Mr Anderson informs you that the directors intend to revalue the property, plant and equipment during the year. The company has not revalued any assets in the past.
(a) How would you account for the revaluation of the above assets?
(b) What would the relevant journal entries be?
2. On 1 July 2015 Kruger Ltd privately issues $1 million in six-year debentures, which pay interest each six months at a coupon rate of 6 per cent per annum. At the time of issuing the securities, the market requires a rate of return of 4 per cent. Consistent with the requirements of AASB 9, the debentures are accounted for using the effective interest method.
(a) Determine the fair value of the debentures at the time of issue (which will also be their issue price).
(b) Provide the journal entries at:
(i) 1 July 2015
(ii) 31 December 2015
(iii) 30 June 2016.
3. Sun City Limited commences construction of a multi-purpose water park on 1 July 2014 for Pretoria Limited. Sun City Limited signs a fixed-price contract for total revenues of $50 million. The project is expected to be completed by the end of 2017 and Pretoria Limited controls the asset throughout the period of construction. The expected cost as at the commencement of construction is $38 million. The estimated costs of a construction project might change throughout the project—in this example, they do change. The following data relates to the project (the financial years end on 30 June):
(a) Using the above data, compute the gross profit to be recognised for each of the three years, assuming that the outcome of the contract can be reliably estimated. LO 15.10
(b) Prepare the journal entries for the 2015 financial year using the percentage-of-completion method.
(c) Prepare the journal entries for the 2015 financial year, assuming the stage of completion cannot be reliably assessed.