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ACC514 | Financial Accounting Assignments | Accounts

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Assessment item 1

Task


This assessment task consists of 10 online tests, with your top 5 test results each contributing to 2% of your overall assessment mark. The online tests are to be completed in the 'Online Tests' section on your subject Interact site. Each test will consist of 5 multiple choice questions, drawn randomly from a large pool of questions. The online tests will be timed, with 15 minutes to complete each test. Each test can only be attempted once.

As detailed below, the due date for each test is due before your class for the week (except for

Online Test 1-3, which are due at the end of week 2). The purpose of this assessment is for you to have an understanding of the topic content before your scheduled class. You will then be able to use this knowledge to have an interactive, flexible and ultimately engaging experience in your class, which will enhance your overall understanding of the subject.

• Online Test 1 (covering topic 1): This test will be open from 15 July - 28 July 2019 (11:59pm AEST).

• Online Test 2 (covering topic 2): This test will be open from 15 July - 28 July 2019 (11:59pm AEST).

• Online Test 3 (covering topic 3): This test will be open from 15 July - 28 July 2019 (11:59pm AEST).

• Online Test 4 (covering topic 4): This test will be open from 15 July - 4 August 2019 (11:59pm AEST).

• Online Test 5 (covering topic 5): This test will be open from 15 July - 11 August 2019 (11:59pm AEST).

• Online Test 6 (covering topic 6): This test will be open from 15 July - 18 August 2019 (11:59pm AEST).

• Online Test 7 (covering topic 7): This test will be open from 15 July - 8 September 2019 (11:59pm AEST).

• Online Test 8 (covering topic 8): This test will be open from 15 July - 15 September 2019 (11:59pm AEST).

• Online Test 9 (covering topic 9): This test will be open from 15 July - 22 September 2019 (11:59pm AEST).

• Online Test 10 (covering topic 10): This test will be open from 15 July - 29 September 2019 (11:59pm AEST).

Please note that each online test can be completed at any time during the periods stated above.

If you encounter any technical issues when completing any of the online tests, please contact me via email immediately, and no later than the due date for that test.

Note: extensions cannot be granted for online tests, as they have to be attempted within a specific time frame.

Rationale

This assessment task will work towards assessing the following learning outcome/s:

• be able to prepare basic financial statements for reporting entities.

• be able to discuss critically and comprehensively the statutory and professional requirements upon which published financial statements are based.

• be able to explain the form and content of financial statements.

• be able to interpret and apply generally accepted accounting principles and specific financial reporting standards relating to concepts of recognition, measurement, disclosure, revaluation and impairment of key financial statement elements.


Assessment item 2

Task

Complete the 2 questions given below. A total of 50 marks are allocated to the questions below, which will then be converted to a mark out of 15%.

All workings, where appropriate, must be shown to substantiate your answers.

Question 1 [35 marks]

The regulatory environment and financial reporting

You are employed in a large accounting firm which specialises in preparing general purpose financial reports for large companies that are listed on the Australian Securities Exchange (ASX). As the training manager, one of your key tasks is to prepare a regular newsletter for staff involved in the preparation of the above financial reports. The purpose of the newsletter is to keep staff updated on the latest financial reporting news, alerting staff of changes and developments that may impact their work, and provide enough information to staff to satisfy the following:

• For staff to understand the nature of the news / change / development and its potential impact (so staff can decide whether they need to investigate further given the nature of their own work);

• Provide directions to staff of where they can access further information on the news / change / development if they wish to (including website links where appropriate).

Required:

Prepare a 2 page newsletter that identifies and summarises changes / developments and news in the financial reporting environment for the period from 1 April 2019 to 31 July 2019.

Detailed guidelines for completing this task:

1. Identification of changes and developments

This will involve extensive research on a number of sources over the required period. You will need to identify and consider a range of developments/changes such as:

• Technical issues: for example the issue of new accounting standards, amendments to accounting standards, updates on AASB or IASB projects in progress, outcomes of AASB or IASB meetings, amendments to ASX listing rules.

• Regulation and monitoring of financial reporting: for example ASIC reviews on financial reporting.

• Political influences or other potential developments. 'Political' does not only mean action from politicians – it would also include lobbying/actions by other groups to promote their own interests – for example there may be articles about companies, or particular interest groups such as Group of 100, saying that if certain accounting standards are introduced this will disadvantage or have a negative impact.

You will need to consider both local (Australian) and international sources and developments.

The restriction of a 2 page newsletter means that you need to use your own judgment as to whether to include information about specific news items and changes / developments, and how much information to include. It is not intended that you provide complete details of changes / developments (although you may consider in particular cases that more detail is needed).

Given the target audience, it would be assumed that they have a working knowledge of common terms and abbreviations (such as AASB, IASB), so abbreviations may be used.

What not to consider?

You need to take care that the news / changes / developments included in the newsletter are relevant to the objective, in particular that they relate directly to the preparation of general purpose financial reports for large companies listed on the ASX. The newsletter should not consider areas only indirectly related to the preparation of financial reports such as (this is not an exhaustive list):

• Fraud

• Auditing

• Taxation

• Other disclosures by listed companies such as: industry disclosures required by peak organisations, and voluntary disclosures in the area of corporate social responsibility.

2. Potential sources

Given the scope of the potential influences on financial reporting, you will need to research a range of sources. Below is a list of sources that may be of interest. Note that this list is not exhaustive, students should search for sources outside of these. Students should not rely on any one type of source, but a range of sources from each category, i.e. do not just look at websites, also check journals, newspapers etc. Examples of possible information sources include:

(a) Websites such as those of:

• Australian Accounting Standards Board

• Financial Reporting Council

• Australian Securities and Investment Commission

• Australian Securities Exchange

• International Federation of Accountants

• Chartered Accountants Australia and New Zealand

• CPA Australia

• International Accounting Standards Board

• Websites of large accounting firms

(b) Professional publications:

• In the Black (CPA)

• Acuity (CAANZ)

(c) Newspapers/journals

3. Format and presentation

The following are to be observed for your newsletter preparation.

• The top of the newsletter must include the title (you need to decide what to call your newsletter) and details of the period the newsletter is considering.

• The newsletter should not read as one continuous 'essay'. It must include headings and sub-headings that assist in identifying the nature of news / changes / developments and help to guide the reader, and also enable the reader to distinguish between items of interest and the relative importance of changes.

• You must refer the reader to specific sources (including website links where appropriate) so that they are able to obtain more detailed information of the news / change / development. If you include direct quotations in your newsletter, you need to include in-text citations using the APA referencing format.

• The newsletter must be printed in minimum font set at 11 points (you may wish to use different formatting (such as larger fonts) for headings etc. Apart from minimum font size, there are no specific requirements in relation to line spacing, margins etc. However, you should note that simply reducing line spacings or margins to 'fit more in' may impact on the presentation and effectiveness of the newsletter.

• There is no specific 'word limit'. The newsletter must be no longer than 2 pages. In cases where the newsletter exceeds the 2 page limit, only the first 2 pages will be marked.

• Do not attach actual articles/printouts of web sources etc to your assessment. You are only required to include details of these in the bibliography (see section 4 below).

Don't be afraid to be creative. The effectiveness of a newsletter is impacted by how interesting the readers find it.

4. Bibliography and referencing

This assessment must include a bibliography using the APA referencing style, rather than a reference list (this should not be part of your newsletter and is to be given on a separate page). A bibliography includes all materials used/read in the preparation of your assignment, not just those referenced or cited within the paper. The reason a bibliography is required (rather than a reference list) is that this will provide an insight into the range of your research activities which is part of the criteria for assessment. It is expected that the bibliography will be quite long. The bibliography needs to include specific articles or readings that you have actually accessed - not just a general link to a website or newspaper etc. Therefore if you use a source such as the AASB website, please reference every article that you have read separately. You should only

include sources that are related to the area. For example, if you look at a particular publication but most of the content relates to taxation or auditing issues, it would not be appropriate to include these articles in your bibliography as these are not directly related to the area of interest.

Question 2 [15 marks]

Financial statement presentation

Snow Gear Ltd, a manufacturing company, commenced operations on 1 July 2018. You are the company’s financial accountant.

Additional information:

• In relation to ‘other expenses’ in the trial balance, 90% relates to administration, and 10% relates to selling and distribution. In relation to ‘depreciation expense’, 80% relates to selling and distribution, and 20% relates to administration.

• Raw materials used during the year totalled $1,316,000.

• The bank loan is repayable over 10 years ($30,000 principal each year).

• The provision for annual leave is payable within 1 year.

• The provision for warranty is in respect of 12-month warranties given on all products sold.

• Share capital consists of 1,000,000 ordinary shares, fully paid to $2.00 each.

• Snow Gear Ltd is a reporting entity.

• In relation to the statement of financial position, where AASB 101 requires entities to disclose further sub-classifications of the minimum line items on the face of the statement or in the notes, the directors of Snow Gear Ltd want to report only the minimum line items on the face of the statement, and leave the sub-classifications to be disclosed in the notes.

Required:

i) Prepare a memo to the directors, explaining the methods available for classifying expenses on the statement of profit or loss and other comprehensive income. The directors would also like to know which method will result in the highest profit being reported to shareholders. Finally, also advise the directors of any factors that need to be considered when selecting between the available methods. Provide references to key paragraphs in the accounting standards.

ii) To illustrate the differences in the methods discussed above, prepare the statement of profit or loss and other comprehensive income using each of the available methods, for the year ended 30 June 2019, in accordance with AASB 101. Use the single statement format. Show all workings (for example, to show how amounts in the financial statements have been calculated).

iii) Prepare the statement of financial position of Snow Gear Ltd as at 30 June 2019, in accordance with AASB 101. Notes and comparative figures are not required. Show all workings (for example, to show how amounts in the financial statements have been calculated).

Rationale

This assessment task will assess the following learning outcome/s:

• be able to prepare basic financial statements for reporting entities.

• be able to discuss critically and comprehensively the statutory and professional requirements upon which published financial statements are based.

• be able to explain the form and content of financial statements.

The purpose of this task is to help you further develop some of the skills and knowledge required and valued by the accountancy profession. The task that you will be required to undertake is similar to the tasks required of a professional accountant working within the financial reporting field.

Given that all reporting entities need to prepare general purpose financial reports, accounting professionals need to be experts in preparing key financial statement reports that comply with the presentation requirements contained in the accounting standards.

Accounting professionals also need to ensure that they are aware of current developments in the financial reporting environment and that their knowledge is up to date. They need to be able to identify changes that have occurred that may impact on their work and to know where they can obtain information about these changes.

In this assignment, you are asked to provide a summary of recent developments relating to financial reporting and prepare financial statement reports in accordance with accounting standard requirements. As such this assignment allows you to:

• develop the ability to identify and source changes to accounting/reporting requirements so as to update professional knowledge required for practice;

• acquire an awareness of current developments and changes (both locally and internationally) that may impact on current and future accounting and reporting rules and regulations;

• develop the ability to provide written material appropriate to the accountancy profession;

• appreciate the limitations of the currency of knowledge in a technical financial reporting area; and

• research current financial reporting obligations relating to the preparation and presentation of general purpose financial statement reports and apply this knowledge to a range of practical situations.

Assessment item 3

Task

Assessment conditions: This is an individual assessment task (not a group assessment task).

This assessment task consists of five (5) questions. A total of 75 marks are allocated to the questions below, which will then be converted to a mark out of 15%.

All workings, when appropriate, must be shown to substantiate your answers.

Question 1 [12 marks]

Events after the reporting period

Grace Ltd is finalising its financial statements for the reporting period ending 30 June 2019. On 29 August 2019, before the financial statements have been finalised and authorised for issue, the company’s directors became aware of the following situations:

a. Grace Ltd’s cloud service provider breached its contract, when the service was down for 14 days in July 2019, causing major disruptions to Grace Ltd’s business operations. Grace Ltd commenced legal action against the cloud service provider on 2 August 2019, seeking $300,000 in damages for lost profits.

b. On 5 August 2019, the government announced a new airport for Western Sydney. The flight path for plane’s landing and taking off is directly above one of Grace Ltd’s major investment properties, which Grace Ltd was planning to subdivide into residential blocks in the next 2 years. The directors had the land valued on 20 August 2019, after the government announcement. On 20 August 2019, the land was valued at $800,000 less than the value currently in the financial statements at 30 June 2019.

