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Semester One Final Examinations, 2020

ACCT2110 Intermediate Financial Accounting

ONLINE NON-INVIGILATED EXAM COVER SHEET: STUDENT INSTRUCTIONS COURSE

ACCT2110 Intermediate Financial Accounting

SEMESTER

Semester 1, 2020

FORMAT

This is an ONLINE NON-INVIGILATED exam.

WEIGHTING

The exam is weighted at 50% of your total mark for the Course.

START/FINISH TIMES

The exam will be available at a date to be advised by central examinations.

TIME LIMIT

This exam has a time limit of 24 hours.

EXAM SUBMISSION

The exam is to be submitted on Blackboard under the Assessment folder to the Final Exam turnitin link.

This exam is due 24 hours after commencement, Brisbane time. NOTE: The exam cannot be started past this time.

MATERIALS

All materials permitted – this is an open book exam

ACCESSING THE EXAM

Go into the Assessment folders on Blackboard: see Final Exam

EXAM PLATFORM

Please ensure that you have downloaded and updated Google Chrome. This is the recommended Internet Application for optimal use in Blackboard.

SYSTEM ISSUES

If you have a system issue, you will be able to continue the examination to complete it. If you find that you are unable to upload your exam to turnitin due to a system error, please screen shot any error messages you encounter, close the browser window and attempt to reopen it again.

EXAM ADVICE

Before you begin working, spend 10 minutes reading through the questions and instructions, and consider how much time you will need to allocate to each [question/section]. Extra time has been allowed for this exam; however, you should aim to complete the exam and submit the exam at least 15-30 minutes before the 24 hours expire.

STUDENT COMMENTS

If applicable, please specify any assumptions you made to complete this exam. For example, what question would you have asked in an exam room if you had been able to ‘raise your hand’?

ACADEMIC INTEGRITY AGREEMENT

While this is an open book exam, you are still expected to complete the exam INDIVIDUALLY (no collusion) and all answers must reflect your own thoughts and learnings (no plagiarism). Please indicate your agreement (tick box) to upholding UQ academic integrity standards before beginning this exam:

 As a UQ student, I acknowledge that academic integrity is a core value of The University of Queensland community. As a student in this community I promise to complete my online exam, with academic integrity in mind, to be fair to my peers, show respect for my lecturers/tutors, and uphold the reputation of the University. I will not give in to persuasive cheating messages or pursue unauthorised help. I acknowledge that I am responsible for the consequences of my choices. I am committed to sustaining an environment of honest and mutual trust, in which I can represent my own knowledge, skills and capabilities.

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Semester One Final Examinations, 2020

ACCT2110 Intermediate Financial Accounting Venue

____________________

Seat Number

________

Student Number

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Family Name

_____________________

First Name

_____________________

School of Business EXAMINATION

For Examiner Use Only Question

Mark

Semester One Final Examinations, 2020

ACCT2110 Intermediate Financial Accounting This paper is for St Lucia Campus students. Examination Duration:

Exam is open for 24 hours and has no set duration. Students are able to work on the exam at any time during the scheduled 24 hours.

Reading Time:

Not applicable.

Exam Conditions: This is a Central Examination This is an open Book Examination This examination paper will be released to the Library Materials Permitted In The Exam Venue: All materials permitted. Materials To Be Supplied To Students: Not applicable. Instructions To Students:

Total

Answer all questions.

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________

Semester One Final Examinations, 2020

ACCT2110 Intermediate Financial Accounting

Part A consists of 10 Multiple Choice Questions.

