6155 Topic:Financial Accounting Issues

BUSN2036 Financial Accounting Issues

Semester 1, 2018

ASSIGNMENT

Due Date: Monday 30 April 2018 at 4pm

This assignment will comprise 20% of the overall assessment for this topic.

This assignment consists of 5 questions:

Question 1 20 marks Question 2 20 marks Question 3 20 marks Question 4 20 marks Question 5 20 marks 100 marks

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General Requirements

1. FOR ALL QUESTIONS – you must show all calculations and workings in addition to your answer. You must show narrations for your journal entries. Refer to the relevant Accounting Standard wherever it is requested in the question - do NOT write blocks of text from the Standard, summarise in your own words and refer to the relevant paragraph,

e.g. “Inventories may need to be written down to NRV, as per AASB 102 para 9”.

2. Due date – Lodgement of your assignment is expected prior to the due date and time. If exceptional circumstances lead to the requirement for an extension, this must be applied

for prior to the due date via the assignment extension tool on FLO, complete with

supporting documentation. Otherwise, a late lodgement penalty applies of 5% of the

allocated mark per day or part thereof overdue, up until the return date of the assignment.

Assignments submitted after the return date will not be marked.

3. Lodgement – Please lodge a single PDF file of your assignment. You may wish to prepare your assignment in Word, and embed any necessary tables that have been prepared in

Excel as images, prior to conversion to PDF format for submission. You must take this

preparation time into account in submitting your assignment.

4. Presentation – Please use Arial font, 11 pitch minimum for your assignment. Please note that marks may be deducted for poor presentation, formatting, and written expression

(including spelling and grammar).

5. Word limit – This assignment is problem-based and thus does not have an overall word limit. Word limits specified in any individual questions must be adhered to, or penalties

will apply (standard tolerance of +10% without penalty applies).

6. Academic integrity – Please be aware that you MUST abide by the University policy on academic integrity. For details on academic integrity for students, please refer to:

https://www.flinders.edu.au/academicintegrity/student.cfm. Especially note that

collusion, which is collaborating with another person on the preparation of answers for an individual assignment, is a breach of academic integrity. ALL work submitted must be your OWN. While discussing problems with other students is encouraged as a useful way to enhance your understanding of a topic, you should discuss lecture, textbook and tutorial

examples for this purpose, NOT your assignment question.

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Question 1

The following segment information relates to Camping Capers Ltd.

Total

Segment Revenue

Segment Result

Segment Assets

Camping 190 000 21 000 60 000

Fishing 175 000 82 000 174 000

Boating 255 000 120 000 126 000

Clothing 76 000 (22 000) 63 000

Financial Services 84 000 19 000 39 000

Tourism Services 80 000 (48 000) 198 000

Total 860 000 172 000 660 000 All revenues are external, except for $30,000 of Camping, $50,000 of Fishing, and $40,000 of Financial Services, which are internal. Camping Capers earned a further $100,000 of revenue that is not attributable to operating segments. Required: a) Determine which segments are reportable according to the guidelines provided in AASB

8. Show all calculations and workings and refer to the appropriate paragraphs of AASB 8 being applied. 18 marks

b) How should any non-reportable segments be disclosed?

2 marks

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Question 2

Woobies Ltd has determined that its construction division is a cash-generating unit. The carrying amounts of the net assets for this division as at 30 June 2017 are as follows:

Cash $ 14 000 Accounts Receivable (net) 22 000 Inventory 56 000 Loan Receivable 30 000 Goodwill 40 000 Equipment 180 000 Accumulated Depn – Equipment (60 000) Factory 240 000 Accumulated Depn – Factory (60 000) Land 200 000 Total 662 000 Accounts Payable 23 000 Net Assets 639 000

The land has a fair value less costs of disposal of $180,000 (as at 30 June 2017). It was determined on 30 June 2017 that the CGU’s fair value less costs of disposal was $556,000, and its value in use was $576,000. At 30 June 2018, Woobies Ltd, because of a reversal of the indicators leading to the impairment, assessed the recoverable amount of the cash-generating unit to be $30,000 more than the carrying amount of the unit. As a result, Woobies Ltd recognised a reversal of the impairment loss. As at 30 June 2017, prior to impairment, depreciation was charged on the Equipment at $30,000 p.a. and on the Factory at $20,000 p.a. After impairment, the new depreciation was revised to $28,000 p.a. for the Equipment and $25,000 p.a. for the Factory. These entries were processed on 30 June 2018. The land has a fair value less costs of disposal of $190,000 (as at 30 June 2018). Required: a) Provide the appropriate journal entry for Woobies Ltd in relation to the impairment testing

on 30 June 2017. Show all calculations and workings. 10 marks

b) Provide the appropriate journal entry for Woobies Ltd in relation to the impairment reversal on 30 June 2018. Show all calculations and workings. 10 marks

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Question 3

Required: Prepare a short argument (maximum 350 words) providing reasons both FOR and AGAINST the recognition of an internally generated brand name in the financial statements of an entity. Refer to the Conceptual Framework and/or Accounting Standards where appropriate to support your argument. 20 marks Question 4

On 1 July 2017, Garrett Ltd completed construction of an oilrig. At the end of the 10-year tenure period (30 June 2027), they are required to restore the environmental damage arising from the oilrig. As at 1 July 2017, the best estimate to restore the environmental damage is $19,000,000. The pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability is 10%. On 30 June 2018, the best estimate is still $19,000,000, but the appropriate discount rate has changed to 9% due to market conditions.

Required: a) Provide the appropriate journal entries for Garrett Ltd for the year ending 30 June 2018.

Show all calculations and workings. 12 marks b) Briefly explain why the restoration costs are recognised as a provision rather than being

disclosed as a contingent liability by referring to the Conceptual Framework and/or Accounting Standards. 4 marks

c) Briefly explain your treatment of the provision (in part [a], above) by referring to the

Accounting Standards. 4 marks

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Question 5

On 1 August 2017, Diddy Ltd (an Australian company) enters into an agreement to borrow US$800,000 from Kong Ltd. Kong Ltd sends the loan money to Diddy Ltd’s Australian bank account on that date. The loan is for six years and requires the payment of interest at the rate of 7% p.a. on 31 January and 31 July each year. Diddy Ltd’s reporting date is 30 June. Relevant exchange rates were:

1 August 2017 A$1.00 = US$0.76 31 January 2018 A$1.00 = US$0.78 30 June 2018 A$1.00 = US$0.82 31 July 2018 A$1.00 = US$0.81

Required: a) Provide the appropriate journal entries in the books of Diddy Ltd for the year ending 30

June 2018 to account for the above transaction. 10 marks

b) Show all supporting calculations and workings. 10 marks TOTAL 100 marks