Financial Reporting

Ozford Institute of Higher Education

ACC2100 Financial Reporting

Trimester 2, 2021

Final Examination

 

Assessment type: Individual

Weighting: 45% (plus 5% oral test)

Due Date: Wednesday 10 November 2021 6:00 pm (AEDT)

Material Supplied: PV tables (attached to this booklet)

Submission: Written answers to be submitted on to the Moodle

 

This is closed book, individual assessment.

Answer the following 7 questions. Please type directly into this document and save as you work.

Submit this document, using the link in the assessment folder, when your answers are complete.

 

 

 

 

 

 

 

 

 

 

Name   Student ID  

 

 

 

 

 

 

 

 

Question 1 Accounting Regulations (4 marks)

Explain the fundamental qualitative characteristics that financial accounting should possess.

 

Answer:

 

 

 

 

 

 

 

 

 

 

 

 

Question 2 Leases (12 marks)

Esme Ltd enters into a non-cancellable five-year lease agreement with Elsa Ltd on 1 July 2021. The lease is for a machinery that, at the start of the lease, has a fair value of, $1,294,384. The implicit rate is calculated to be 12%.

The machinery is expected to have a useful life of six years, with a residual value of $210,000. There is a buy back option that Esme Ltd will be able to avail at the end of the lease for $280,000.

There are five annual payments of $350,000, the first to be made on 30 June 2022. Included in the payment ids $35,000 representing the payment of the lessor for the insurance and maintenance of the equipment. The machinery will be depreciated using the straight-line method.

 

Required:

Prepare the journal entries for Esme Ltd (lessee) on 1 July 2021 and 30 June 2022. Show all calculations (Lease liability, Right-of-use Asset, Interest Expense and Depreciation Expense).

 

Answer:

Journal Entries

Date Particulars Dr. Cr.
       
       
       
       
       
       
       
       
       
       
       

 

Workings:

 

Lease Liability:

 

 

 

Right-of-use Asset

 

 

Interest Expense for first year

 

 

Depreciation Expense

 

 

 

 

 

Question 3 Intangible Assets (8 marks)

Origin Ltd is involved in the research and development of solar panels to be used for houses. For this endeavour, Origin Ltd incurred for R & D the following:

· $50,000 for obtaining a general knowledge for the efficiency of the solar panels

· $30,000 for understanding the expectations of the homeowners

· $90,000 for testing and refining the solar panels

· $190,000 for developing and testing a full prototype of the solar panels.

Origin Ltd expects that the product will be able to generate millions of dollars in revenue.

 

Required:

Determine how the above situations will be treated for accounting purposes.

 

Answer:

 

 

 

 

 

 

 

 

 

 

 

 

Question 4 Accounting for Income Tax (6 marks)

Elements Ltd has recorded revenue received in advance in the amount of $250,000, which was taxed on a cash basis and a loan payable recorded in the books at $400,000. The tax rate is 30%.

 

Required:

a) What is the amount of temporary difference?

b) Does this give rise to a deferred tax asset or deferred tax liability? What is the amount of deferred tax asset or deferred tax liability?

 

Answer:

a)

Particulars Carrying

Amount

Tax

Base

Temporary

Difference

       

 

b)

 

 

 

Question 5 Earnings per Share (5 marks)

Summer Ltd issued 2 million ordinary shares and 1 million convertible preference shares of $0.50 each. The preference shares holders have the right to convert 2 preference shares to 1 ordinary shares at a future date. The figures below have been taken from the statement of profit and loss and other comprehensive income of Summer Ltd for the year ending 30 June 2021.

 

Profit after income tax $290,000

Dividends:

Ordinary ($160,000)

Preference ($20,000)

Increased in retained earnings $110,000

 

Required:

Calculate the diluted earnings per share for Summer Ltd for the year ending 30 June 2021.

 

Answer:

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

Question 6 Accounting for Foreign Currency (6 marks)

On 1 February 2021, Angel Ltd completes a binding agreement to purchase a hydraulic lift from a manufacturer located in Germany. The cost of the equipment is €150 000. The construction of the lift is completed on 30 May 2021, and it is a qualifying asset according to AASB 123. The amount owing has not been paid by reporting date 30 June 2021. The following is information about the exchange rates:

 

1 February 2021 A$1 = €0.60
30 May 2021 A$1 = €0.56
30 June 2021 A$1 = €0.46

 

Required:

What entries are required to record the transaction and subsequent events in accordance with AASB 121 (rounded to the nearest whole A$)?

 

Answer:

Journal Entries

Date Particulars Dr. Cr.
       
       
       
       
       
       
       
       
       

 

 

 

Question 7 Extractive Industries (4 marks)

Determine what method of accounting for exploration and evaluation expenditures would be adapted if the Conceptual Framework for Financial Reporting where the overriding regulation? Choose between Successful-efforts method, Full-cost method or Area-of-interest method and justify your choice.

Answer: