ACC514 FINANCIAL ACCOUNTING
Session 201360
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ADDITIONAL ASSESSMENT
Assignment: Problem-solving Questions Value: 20%
Due date: 7th February 2014
Submission method: email to Miranda Dyason (midyason@csu.edu.au)
Task
You are to complete all 4 problem-solving questions. A total of 60 marks are allocated to the questions below, which will then be converted to a mark out of 20%.
Rationale
This assessment task covers topics 4 – 8. More specifically it seeks to assess your ability to:
prepare journal entries for transactions involving share issues, over/under subscription of shares, forfeiture and reissue of shares;
account for income tax in accordance with AASB 112;
discuss appropriate accounting treatment for intangible assets;
account for property, plant and equipment using the revaluation model.
Marking criteria
Essay/discussion questions
In the awarding of marks for essay/discussion questions, consideration will be given to:
evidence of understanding of the key issues identified in the question;
active analysis of identified elements as appropriate;
clear indication of reading of the texts, readings and other relevant references as appropriate;
clear and logical written expression;
appropriate structure and layout as required;
appropriate referencing; and
observation of the word limit, if any.
Numerical questions
In the awarding of marks for numerical questions, consideration will be given to:
correctness of answers;
appropriate formatting and headings;
relevant workings;
approach taken to solve the problem; and
completeness of answers.
Presentation
Physical presentation of assignments
It is essential that presentation of assignments adheres to accepted standards in relation to neatness and layout, as you are practising to present material in a work situation. Correct formatting and referencing procedures of material should be strictly adhered to for essays. You should submit a proper reference list (using APA referencing style) for all essay type assignments. A reference list contains only those works cited or quoted from in your essay. A bibliography is acceptable for practical-type assignments.
For practical questions:
all journal entries must include narrations unless otherwise specified;
any ledger accounts should preferably be shown in ‘T’ account format and dates and descriptions be included;
journal entries and ledger accounts must reflect the strict order of sequence of events;
financial statements (including extracts) should include proper headings and accord with presentation standards.
Penalties will be incurred if material is not correctly referenced and if presentation is not of an acceptable standard.
Please also note the following:
Journal entries, ledger accounts, worksheets and financial statements should always balance. If you have to submit a piece of work that does not balance because you cannot detect your error please include some comment about the source of your problem so the marker can provide appropriate feedback.
Include workings where appropriate. Partial marks can be allocated for workings where the final answer is incorrect.
Requirements
All workings, when appropriate, must be shown to substantiate your answers.
Question 1 [15 marks]
Accounting for share capital
The constitution of Hill Ltd indicated that the company could issue up to 5,000,000 ordinary shares and 1,000,000 preference shares. Prospectuses had been published offering 1,000,000 preference shares at $1.50 payable in full on application by 31 March 2013, and 2,000,000 ordinary shares at $1.20 with 50% due on application by 31 March 2013, 25% due on allotment, and 25% due on a call to be made by the directors at a later date.
By 31 March 2013, the company had received amounts due on 800,000 of the preference shares and on applications for 2,400,000 ordinary shares. The directors met on 10 April 2013 and resolved to issue the preference and ordinary shares.
The ordinary shares were allotted to applicants on a pro rata basis and the amounts received in excess of that due were to be credited against amounts due on allotment. The amount due on the allotment of the ordinary shares was payable by 15 May 2013 and this was received on all shares.
The directors made the call on the ordinary shares on 31 August 2013, with amounts payable by 30 September 2013. By this date, amounts due on 1,997,000 shares had been received.
On 5 October 2013, as provided by the company’s constitution, the directors forfeited the shares on which calls were unpaid.
On 25 October 2013, the forfeited shares were reissued as fully paid for a consideration of $1 per share. Costs of reissue amounted to $700. The constitution provided for any surplus on resale, after satisfaction of unpaid calls and costs, to be returned to shareholders whose shares were forfeited.
Required:
Provide the journal entries to account for the above entries. Show all relevant dates, narrations and workings.
[adapted from: Dagwell, R., Wines, G. & Lambert, C. (2012). Corporate accounting in Australia: Pearson Australia]
Question 2 [15 marks]
Accounting for income tax
Bright Ltd commences operations on 1 July 2012 and presents its first Statement of Profit or Loss and Other Comprehensive Income, and first Statement of Financial Position on 30 June 2013. The statements are prepared before considering taxation. The following information is available:
Statement of Profit or Loss and Other Comprehensive
Income for the year ended 30 June 2013
$
$
Gross profit
530,000
Expenses
Administration expenses
115,000
Salaries
180,000
Long service leave
5,000
Warranty expenses
30,000
Depreciation expense – plant
80,000
Insurance
20,000
430,000
Accounting profit before tax
100,000
Assets and liabilities as disclosed in the Statement of
Financial Position as at 30 June 2013
$
$
Assets
Cash
20,000
Inventory
100,000
Accounts receivable
100,000
Prepaid insurance
10,000
Plant cost
400,000
Less:accumulated depreciation
80,000
320,000
Total assets
550,000
Liabilities
Accounts payable
95,000
Provision for warranty expenses
20,000
Loan payable
200,000
Provision for long service leave
5,000
Total liabilities
320,000
Net assets
230,000
Other information:
All administration and salaries expenses incurred have been paid as at year end.
None of the long service leave expense has actually been paid. It is not deductible until it is actually paid.
Warranty expenses were accrued and, at year end, actual payments of $10,000 had been made (leaving an accrued balance of $20,000). Deductions are available only when the amounts are paid and not as they are accrued.
Insurance was initially prepaid to the amount of $30,000. At year end, the unused component of the prepaid insurance amounted to $10,000. Actual amounts paid are allowed as a tax deduction.
Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.
The plant is depreciated over five years for accounting purposes, but over four years for taxation purposes.
The tax rate is 30%.
Required:
a) Determine the balance of any current and deferred tax assets and liabilities as at 30 June 2013, in accordance with AASB 112. Show all necessary workings.
b) Prepare the journal entries to record the current tax liability and movements in deferred tax assets and liabilities.
[adapted from: Deegan, C. (2010). Australian financial accounting (7th ed.). Sydney: McGraw Hill]
Question 3 [15 marks]
Intangible assets
Scooters Ltd was incorporated five years ago on 1 July 2008. In the five years since then, the company has been developing a design for a new four-wheel motorised scooter for elderly persons. The company has patents pending for the design and production of the scooter.
By 30 June 2011, the companys work on the scooter design was sufficiently advanced for it to consider that the design was technically feasible and would results in a far superior product to any other motorised scooter available at that time. The company concluded at that time that it possessed sufficient resources to complete the development of the scooters design.
The company has incurred the following expenditure in developing its scooter design over the past five years:
Year ended
Expenditure
$
30 June 2009
Research on initial scooter design
125,000
Professional fees for initial patent
30,000
30 June 2010
Further refining of the scooters design
140,000
30 June 2011
Evaluation and final selection of the design, production materials
145,000
and processes
30 June 2012
Design of tooling and jigs for production of the scooter
150,000
30 June 2013
Production and testing of a pre-production prototype
85,000
Further development of the scooters design
50,000
Expenditure on staff training to operate the scooter
30,000
Development of a customer list of potential producers and
25,000
retailers for the scooter
Legal and professional fees to register a final patent
35,000
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Required:
Discuss the accounting treatments for the expenditure incurred by Scooter Ltd in the last five years in accordance with AASB138. Provide relevant paragraph numbers from the standard to support your answer.
[adapted from: Dagwell, R., Wines, G. & Lambert, C. (2012). Corporate accounting in Australia: Pearson Australia]
Question 4 [15 marks]
Property, plant and equipment
Gardiner Ltd acquired a machine on 1 July 2011 at a cost of $300,000. At the date of acquisition, Gardiners directors determine to depreciate the machine on a straight-line basis over a period of six years. The machine has an estimated residual value of nil. The company elects to adopt the revaluation model subsequent to acquisition.
The directors of Gardiner estimated the fair values for the machine to be $265,000 and $190,000 on 30 June 2012 and 30 June 2013 respectively. There are no changes in the originally estimated useful life and residual value for the machine.
Assume a tax rate of 30%.
Required:
Prepare journal entries to account for the above transactions for the years ended 2012 and 2013.
[adapted from: Dagwell, R., Wines, G. & Lambert, C. (2012). Corporate accounting in Australia: Pearson Australia]