(15 marks)

1. At which point of the earnings cycle is revenue recognised in most cases? A) Receipt of cash; B) Delivery of goods to customers; C) Progressively throughout production; D) Receipt of orders after completing production. 2. Which type of contract with customers is exempt from Paragraph 5 of AASB 15 ‘Revenue from Contracts with Customers’? A) Lease contracts within the scope of AASB 16 ‘Leases’; B) Installment sale; C) Both A and B; D) Neither A nor B. 3. Which of the following is not part of the five-step model for determining the recognition of revenue consistent with AASB 15 ‘Revenue from Contracts with Customers’: A) Determine the transaction price; B) Identify the contract with the customer; C) Recognise revenue when a performance obligation is satisfied; D) Identify the schedule of payments in the contract. 4. What must occur for a contract modification to exist consistent with AASB 15 ‘Revenue from Contracts with Customers’? A) The modification must be written; B) The modification requires a new contract; C) It must be initiated by the seller; D) All parties approve the modification. 5. What are the promises about the goods and/or services that are to be provided by the entity to the customer commonly referred to as consistent with AASB 15 ‘Revenue from Contracts with Customers’? A) Contract modifications; B) Performance obligations; C) Articles of the contract; D) Warranties. 6. How is the transaction price to be measured by the entity when receiving non-cash consideration from a customer consistent with AASB 15 ‘Revenue from Contracts with Customers’?

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Semester One Final Examinations, 2020

ACCT2110 Intermediate Financial Accounting

A) Fair value of the goods and/or services transferred to the customer; B) Present value of future cash flows; C) Fair value of the non-cash consideration received from the customer; D) Book value of the non-cash consideration received from the customer. 7. A vehicle and plot of land were purchased for $115 000. The fair value of the vehicle was $20 000, and the fair value of the land was $130 000 at the time of purchase. To the nearest dollar and consistent with AASB 15 ‘Revenue from Contracts with Customers’, what amount should be allocated to the vehicle? A) $20 000; B) $57 500; C) $46 000; D) $15 333. 8. Which of the following method(s) could estimate a stand-alone price consistent with AASB 15 ‘Revenue from Contracts with Customers’? A) An approach based on observable prices for similar goods or services; B) An expected cost plus a margin approach; C) A residual approach; D) All of the listed methods could estimate a stand-alone price. 9. What is a characteristic of the income statement approach to revenue recognition? A) Changes in asset balances; B) Movements in liabilities; C) Dependence on the cash-basis of accounting; D) Based on the concept of income realisation. 10. Which of the following is required when identifying a contract consistent with AASB 15 ‘Revenue from Contracts with Customers’? A) The contract is notarised by a lawyer; B) The contract has commercial substance; C) Both A and B are required; D) Neither A nor B is required.

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Semester One Final Examinations, 2020

ACCT2110 Intermediate Financial Accounting

Part B Consists of 5 questions for a total of 85 marks.

Question 1 Extractive Industries

(18 marks)

Jetson company paid $5.6 million for a mining property on 1 July 2017 after the geologists of the company estimated that a gold deposit found on the property would produce 42 000 ounces of gold. In each of the financial years 2017-2018 and 2018-2019, Jetson spent $225 000 per annum developing the property and, during 2018-2019 financial year, the company purchased and installed the following assets:

Asset

Cost

Estimated useful life

Mine building

$500 000

25 years

Mining equipment

$820 000

15 years

Processing equipment

$260 000

10 years

The buildings and mining equipment cannot be economically removed from the mine site, but the processing equipment can be removed and relocated to be utilised in another mining property. On 30 June 2019, engineers estimate that development and construction activities have resulted in $680 000 worth of restoration costs that Jetson is obligated to spend at the end of the mine’s life under Commonwealth legislation. The company nominates a discount rate of 8% as relevant for its gold operations. Production started on 1 July 2019 and company geologists estimate that it will take eight years to exhaust the economically recoverable reserves, after which time the mine property is expected to be sold for $100 000. Activities in the 2019-20 financial year were: Ounces of gold mined

5 500

Ounces of gold sold

4 800

Selling price per ounce

$450

Production costs (before depreciation and amortisation) Administration expenses

$90 000

Selling expenses

$205 000

Income tax expense

$150 000

$510 000

(Question 1 continued over page)

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Semester One Final Examinations, 2020

ACCT2110 Intermediate Financial Accounting

Question 1 Extractive Industries (continued) REQUIRED: (1) What are the depreciation expense and the amortisation expense for the year ended 30 June 2020? (11 marks) (2) What is the cost of goods sold (COGS) for the year ended 30 June 2020? (4 marks) (3) What is the finance cost related to restoration for the year ended 30 June 2020? (3 marks) Show your detailed calculations to support your answers. Round to the nearest $ amount.

