Session 1 Exam 2019 PDF

Preview

Summary

2019 Session 1 Exam Paper...

Description

SEAT NUMBER: ……….… ROOM:..………………. FAMILY NAME:………….....…………………………. This question paper must be returned. Candidates are not permitted to remove any part of it from the examination room.

OTHER NAMES:……..…….…………………..…….. STUDENT NUMBER:…..…….………..……………..

FORMAL EXAMINATION PERIOD: SESSION 1, JUNE 2019 Unit Code:

ACCG224

Unit Name:

Financial Accounting and Reporting

Duration of Exam (including reading time if applicable):

Three (3) Hours + 10 Minutes Reading Time

Total No. of Questions:

Seven

Total No. of Pages (including this cover sheet):

Ten

GENERAL INSTRUCTIONS TO STUDENTS: • Students are required to follow directions given by the Final Examination Supervisor and must refrain from communicating in any way with another student once they have entered the final examination venue. • Students may not write or mark the exam materials in any way during reading time. • Students may only access authorised materials during this examination. A list of authorised material is available on this cover sheet. • All watches must be removed and placed at the top of the exam desk and must remain there for the duration of the exam. All alarms, notifications and alerts must be switched off. • Students are not permitted to leave the exam room during the first hour (excluding reading time) and during the last 15 minutes of the examination.

•

If it is alleged you have breached these rules at any time during the examination, the matter may be reported to a University Discipline Committee for determination.

EXAMINATION INSTRUCTIONS: 1. This is a closed book exam. 2. ALL questions are to be attempted. Write your answers in the ANSWER BOOKLET provided. 3. Narrations are not required unless specifically asked for in the question. 4. Tables with present value factors for annuities and single payments are provided at the end of this question paper. 5. Total marks for this paper are 100. Marks for each question are as follows: Question

Topic

Marks

1

Accounting Regulation, Conceptual Framework and Intangible Assets

/10

2

Accounting for Impairment

/15

3

Accounting for Leases

/15

4

Revenue Recognition and Presentation of Financial Statements

/20

5

Alternative Reporting Framework

/8

6

Statement of Cash Flows

/17

7

Company Accounting

/15

Total marks

/100

MATERIALS PERMITTED: Non-programmable calculators that do not have text retrieval capacity/alphabet on keyboard. MATERIALS NOT PERMITTED: Any notes, textbooks or other written materials. Any form of dictionaries.

Question One: Accounting Regulation, Conceptual Framework and Intangible Assets (10 marks) Part A: (3 marks) Applying the conceptual framework is subjective and requires judgement. Would the IASB be better off to abandon the conceptual framework entirely and instead rely on a very active interpretations committee that develops detailed guidance in response to requests from constituents? Discuss.

Part B: (3 marks) Recently, $20 000 cash was stolen from Freman Ltd’s night safe. Explain how Freman should account for this event, justifying your answer by reference to relevant conceptual framework definitions and recognition criteria.

Part C: (4 marks) Accounting for brands West Ltd is a leading company in the sale of frozen and canned fish produce. These products are sold under two brand names. Fish caught in southern Australian waters are sold under the brand ‘Artic Fresh’, which is the brand the company developed on 5 July 2017 at a cost of $20 000. Fish caught in the northern oceans are sold under the brand name ‘Tropical Taste’, the brand developed by Fishy Tales Ltd and acquired at a cost of $25 000. West Ltd acquired all the assets and liabilities of Fishy Tales Ltd on 1 December 2017 when it took over that company’s operations.

Required Discuss how these two brands should be reported in the statement of financial position of West Ltd at 30 June 2018.

2

Question Two: Accounting for Impairment

(15 marks)

Part A: (12 marks) Impairment of a CGU Terry Ltd reported the following assets in its statement of financial position at 30 June 2018. Plant Accumulated depreciation Land Brand Goodwill Machinery Accumulated depreciation Inventories Cash

$400 000 (120 000) 150 000 120 000 20 000 310 000 (170 000) 110 000 90 000

The recoverable amount of the entity was calculated to be $830 000. The fair value less costs of disposal of the land was $140 457. Required Prepare the journal entry for any impairment loss at 30 June 2018. Note: Round off to the nearest whole number.

Part B: (3 marks) Impairment under the revaluation model ‘Impairment is only relevant to assets carried under the cost model. For assets carried under the revaluation model, such as our land and buildings, increases and decreases in fair value dictate whether carrying amounts are adjusted up or down. We don’t bother testing land and buildings for impairment.’ Required Critically evaluate the above statement.

