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This Assignment is worth 20% of t

he total assessment for this unit. This

assignment will be marked out of 200

and scaled down to being out of 20. The assignment has tw

o parts. Part A contains 7 questions worth 120 marks

and Part B contains 2 questions worth 80 marks.

PART A

Q1

.

Wanguri Ltd enters a lease agreement to lease equipm

ent to Rapid Creek Ltd. The lease term is for 5

years and the equipment has a fair value at the start of the lease on 1

st

July 2016 of $45,236. The

equipment is expected to have a useful life of 6.5 y

ears at which time the estimated residual value will

be $2,600. The residual value at the end of the l

ease term is $9,360 of which 50% is guaranteed.

The lease agreement requires annual le

ase payments of $10,400 starting on 30

th

June 2017. The

interest rate implicit in the lease is 9%. Rapid Cree

k Ltd has the right to cancel the lease at any time.

This is conditional upon a payment of 50% of the

total lease payments being paid to Wanguri Ltd.

Rapid Creek Ltd will be returning the equipment to Wangu

ri Ltd at the end of the lease term. The legal

and set up costs of the lease incurred by W

anguri Ltd amounted to $1,300. The equipment was

purchased just before the star

t of the lease for $45,236.

Required

A.

Explain why the lease should be classified as a finance lease by both the lessor and lessee.

B.

Prepare a schedule of lease payments and the jour

nal entries for Rapid Creek Ltd in respect of

the lease for the lease term.

C.

Prepare a schedule of lease receipts and the j

ournal entries for Wanguri Ltd in respect of the

lease for the lease term.

D.

Prepare an appropriate note to the financial st

atements for both companies as at 30 June 2017.

(34 marks)

Q2

.

On 1 October 2015, Tenant Creek Exploration Lt

d, an Australian company, entered a loan agreement

with the Island of Mull Banking Corporation to borro

w ?3,500,000 for a period of 5 years. The interest on

the borrowings is payable half-yearly

in arrears at the fixed interest

rate of 10% p.a. with interest

payments of ?175,000 (i.e. ?3,500,000 ? 10% ? ? year)

due on 31 March and 30 September each year.

The functional currency of Tenant Creek Exploration Lt

d is the Australian dollar. It has reporting periods

ending on 31 December and 30 June. The relevant rate

s of exchange during the financial period ending

30 June 2016 were as follows:

1 October 2015

Aus$1 = ?0.555

31 December 2015

Aus$1 = ?0.537

31 March 2016

Aus$1 = ?0.512

30 June 2016

Aus$1 = ?0.485

Required

In accordance with AASB 121, prep

are the entries of Tenant Creek Exploration Ltd to record the

borrowing transaction, the bor

rowing costs expense, the bor

rowings costs paid and the

re-measurement of the borrowings at the

end of the reporting period at 30th June 2016.

(7 marks)

CDU Business School

Semester 1, 2016 Page

3

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7

Faculty of Law, Education, Business and Arts

Q3

.

The following information has been extracted from the plant

register of Aquifer Ltd.

This class of plant is

expected to depreciate on a straight line bas

is. A revaluation method has been adopted.

This additional information is relevant:

On 1

st

July 2015 Machines 5921 and 2922 were purchased for cash. On 1st January 2017 Machine

5922 was sold for $26,100 and Machine 5923 was purchased. Both were cash transactions. At this time

Aquifer Ltd made a bonus issue of 9 000 shares at

$1 per share, using $7200 from the general reserve

and $1800 from the asset revaluation surplus created as

a result of measuring Machine 5921 at fair

value.

Aquifer has a reporting date of 30

th

June.

Required

Prepare the journal entries to reflect these events from 1

st

July 2015 to 30

th

June 2017.

(ignore taxation)

(10 marks)

Q4

.

Whilst you have been assisting Berrimah Line Painti

ng Ltd to produce the financial statements for the

year ended 30

th

June 2016 you have discovered the following

information about events that occurred

after the end of the reporting period.

On 10th July 2016, a fire in a neighbouring property

spread to the paint stor

e and destroyed inventory

and two line painting machines. The damage was es

timated at $320,000. The insurance company has

agreed to pay $240,000 but because the serious crimes

squad is investigating the fire, the insurance

payment has been delayed. The loss of the inventor

y and the machines has had a serious impact upon

the business?s ability to serv

ice its existi

ng contracts.

On 12th July 2016, a major competitor introduced a new method for line printing using new and

improved paints and applicators. To maintain Berrim

ah Line Painting Ltd?s share of the market severe

discounting has had to be implemented. This has resu

lted in the selling price of

its paints being reduced

to 50% of cost. The inventory in stock at 30

th

June 2016 had been recorded at a cost of $122,400.