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Semester One Final Examinations, 2020

ACCT2110 Intermediate Financial Accounting

Question 2 Intangible Assets

(19 marks)

Flintstone Ltd has several intangible assets to report at 30 June 2020 as follows: Research and development asset at recoverable amount

$250 000

Trademark at cost

$1 000 000

Masthead of a newspaper at directors’ valuation

$1 300 000

Additional information:

 The research and development asset comprises the following expenditure incurred in the research phase: $120 000, and in the development phase: $72 000. The development costs meet the test for capitalisation contained in AASB 138 ‘Intangible Assets’. The estimated recoverable amount for the development project is $250 000. No amortisation is required under AASB 138 until commercial production starts (scheduled to start in 2022).  Flintstone Ltd purchased a trademark for $1 000 000 2 years ago, which can be renewed indefinitely, subject to continued use. The management believed that the trademark could be sold for a minimum of $2 500 000.  Within the last year, Flintstone Ltd has spent considerable time and resources totalling $500 000 establishing a new national newspaper. Based on current figures, its circulation is expected to steadily increase for the foreseeable future years and directors have revalued the masthead to $1 300 000 which is what they estimate they could sell it for in the current economic conditions. REQUIRED: (1) For each asset, specify how it should be reported (i.e., capitalised or expensed) by Flintstone Ltd in accordance with the requirements of AASB 138 ‘Intangible Assets’. Provide justification. (8 marks) (2) For each asset, specify and provide justification for the following accounting decisions: (i) The appropriate measurement basis (identify any choices that may be available to the management of Flintstone Ltd, i.e., cost model or revaluation model.), (4 marks) and (ii) Whether the asset is subject to amortisation. (4 marks) (3) Calculate the carrying amount of each asset for the current year ended 30 June 2020. (3 marks)

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Semester One Final Examinations, 2020

ACCT2110 Intermediate Financial Accounting

Question 3 Employee Benefits

(16 marks)

Part A

(8 marks)

The employees of Thunderbirds Ltd are entitled to 13 weeks’ long service leave after 15 years’ continuous service. The company recognises the provision for long service leave using the projected unit credit approach. The following information has been compiled for calculating the liability for long-service leave as at 30 June 2020.

Years of service as at 30 June 2020

Number of employees as at 30 June 2020

Aggregate annual salaries for 2019-2020

Aggregate projected annual salaries when leave is due

Probability of becoming unconditionally entitled to longservice leave

4 22 550 000 940 000 0.35 16 2 80 000 80 000 1.00 Total 24 $630 000 $1 020 000 The long-service leave liability reported for the year ended 30 June 2019 was $22 360. During the 2019-20 financial year, there was no long service leave taken. The following relevant government and corporate bond rates have been identified. Period to maturity 3 years 4 years 11 years 12 years 16 years

Government bond rate (%) 3.0 3.5 7.0 8.0 9.0

Corporate bond rate (%) 3.5 4.0 8.0 10.0 11.0

REQUIRED: Prepare the general journal entries, including narrations, for the year ended 30 June 2020 to provide for long-service leave for employees in accordance with the requirements of AASB 119 ‘Employee Benefits’ . Show all calculations. Round to the nearest $ amount.

Part B

(8 marks)

Briefly explain the situations when the recognition of liabilities or assets for defined contribution and defined benefit post-employment plans is required in accordance with AASB 119 ‘Employee Benefits’.