c. On 25 August 2019, it was discovered that the one of the managers had undertaken fraudulent activity – using $38,000 of company funds to purchase a car in his personal name on 1st April 2019. The car had been recognised as an asset on the company’s statement of financial position, and depreciation expense of $1,000 has currently been recognised in the 2019 financial statements. The fraud was uncovered when the auditors were auditing the company’s assets. The directors have met with the manager, and the manager has agreed to repay the company $38,000 by 30 September 2019.

d. Grace Ltd owns shares in a listed public company, Slipp Ltd, which had a market value of $500,000 on 30 June 2019 (the shares are currently recorded at this value in the financial statements at 30 June 2019). A major fall in the stock market occurred on 20

July 2019, and the value of Grace Ltd’s shares in Slipp Ltd declined to $250,000.

Ignore any GST or income tax effects.

Required:

State, for each situation, whether the event is an adjusting event or non-adjusting event (assuming the amount is material). Provide explanations and references to relevant paragraphs in the accounting standards to justify your answers. Prepare any journal entries or note disclosures needed for each situation in the 2019 financial statements.

Question 2 [16 marks]

Accounting for share capital

On 1 February 2019, Sunshine Ltd was registered and issued a prospectus inviting applications for 2,000,000 shares, at an issue price of $3.00, payable as follows: $1.50 on application, $1.00 on allotment (payment due within 1 month of allotment), $0.50 on a call to be made at a later date. The issue was underwritten at a commission of $12,000.

By 28 February 2019, applications had been received for 1,800,000 shares. On 10 March, shares are allotted, and the underwriter forwarded the application and allotment money due on their shares, less their commission. All remaining allotment money was received by 10 April. Other share issue costs amounted to $5,000, and were paid on 15 April.

The call was made on 1 May 2019, with money due by 31 May 2019. All money owing in relation to the call was received by the due date, except for the holders of 20,000 shares who did not pay the call. On 10 June 2019, as provided in the company’s constitution, the directors forfeited these 20,000 shares.

On 20 June 2019, the forfeited shares were reissued as fully paid for a consideration of $2.70 per share. Costs of forfeiture and reissue amounted to $4,000, and were paid. The constitution allows for the refund of any balance in the forfeited shares account after reissue to former shareholders, so refunds were made on 25 June 2019.

Required:

Prepare the journal entries to record the transactions of Sunshine Ltd up to and including that which took place on 25 June 2019. Show all relevant dates, narrations and workings (note: workings/calculations may be shown in the narrations).

Question 3 [15 marks]

Accounting for income tax

Tulip Ltd commenced business on 1 July 2018, with share capital of $700,000. The following information is available for the year ended 30 June 2019:

Additional information:

• The directors have advised that they did spend a significant amount of money on advertising and salaries and wages during 2019, as Tulip Ltd sought to market the business and its products to consumers. The directors expect to see significant profits in the next financial year given the success of their advertising campaigns.

• The company purchased equipment at a cost of $400,000 on 1 July 2018. The equipment is depreciated over eight years for accounting purposes, and five years for taxation purposes (using the straight-line basis of depreciation, and a residual value of $120,000).

• The company purchased motor vehicles at a cost of $150,000 on 1 July 2018. The motor vehicles are depreciated over six years for accounting purposes, and eight years for taxation purposes (using the straight-line basis of depreciation, and a residual value of $30,000).

• Tax deductions for annual leave, warranties, insurance are available when the amounts are paid, and not as amounts are accrued.

• Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.

• Tax deductions are not available for doubtful debts. Tax deductions are only available when bad debts are written off.

• The tax rate is 30%.

Required:

i) Determine the balance of any current tax liability and deferred tax assets and deferred tax liabilities for Tulip Ltd as at 30 June 2019, in accordance with AASB 112. Use appropriate worksheets and show all necessary workings.

ii) Prepare the journal entries to record the current tax liability and deferred tax assets and deferred tax liabilities.

Question 4 [15 marks]

Revaluation of property, plant and equipment Property, plant and equipment

Star Freight Ltd is a local freight company with a fleet of three trucks, and you are employed as the financial accountant. The company has always used the cost model to account for its trucks, and elects to depreciate its trucks using the straight-line method.