On 12th August 2016, the Environmental Protection

Agency gave notice to the company that, due to a

leakage that had been traced to a paint store at the

Bark Hut dep?t, toxic material had seeped into a

local watering hole. The leakage happened on 8th July 2016. An infringement notice had been issued

and the matter was due to be heard in the local court. If the company is found to be negligent legal

advice has suggested that the company

will have to pay a fine of $280,000 together with legal fees and

clean-up costs which could amount to $200,000.

Machine 5921

Machine 5922

Machine 5923

1st July 2015

Cost $90,000 $54,000

Expected useful life

5 years

3 years

30th June 2016

Fair Value

$75,600

$34,200

Expected useful life

4 years

2 years

1st January 2017

Cost $72,000

Expected useful life

4 years

30th June 2017

Fair Value

$54,900

$61,650

Expected useful life

3 years

1.5 years

CDU Business School

Semester 1, 2016 Page

4

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7

Faculty of Law, Education, Business and Arts

On 13 August 2017, you discovered

that inventory purchase invoices, totalling $30,120, relating to

purchases made in June had not been entered onto the system.

On 30 August 2017, the company issued

a prospectus offering 2,400 10%

debentures of $100 each for

public subscription. The debentures are redeemable on

1 October 2025. Interest is payable annually in

arrears. The debentures are secured by a

floating charge over the company?s assets.

Assume all events and transactions are material.

Required

A. Examine the above events and identify which shou

ld be treated as adjusting events and which are

non-adjusting events. You should

provide a detailed justificat

ion for your classification.

B. Having determined the course of action that y

ou would take based upon your classification prepare

the necessary journal entries or note disclosure

s to comply with the requirements of AASB 110.

(8 marks)

Q5.

Dragons R Us Ltd runs a dragon fruit plantation in Ho

ward Springs. In June 2015 the CFO predicted that

its assets may be impaired due to a change in pol

icy by the Northern Territory government when

granting water licences. This could impact the inco

me streams from the export and local markets by

reducing Dragons R Us Ltd?s abilit

y to service those markets.

Dragons R Us Ltd values land at fair value. At 30 June 2015 and independent valuer assessed the land

to have a fair value of $222,000. A previous re

valuation had increased the land value by $37,000.

As a result of its impairment testing, Dragons R Us

Ltd calculated that the recoverable amount of the

entity?s assets was $2,693,600.

The carrying amounts of the assets of Dragons R Us

Ltd prior to adjusting for the impairment test and

the revaluation of the land were as follows:

Non-current assets

Production shed and farm shop

1572500

Accumulated depreciation

-358900

Land (at fair value 1/7/14)

236800

Harvesting equipment

2689900

Accumulated depreciation

-1387500

Goodwill 111000

Accumulated impairment losses

-81400

Dragons R Us Brand Name and Logo

148000

Current assets

Cash 12950

Trade Receivables

16650

Required

A. Complete the journal entries to reflect the changes in valuation at 30

th

June 2015.

B. After the apportionment of the impairment loss, t

he harvesting equipment was written down to

$ 1,184,000. The fair value less costs of disposal of

the harvesting equipment was valued at

$ 1,110,000. What adjustments, if any

, that would need to be made to the journal entries in part A of

this question, and explain why the adj

ustments are or are not required.

(8 marks)

CDU Business School

Semester 1, 2016 Page

5

of

7

Faculty of Law, Education, Business and Arts

Q6.

Required

Prepare a Statement of Cash Flows for Glitterati Ltd for the year ended 30

th

June 2016 using the direct

method. The Statement should be accompanied by all

the relevant notes including the indirect method.

(32 marks)

Glitterati Ltd

Trial Balances as at 30 June

2015 2016

Dr $ Cr$ Dr $ Cr$

Cash 65 65

Accounts receivable

16996

28535

Allowance for doubtful debts

1300

2600

Inventory 47471 78751

Plant and machinery

64740

101920

Accumulated depn ? p & m

7137

14482

Fixtures and fittings

13000

10140

Accumulated depn ? f&f

3770

3900

Accounts payable

16258

15382

Bank overdraft

3614

21923

Current tax liability

7800

10400

Share capital

78000

117000

General reserve

13000

19500

Retained earnings (opening)

9290

11393

Sales revenue

221000

260000

Gain on sale of machinery

130

Cost of sales

78000

91000

Salaries and wages expenses

123035

129852

Doubtful debts expense

3900

4420

Depreciation expense

6630

7995

Income tax expense

7332

7132

Dividend declared and paid

10400

Transfer to general reserve

6500

361169

361169

476710

476710

Additional information

1)Fixtures and fittings which had cost $2860

and with accumulated depreciation of $520

were sold during the year in a cash sale.