Question 4 Financial Instruments

(14 marks) Page 8 of 13

Semester One Final Examinations, 2020

ACCT2110 Intermediate Financial Accounting

On 30 June 2018 Magoo Ltd issued 50 000 convertible notes with a face value of $50 million for a term of five years. Each note was convertible at the option of the holder into one ordinary share on or before maturity. The coupon interest rate is 7% per annum while the market interest rate for comparable non-convertible debt is 8% per annum. Interest is payable annually in arrears on 30 June during the term of the convertible notes. REQUIRED: In accordance with the treatment outlined in AASB 132 ‘Financial Instruments: Presentation’ and ensuring compliance with AASB 9 ‘Financial Instruments’ (1) Prepare the accounting entries, including narrations, to record (i) the issue of convertible notes on 30 June 2018, and (ii) the interest payment on 30 June 2019. Show your calculations.

(8 marks)

(2) Suppose the holders of the notes elect to convert the notes to ordinary shares on 30 June 2020. Prepare all of the the accounting entries, including narrations, required on 30 June 2020. Show your calculations. (6 marks)

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Semester One Final Examinations, 2020

ACCT2110 Intermediate Financial Accounting

Question 5 Foreign Currency

(18 marks)

On 15 June 2020, Kaos Ltd, an Australian entity, entered into a purchase commitment with Get Smart Co., a US supplier of engines, with those engines to be shipped on 30 June 2020, at which time control of the assets will be transferred to Kaos Ltd. The total contract price was US$4 000 000 and the full amount was due for payment on 30 August 2020. Because of concerns about movements in foreign exchange rates, on 15 June 2020, Kaos Ltd entered into a forward rate contract on US dollars with a foreign exchange broker to purchase US$4 000 000 on 30 August 2020 at a forward rate of $A1.00=US$0.75. Assume that the hedge satisfied the hedge accounting requirements of AASB 9 ‘Financial Instruments’, it was 100% effective and that Kaos Ltd had designated the hedging arrangement as a cash flow hedge. The financial year end of Kaos Ltd is 30 June. The following exchange rate information is available: Spot rate

Forward rate for delivery of US$4 000 000 on 30 August 2020

15 June 2020

A$1.00 = US$0.78

A$1.00 = US$0.75

30 June 2020

A$1.00 = US$0.76

A$1.00 = US$0.73

30 August 2020

A$1.00 = US$0.71

A$1.00 = US$0.71

REQUIRED: 1.Show all calculations on measuring fair values (and changes in fair values) of the hedged item and the hedging instrument on relevant dates. 2. Prepare general journal entries, including narrations, to record these transactions in Kaos Ltd’s books in accordance with the requirements of AASB 9 ‘Financial Instruments’.

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Semester One Final Examinations, 2020

ACCT2110 Intermediate Financial Accounting

END OF EXAMINATION Annuity tables and present value tables are provided at the back of the examination paper.

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Semester One Final Examinations, 2020

ACCT2110 Intermediate Financial Accounting

Present value interest factor of $1 per period at i% for n periods, PVIF(i,n). Period 1% 2% 3% 4% 5% 6% 7% 8% 1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 16 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 25 0.780 0.610 0.478 0.375 0.295 0.233 0.184 0.146 30 0.742 0.552 0.412 0.308 0.231 0.174 0.131 0.099 35 0.706 0.500 0.355 0.253 0.181 0.130 0.094 0.068 40 0.672 0.453 0.307 0.208 0.142 0.097 0.067 0.046 50 0.608 0.372 0.228 0.141 0.087 0.054 0.034 0.021

9% 0.917 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 0.422 0.388 0.356 0.326 0.299 0.275 0.252 0.231 0.212 0.194 0.178 0.116 0.075 0.049 0.032 0.013

10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 0.149 0.092 0.057 0.036 0.022 0.009

11% 0.901 0.812 0.731 0.659 0.593 0.535 0.482 0.434 0.391 0.352 0.317 0.286 0.258 0.232 0.209 0.188 0.170 0.153 0.138 0.124 0.074 0.044 0.026 0.015 0.005

12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.146 0.130 0.116 0.104 0.059 0.033 0.019 0.011 0.003

13% 0.885 0.783 0.693 0.613 0.543 0.480 0.425 0.376 0.333 0.295 0.261 0.231 0.204 0.181 0.16...