appropriate account names.
Marks: 4
General Journal – Air West Coast Ltd
Date |
Account |
Post Ref |
Debit |
Credit |
2023 | ||||
To record recognition of the leased asset | ||||
To record lease payment |
(b) Provide the journal entries for the lease in the books of Dubai Aerospace Enterprise as at July 1, 2023. No post ref. required. Refer to the provided Chart of Accounts for the appropriate account names.
Marks: 6
General Journal – Dubai Aerospace Enterprise
Date |
Account |
Post Ref |
Debit |
Credit |
2023 | ||||
To record acquisition of the aircraft | ||||
To record the substitution of a lease receivable for the aircraft | ||||
To record receipt of the lease payment |
(c) Provide the journal entries in the books of Air West Coast Ltd in the final year of the lease, i.e., in 20 years. post ref. required. Refer to the provided Chart of Accounts for the appropriate account names.
Marks: 5
General Journal – Air West Coast Ltd
Date |
Account |
Post Ref |
Debit |
Credit |
2043 | ||||
To record final lease payment | ||||
To record lease depreciation expense |
(d) Provide the journal entries in the books of Dubai Aerospace Enterprise for the final year of the lease, i.e., 20 years. No post ref. required. Refer to the provided Chart of Accounts for the appropriate account names.
Marks: 3
General Journal – Dubai Aerospace Enterprise
Date |
Account |
Post Ref |
Debit |
Credit |
2043 | ||||
To record receipt of the final lease payment |
Question 2: Answer this question in this Word document.
Marks: 26
Djoorla Ltd leased a truck from a truck dealer, Kipilyong Ltd. Kipilyong Ltd acquired the truck for $180,000. The truck will be painted with Djoorla Ltd’s logo and advertising and the cost of repainting the truck to make it suitable for another owner four years later is estimated to be $40,000. Djoorla Ltd plans to keep the truck after the lease but has not made any commitments to the lessor to purchase it. The terms of the lease are as follows:
- Date of entering the lease: July 1, 2023
- Duration of the lease: four years
- Life of leased asset: five years, after which it will have no residual value.
- Kipilyong Ltd will recognise a residual asset at lease commencement as no amount relating to the possible acquisition of the truck by Djoorla Ltd is accounted for in the lease receivable.
- Interest earnt on the residual asset is the interest rate implicit in the lease.
- Lease payments: $100,000 at the end of each year.
- The interest rate implicit in the lease: 10 per cent
- Unguaranteed residual value: $50,000
- The fair value of the truck at the inception of the lease: $351,140
Required
- Prepare the journal entries to account for the lease transaction in the accounts of the lessor, Kipilyong Ltd as at July 1, 2023, and June 30, 2024.
- Prepare the journal entries to account for the lease transaction in the accounts of the lessee, Djoorla Ltd, as at July 1, 2023, and June 30, 2024.
- On June 30, 2027, Djoorla Ltd pays the residual of $50,000 and purchases the truck. Prepare all journal entries in the accounts of Djoorla Ltd for June 30, 2027, recording the termination of the lease and the purchase of the truck.
(a) Prepare the journal entries to account for the lease transaction in the accounts of the lessor, Kipilyong Ltd as at July 1, 2023, and June 30, 2024. Refer to the provide Chart of Accounts for the appropriate account names.
Marks: 10
Kipilyong Ltd General Journal
Date |
Account |
Debit |
Credit |
2023 | |||
To record the cost of the truck sold by the way of a lease | |||
Lease Receivable | |||
Residual Asset | |||
Sales | |||
To record the sale of the truck by way of a lease | |||
2024 | |||
To record the receipt of the lease payment | |||
To record interest earnt on the residual asset |
(b) Prepare the journal entries to account for the lease transaction in the accounts of the lessee, Djoorla Ltd, as at July 1, 2023, and June 30, 2024. Refer to the provide Chart of Accounts for the appropriate account names.
Marks: 7
Djoorla Ltd General Journal
Date |
Account |
Debit |
Credit |
2023 | |||
To record the cost of the truck sold by the way of a lease | |||
2024 | |||
To record lease payment | |||
To record depreciation expense |
(c) On June 30, 2027, Djoorla Ltd pays the residual of $50,000 and purchases the truck. Prepare all journal entries in the accounts of Djoorla Ltd for June 30, 2027, recording the termination of the lease and the purchase of the truck. Refer to the provide Chart of Accounts for the appropriate account names.
Marks: 9
Djoorla Ltd General Journal
Date |
Account |
Debit |
Credit |
2027 | |||
To record the lease payment | |||
To record depreciation expense | |||
To record the closure of accumulated depreciation upon reclassification of the right of use asset | |||
To record the purchase of the truck |
Question 3: Answer this question in this Word document.
Marks: 40
You are the finance director of Mull Ltd. The company specialises in classic foreign vehicles from overseas countries and then selling these vehicles cheaply on the open market. The company’s financial year ends on June 30. The company enters into the following transactions during the year.
Required:
Prepare the journal entries to reflect the effects of the following transactions. You should apply the applicable accounting standards.