At 30 June 2018, the Star Freight Ltd has the following amounts recognised in its financial statements for the trucks:

The directors have heard the term ‘revaluation model’ used before, and would like to consider using the revaluation model for the trucks from 1 July 2018, so that the amounts recognised in the financial statements better reflect the market values of the trucks. You ask the directors for the following information: the fair value of each truck, the remaining useful life of each truck, and the estimated residual value of each truck.

Required:

Prepare a memo to the directors of Star Freight Ltd, explaining the key aspects of the revaluation model (how revaluations are accounted for under AASB 116, how often assets need to be revalued, and how depreciation expense is impacted). Provide references to key paragraphs in AASB 116 to support your discussion.

In your memo, prepare journal entries that would be required for the revaluations on 1 July 2018, to illustrate the application of the revaluation model to the directors. Show narrations. Note: you are not required to account for income tax associated with revaluations.

To help the directors understand how subsequent revaluations would be accounted for, you also need to provide them with an illustrative example in your memo. For the purposes of this

example, assume that the fair values of the trucks at 30 June 2019 are: $110,000 for truck 1, $175,000 for truck 2, and $220,000 for truck 3. Prepare journal entries that would be required for depreciation and the revaluations on 30 June 2019. Show narrations and workings for depreciation and revaluations. Note: you are not required to account for income tax associated with revaluations.

Question 5 [17 marks]

Impairment of assets

Fresh Ltd has two retail businesses that represent separate cash-generating units, ‘Fresh Juice Bar’ and ‘Fresh Salads’. At 30 June 2019, the carrying amounts of the assets of the units, valued pursuant to the cost model, are as follows:

The inventory is recorded at the lower of cost and net realisable value. The motor vehicles of ‘Fresh Juice Bar’ have a fair value less costs to sell of $11,000, and motor vehicles of ‘Fresh Salads’ have a fair value less costs to sell of $14,000.

On 30 June 2019, the directors of Fresh Ltd estimate that the fair value less cost to sell for ‘Fresh Juice Bar’ and ‘Fresh Salads’ amount to $50,000 and $140,000 respectively. The value in use of ‘Fresh Juice Bar’ and ‘Fresh Salads’ are estimated at $58,000 and $180,000 respectively.

Required:

Prepare a letter to the directors of Fresh Ltd, explaining how to calculate impairment losses for cash-generating units, and how impairment losses are to be allocated between assets of the cash-generating unit. Provide references to key paragraphs in AASB 136 to support your discussion.

In your letter, calculate the impairment loss to be recognised by Fresh Ltd for each of its cash-generating units as at 30 June 2019, and determine how the impairment loss is to be allocated. Provide explanations throughout your calculations and workings, so that the directors understand how you are applying the requirements of AASB 136. Prepare the journal entries to recognise any impairment losses.

As you complete the letter, you also need to explain whether it is possible to reverse impairment losses in future periods. The directors believe that the fair value of both businesses is going to increase significantly in the next two years, as the shopping mall that the two outlets are in is expanding, which will attract a lot more business in the long run.  Can any/all of  the impairment losses recognised on 30 June 2019 be reversed in the future? Explain, with reference to key paragraphs in AASB 136.

Rationale

This assessment task will assess the following learning outcome/s:

• be able to prepare basic financial statements for reporting entities.

• be able to discuss critically and comprehensively the statutory and professional requirements upon which published financial statements are based.

• be able to explain the form and content of financial statements.

• be able to interpret and apply generally accepted accounting principles and specific financial reporting standards relating to concepts of recognition, measurement, disclosure, revaluation and impairment of key financial statement elements.


Assessment item 4

Rationale

This assessment task will assess the following learning outcome/s:

• be able to prepare basic financial statements for reporting entities.

• be able to discuss critically and comprehensively the statutory and professional requirements upon which published financial statements are based.

• be able to explain the form and content of financial statements.

• be able to interpret and apply generally accepted accounting principles and specific financial reporting standards relating to concepts of recognition, measurement, disclosure, revaluation and impairment of key financial statement elements.

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