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1) Define ‘generally accepted accounting procedures’. (LO 1.3)
2) Possies Ltd. Considers that its most valuable asset is its employees- yet it has to leave them off the statement of financial position. Explain this situation. (LO 2.10)
3) On 15 September 2012, Tweed Ltd acquired land on a remote island at a cost of $100000. The land was held for future development as resort when transport to the island was made available. At each reporting date, Tweed Ltd made the following assessments of the net selling price of the land and the value of the land to the business if kept for future use:
DATE NET SELLING PRICE VALUE IN USE
31 December 2012 $110000 $130000
30 June 2013 $90000 $120000
31 December 2013 $80000 $90000
30 June 2014 $120000 $110000
a) At what amount should the land be recorded in the statement of financial position (balance sheet) of Tweed Ltd. for each reporting date?
b) Assume that on 30 September 2014 the government cancelled all plan to provide transport to the island. There is no prospect of selling the land. The cost to Tweed Ltd. of developing transport exceeds the present value of expected future benefits of operating the resorts. How should Tweed Ltd. account for this event. (LO 4.2, 4.5)
4) Wastewater Limited acquired an item of plant on 1 July 2012 for $3660000. When the item of plant was acquired, it was initially assessed as having a life of 10000 hours. During the reporting period ending 30 June 2013 the plant was operated for 3000 hours. At 1July 2013 the plant had a remaining useful life of 7000 hours. On 1 July 2013 the plant underwent a major upgrade costing $234600. Management believes that this upgrade will add a further 2000 hours of operating time to the plant’s life. During the reporting period ended 30 June 2014 the plant was operated for 4000 hours. On 1 July 2014, the plant underwent a further major upgrade, the cost of which amounted to $344900, and this added a further 3100 hours’ operating time to its life. During the reporting period ending 30 June 2015 the plant was operated for 3800 hours.
Prepare all the journal entries that Wastewater Ltd. would prepare for the years ending 30 June 2013, 30 June 2014 and 30 June 2015 to account for the acquisition, subsequent expenditure and depreciation on the asset. (LO 5.2, 5.3, 5.4, 5.7)
5) Petersen Ltd. has the following land and building in its financial statements as at 30 June 2014:
Residential land at cost 1000000
Factory land, at valuation 2011 900000
Buildings, at valuation 2010 800000
Accumulated depreciation (100000)
At 30 June 2014, the balance of the revaluation surplus is $400000, of which $300000 relates to the factory land and $100000 to the buildings. On this same date, independent valuations of the land and building are obtained. In relation to the above assets, the assessed fair values at 30 June 2014 are:
Residential land, previously recorded at cost 1100000
Factory land, previously revalued in 2011 700000
Buildings, previously revalued in 2010 900000
Provide the journal entries to account for the revaluation on 30 June 2014. Petersen Ltd. classifies the residential land and the factory land as different classes of assets. (LO 6.3, 6.4, 6.6, 6.9)
6) Nat Ltd. purchases a 100 percent interest in Angourie Ltd. the cost of the acquisition of $1400000 plus associated legal costs of $70000. As the date of acquisition, the statement of financial position of Angourie Ltd. shows :
Provision for doubtful debts(10000)70000
Total current assets 190000
Non current assets
Land and buildings, at cost850000
Accumulated depreciation- land and buildings(150000)700000
Plant and equipment510000
Accumulated depreciation- plant & equipment(100000)410000
Total non current assets1110000
Total assets 1300000
Total current liabilities110000
Non current liabilities
Total liabilities 300000
Net assets 1000000
-The assets and liabilities of Angourie Ltd are fairly stated except for land and buildings, which have fair value of $800000.
-Angourie Ltd. has a brand name that is not recognized on the statement of financial position and that has a fair value of $50000.
-There are no contingent liabilities.
a) Determine for accounting purposes, the amount of goodwill that has been acquired by Nat Ltd.
b) Why do you think that Nat Ltd would have been prepared to pay for goodwill?
c) Can Nat revalue the goodwill upwards in a subsequent period? (LO 8.2, 8.6, 8.9)
7) On 1 July 2014 Kiama Ltd issues $5 million in 5 year debentures that pay interest each six months at a coupon rate of 8 per cent. At the time of issuing the securities, the market requires a rate of return of 10 per cent. The interest expense is calculated using the effective interest method.
a) Determine the issue price.
b) Provide the journal entries at:
i) 1 July 2014
ii) 30 June 2015
iii) 30 June 2016 (LO 10.7,10.8,10.9)
8) on 1 July 2015, Flyer Ltd. decides to lease an aeroplane from Finance Ltd. The term of the lease is 20 years. The implicit interest rate in the lease is 10 per cent. It is expected that the aeroplane will be scrapped at the end of the lease term. The fair value of the aeroplane at the commencement of the lease is $2428400. The lease is non-cancellable, returns the aeroplane to Finance Ltd. at the end of the lease, and requires a lease payment of $300000 on inception of the lease (on 1 JULY 2015) and the lease payment of $250000 on 30 June each year (Starting 30 June 2016). There is no residual payment required.
a) provide the entries for the lease in the books of Flyer Ltd as at 1 July 2015. (LO 11.6,11.7,11.8)
b) provide the entries for the lease in the books of Finance Ltd as at 1 July 2015. (LO 11.6, 11.7, 11.8, 11.10)
c) prepare the journal entries in the book of Flyer Ltd for the final year of the lease (that is, the entry in 20 years’ time) (LO 11.6, 11.7, 11.8)
d) prepare the journal entries in the book of Finance Ltd for the final year of the lease (that is, the entry in 20 years’ time) (LO 11.6, 11.7, 11.8, 11.10)
9) Shelley Ltd pays its salaries fortnightly in arrears. The next day is Thursday 2 July. The fortnightly salary is $30000, of which $10000 is retained to pay Australian Taxation office on behalf of the employees. Payments to the ATO are made every second Monday, with the next payment being made on Monday 6 July. Shelley Ltd’ s reporting period ends 30 June.
Provide the journal entries in the books of Shelley Ltd for:
a) 30 June
b) 2 July
c) 6 July (LO 12.2, 12.3)
10) Brighton Ltd issues a prospectus inviting the public to subscribe for 10 million ordinary shares on 5 August 2015. All applicants $1.00 is to be paid on application and the remaining $1.00 within one month of allotment.
Application are received for 12 million shares during July 2015. The directors allot 10 million shares on 5 August 2015. All applicants receive shares on pro rata basis. The amount payable on allotment are due by 5 September 2015.
By 5 September 2015 the holders of two million shares have failed to pay the amount due on allotment. The directors forfeit the shares on 10 September 2015. The shares are resold on 15 September 2015 as fully paid. An amount of $1.80 per share is received.
Provide the journal entries necessary to account for the above transactions and events. (LO 13.3,13.7)