- The company purchases inventories from Hong Kong for HK$300,000. The order is placed on April 22, 2022, with delivery due by April 30, 2022. Under the conditions of the contract, title to the goods passes to the company on delivery. Payment in respect of these inventories is due in equal instalments on May 31, 2022, June 30, 2022, and final payment on July 31, 2022. The following exchange rates are applicable. Refer to the provide Chart of Accounts for the appropriate account names.
April 22, 2022 HK$8.00 = AUS$1.00
April 30, 2022 HK$8.50 = AUS$1.00
May 31, 2022 HK$8.56 = AUS$1.00
June 30, 2022 HK$8.59 = AUS$1.00
July 31, 2022 HK$8.94 = AUS$1.00
Marks: 14
Date |
Account |
Debit |
Credit |
2022 | |||
To record the accounts payable on the date of delivery | |||
To record first of agreed payments | |||
To record second of agreed payments | |||
To record the unrealised foreign currency adjustment at year-end | |||
To record the third of agreed payments | |||
To record the foreign currency adjustment on finalisation of the contract |
- The company enters into a long-term construction contract with a Japanese company. Under the terms of the contract, the Japanese firm will manufacture an engine diagnosis machine which can be used on all classic cars. The contract is entered into on April 30, 2021, for a fixed price of ¥5 million. The equipment is delivered on May 31, 2022, subject to a two-month credit period after the date of delivery to ensure that the company is satisfied with the equipment. Payment falls due on July 31, 2022. The following exchange rates are applicable. Refer to the provide Chart of Accounts for the appropriate account names.
April 30, 2021 ¥160 = AUS$1.00
June 30, 2021 ¥160 = AUS$1.00
May 31, 2022 ¥240 = AUS$1.00
June 30, 2022 ¥245 = AUS$1.00
July 31, 2022 ¥260 = AUS$1.00
Marks: 12
Date |
Account |
Debit |
Credit |
2021 | |||
To record the accounts payable on the date contract signed | |||
2022 | |||
To record the exchange difference impact on accounts payable on the date of the asset ceasing to be a qualifying asset | |||
To record the exchange difference on the date of the asset ceasing to be a qualifying asset | |||
To record the unrealised foreign currency adjustment at year-end | |||
To record the payment of the liability | |||
To record the foreign currency adjustment on finalisation of the contract |
- The company arranges a US-dollar interest-only loan on January 1, 2022, for US$20 million. The loan is for 10 years at an interest rate of 11.5 per cent per annum. Interest is payable annually. The following exchange rates are applicable. Refer to the provide Chart of Accounts for the appropriate account names.
January 1, 2022 AUS$1.00 = US$0.69
June 30, 2022 AUS$1.00 = US$0.64
Record the taking of the loan on January 1, 2022, and relevant financial year-end entries on June 30, 2022.
Marks: 6
Date |
Account |
Debit |
Credit |
2022 | |||
To record the establishment of the foreign currency loan | |||
To record the unrealised foreign currency adjustment at year-end | |||
To record interest expense as at year-end. |
- The company has agreed to purchase 10 new handmade sports cars from an English supplier. The official order for the vehicles is placed on January 31, 2022. The contract price is established at £350,000 and delivery takes place on May 31, 2022, as agreed. Payment is due for these vehicles on August 31, 2022. The following exchange rates are applicable. Refer to the provide Chart of Accounts for the appropriate account names.
January 31, 2022 £0.49= AUS$1.00
May 31, 2022 £0.47 = AUS$1.00
June 30, 2022 £0.43= AUS$1.00
August 31, 2022 £0.40 = AUS$1.00
Marks: 8
Date |
Account |
Debit |
Credit |
2022 | |||
To record the entering of the purchase contract | |||
To record the unrealised foreign currency adjustment at year-end | |||
To record the foreign currency adjustment at the settlement of the contract | |||
To record the settlement of the payable to the English supplier |
Question 4: Answer this question in this Word document.
Marks: 20
On March 31, 2020, you were appointed receiver, at a remuneration of 5% of the gross proceeds on the sale of assets, in respect of Kulari Ltd. Your appointment was made by the Darbai Bank, which held an equitable mortgage over the assets of Kulari Ltd, in respect of an advance of $42,000 which was still owing.
On April 30, 2020, Kulari Ltd went into voluntary liquidation and you were appointed liquidator for the winding up.
The trial balance of Kulari Ltd as at March 31, 2020, is shown below.
KULARI LTD Trial Balance as at March 31, 2020 | |
Debits | |
Inventories |
$30,000 |
Plant – subject to hire purchase agreement with Dodgy Finance Co. Ltd |
3,000 |
Other plant |
24,000 |
Work in progress |
12,240 |
Accounts Receivable |
39,840 |
Retained Earnings |
23,400 |
$132,480 | |
Credits | |
Share capital (80,000 shares issued for $1.00 and paid to 60c) |
$48,000 |
Darbai Bank |
42,000 |
Accounts Payable |
35,940 |
Long service leave payable to a retrenched employee |
2,100 |
Local council rates payable |
1,800 |
PAYG tax deductions from employees (to be remitted to the Australian Taxation Office) |
600 |
Wages owing to Y. Young (two weeks to March 31, 2020, at $720 per week) |
1,440 |
Amount still owing as retrenchment payment |
600 |
$132,480 |
All assets were sold by you in your capacity as receiver, the proceeds of which amounted to $72,000. To achieve this, you had to spend $1,200 to complete the work in progress. Expenses of advertising and stocktaking amounted to $1,200.