2) Plant which cost $13000 was purchased in

exchange for the issue of 13000 shares at

a price of $1 each.

3) The bank overdraft is to be included in cash equivalents.

CDU Business School

Semester 1, 2016 Page

6

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7

Faculty of Law, Education, Business and Arts

Q7

.

Georgetown Ltd is a company that is based in Pe

nang, Malaysia. It purchased the issued shares of

Darwin Ltd, an Australian company on 1

st

July 2015 for $800,000. The trial balances at the 30 June

2016 for the two companies are found below:

Georgetown Ltd Darwin Ltd

Malaysian Ringit MYR

Australian Dollar Aus$

Cash 128940 42000

Accounts receivable

203420

161000

Inventory 154000 112000

Shares in Darwin Ltd

470400

0

Buildings (net)

117600

308000

Machinery 588000 560000

Accumulated depreciation ? machinery

294000

224000

Provisions 63000 42000

Payables 19600 56000

Share capital

784000

490000

Retained earnings as at 1/7/15

462000

238000

Sales 868000 434000

Dividend revenue

0

8960

0

Cost of sales

546000

168000

Depreciation ? machinery

119000

56000

Tax expense

32200

21000

Other expenses

70000

14000

Dividend paid

28000

14000

Dividend provided

42000

28000

2499560

2499560

1484000

1484000

The following information is also provided:

1. Sales,cost of sales and expenses were

incurred evenly throughout the year to 30

th

June 2016. The

dividend was paid by Darwin Ltd on 1

st

January 2016, and the final dividend was declared on 30

th

June 2016.

2. Aus$ 140,000 was spent on new machinery by Darwin Ltd on 1

st

January 2016. Aus$ 11,200 was

Included in the year?s depreciation expense for this additional machinery.

3. The functional currency of Darwin Ltd is the Australian Dollar.

4. The relevant rates of exchange during the financial period ending 30 June 2016 were as follows:

1 July 2015

Aus$1 = MYR3.26

1 December 2015

Aus$1 = MYR3.45

1 January 2016

Aus$1 = MYR3.50

30 June 2016

Aus$1 = MYR3.60

Average for the year

ended 30

th

June 2016 Aus$1 = MYR3.43

Required

A

Translate the balances of Darwin Ltd into Mala

ysian Ringit so that they can be included in the

consolidated financial statem

ents of Georgetown Ltd.

B

Verify the translation adjustment.

(21 marks)

PART B

Q8.

From the following link download the annual report for 2015

http://www.api.net.au/investor/annual-reports/

Look at the Notes to the Financial Statements for Intangible Assets.

Required

A

Using AASB 138 and AASB3 explain how the brand

names were recognis

ed and measured as

assets.

B

What can you deduce from the fact that the

values are the same in both years?

(20 marks)

CDU Business School

Semester 1, 2016 Page

7

of

7

Faculty of Law, Education, Business and Arts

Q9.

From the following link download Woolworths Limited?s annual report for 2015

http://www.woolworthslimited.com.au/icms_docs/182381_Annual_Report_2015.pdf

Go to page 58 where you will find the financial statements

In the 2014 annual report the finan

cial statements can be found on page 96

http://www.woolworthslimited.com.au/annualreport/2014/ebook/#96

You will need the 2014 results when calculating av

erage inventory and average receivables for the

2014 efficiency ratios.

You can access the closing market pr

ice of Woolworth?s shares at

https://au.finance.yahoo.com/q/hp?s=WOW.AX

When downloading the annual reports it?s good not to print the whole report as they can be over 100

pages long.

Required

A

Calculate the following ratios for 2015 and 2014:

Current and Acid Test ratios

Inventory turnover and days in inventory

Gross profit percentage, accounts receiv

able turnover and days sales in receivables

Debt ratio and debt to equity ratio

Rate of return on net sales ratio and rate of return on total assets ratio

Asset turnover ratio and the rate of

return on ordinary shareholders equity

Dividend yield and dividend payout.

B

Using the ratios calculated in Part A and informat

ion gathered from elsewhere in the Annual Reports

write a report to a potential investor with your

recommendations as to whether Woolworths Limited

would make a good investment.

C

As a rule of thumb the Current Ratio for busines

ses should be 2:1 and the Acid Test between1.5 to 1:1

How would you explain these ratios for Woolworths Limited when compared to this rule?

Your report should be written as a business report

with an executive summary, an introduction, the main

findings, a conclusion and references. Marks will be

awarded to reflect presentation, business English,

content and referencing.

 

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