You made the appropriate payments from the receivership funds. After this was completed, you retired from the receivership. You were then appointed liquidator and proceeded with the distribution of funds in hand under the liquidation. Liquidator’s expenses amounted to $600.
Required
- Prepare the Receiver’s Receipts and Payments T-account.
- Prepare the final receipts and payments t-account of the liquidator.
- Complete the calculations as given below.
(a) Prepare the Receiver’s Receipts and Payments T-account. No account names have been provided. Use appropriate descriptors.
Marks: 7
Reciever’s Receipts and Payments |
(b) Prepare the final receipts and payments T-account of the liquidator. No account names have been provided. Use appropriate descriptors.
Marks: 10
Liquidator’s Receipts and Payments |
(c) Complete the calculations as given below:
Marks: 3
Balance available for unsecured creditors |
Total owing to unsecured creditors |
Proportion paid to unsecured creditors (to four decimal places) - cents per $1 |
Question 5: Answer this question in Cadmus.
Marks: 5
You have recently been appointed as a graduate accountant for a publicly listed firm. The firm is facing some temporary financial difficulties and your manager has asked you to investigate and prepare a discussion paper on what earnings management techniques the firm could carry out that would be less likely to be scrutinised by auditors, but would assist the firm meeting its earnings targets.
Required:
Discuss the earnings management techniques that you believe would meet your manager’s requirements. Include three examples to support your advice.
Question 6: Answer this question in Cadmus.
Marks: 6
“Because exploration and mining activities are inherently risky and uncertain, all exploration and evaluation expenditures should be expensed as incurred.”
Required:
Evaluate this statement in the context of why the expenditure would be undertaken, in the context of financial reporting and the context of the purpose of financial reporting.
Question 7: Answer this question in Cadmus.
Marks: 20
AASB 121/IAS 21 mandates the immediate recognition method where exchange differences on monetary items are recognised in the profit or loss in the period of exchange rate movement. Other methods, such as the ‘defer and amortise’, or ‘recognition on realisation’ are not permitted.
Required:
Do you agree that the correct decision been made from the point of view of the conceptual framework? Defend your view with a comprehension argument in the context of AASB 121 and its predecessor AASB 20. Are there other reasons to prefer the immediate recognition method? Consider the alternatives in your discussion.
Chart of Accounts
ASSETS | |
Accounts Receivable – [Name of the customer] | |
Accumulated Depreciation - Aircraft | |
Accumulated Depreciation – Equipment | |
Accumulated Depreciation – Machinery | |
Accumulated Depreciation – Right of Use Asset - Truck | |
Accumulated Depreciation - Trucks | |
Allowance for Doubtful Debts | |
Asset Under Construction | |
Buildings | |
Cash at Bank | |
Equipment | |
Goodwill | |
GST Paid | |
Interest Receivable | |
Inventory | |
Land | |
Lease Receivable | |
Leased Asset – [Name of asset] | |
Office Equipment | |
Office Supplies | |
Plant and Machinery - Aircraft | |
Prepaid Advertising | |
Prepaid Insurance | |
Residual Asset | |
Right of Use Asset - Truck | |
Store Equipment | |
Store Supplies | |
Truck | |
LIABILITIES | |
Accounts Payable - [Name of the supplier] | |
Accrued Interest | |
Application - Debenture | |
Australian Taxation Office Payable | |
Bills Payable | |
Electricity Payable | |
GST Collected | |
Interest Payable | |
Lease Liability | |
Loan Payable | |
Provision for Warranties | |
Telephone Payable | |
Rent Payable | |
Superannuation Payable | |
Wages and Salaries Payable | |
Unearned Revenue | |
US Loan Payable |
EQUITY | |
Accumulated Impairment Loss | |
Allotment – Ordinary Shares | |
Application – Ordinary Shares | |
Calls in Advance – Ordinary Shares | |
Cash Trust | |
First Call – Ordinary Shares | |
General Reserve | |
Ordinary Dividend Payable | |
Other Comprehensive Income Summary | |
Preference Dividend Payable | |
Profit or Loss Summary Account | |
Retained Earnings | |
Revaluation Surplus | |
Share Capital – Ordinary Shares | |
INCOME | |
Discount Received | |
Interest Revenue | |
Gain on Foreign Exchange | |
Rent Revenue | |
Sales | |
Services Revenue | |
Sundry Income | |
EXPENSES | |
Advertising Expense | |
Amortisation Expense | |
Bad Debts Expense | |
Bank Fees | |
Cost of Goods Sold | |
Depreciation Expense | |
Electricity Expense | |
Freight Inwards | |
Insurance Expense | |
Interest Expense | |
Inventory Shortage Expense | |
Loss on Foreign Exchange | |
Rent Expense | |
Sundry Expenses | |
Supplies Expense | |
Wages and Salaries Expense |