3

Question Three – Accounting for Leases

(15 marks)

Part A: (12 marks) Peter Ltd leases a Machine from Tom Ltd and enters into a lease agreement on 1 July 2016. The Machine had a fair value of $476 514 on that date. The terms of the lease agreement are as follows: Lease Term Economic Life of the Machine Annual rental payments, in arrears (commencing 30 June 2017) Residual value of the Machine at the end of the lease term Residual value guaranteed by Peter Ltd Interest rate implicit in the lease

3 years 5 years $165 000 $90 000 $60 000 6%

At the end of the lease term, the Machine is to be returned to Tom Ltd. The lease can only be cancelled with the permission of the lessor. The annual rental payment includes $15 000 to be reimbursed to the lessor for the maintenance costs incurred on behalf of the lessee. Required a. Prepare the lease payments schedule for the lessee (show all workings). (4 marks) b. Prepare the journal entries in the books of the lessee from 1 July 2016 to 30 June 2017. (4 marks) c. Prepare the lease receipt schedule for the lessor (show all workings). (4 marks) Narrations are NOT required. Round off the number to the next whole number. Part B: (3 marks) Identify two possible adverse effects on a lessee’s entity’s financial statements arising from recognition of a lease arrangement on the statement of financial position for lessee.

Question Four: Presentation of Financial Statements

(20 marks)

Part A: (3 marks) List two limitations of a statement of financial position as a source of information for users of general-purpose financial statements. Part B: (4 marks) Revenue Recognition 1.

A contract for the rendering of services is entered on 1 February 2019. The buyer pays for the services on 25 February 2019 and the service is yet to be performed.

Required State at which date(s), if any, revenue will be recognised 2. Arizona Ltd sells goods to Barbados Ltd. The agreement between the two parties’ states that Barbados Ltd pays for the goods in advance of delivery which will occur in 12 months’ time. The control of the goods passes to Barbados Ltd at the date of delivery. Barbados Ltd pays $40 000 to Arizona Ltd on 1 July 2017. Arizona Ltd delivers the goods to Barbados Ltd on 1 July 2018. Required Advise Arizona Ltd on how to appropriately recognise the revenue from this transaction by showing the journal entries. 4

Part C: (13 Marks) Statement of Profit or Loss and Other Comprehensive Income and Statement of Changes in Equity An extract of the general ledger trial balance of Kelly Limited has been provided to you to prepare the Financial Statements for this company. The extract includes the following accounts at 30 June 2018: DR $ Sales revenue Proceeds on Sale of Property Carrying Value of Property Sold Cost of Goods Sold Distribution Expenses Selling Expenses Administration Expenses Interest Expense Other Borrowing Costs Share Capital (as at 1 July 2017) Retained Earnings (as at 1 July 2017) Asset Revaluation Reserve (as at 1 July 2017) General Reserve

CR $ 970 000 25 000

26 000 510 000 49 000 58 200 29 500 24 500 10 000 541 200 358 600 51 700 46 200

Additional information: 1. The company follows the revaluation method of accounting for its PPE. During the year the following assets were revalued: a. Land was revalued upwards during the year by $20 000. b. Factory building was also revalued upwards during the year by $20 000. 2. 30 000 shares were issued during the year at a price of $1.50 per share 3. The company directors declared and paid a dividend of $25 000 during the year. 4. There was a transfer of $15 000 from retained earnings to General Reserve during the year. 5. Kelly Limited uses the single statement format for the Statement of Profit or Loss and Other Comprehensive income and classifies expenses by function. 6. Income tax rate is 30%.

Required i. Prepare the Statement of Profit or Loss and Other Comprehensive Income for Kelly Limited for the year ended 30 June 2018. (10 marks) ii.

Prepare the Statement of Changes in Equity for Kelly Limited for the year ended 30 June 2018. (3 marks)

5

Question Five: Alternative Financial Reporting

(8 marks)

Part A: (4 marks) Susan Ltd wants to focus on ‘people, profits, planet’. The board of directors has proposed linking top managers’ pay to broad measures of environmental sustainability, and worker and customer satisfaction. The board proposes that bonuses for management will be linked to targets such as the reduction of greenhouse gas emissions and energy use, the introduction of new environmentally friendly products and improvements in workforce morale. Required Advise the board of the potential implications, two positive and two negative, of the proposed remuneration policy.

Part B: (4 marks) ‘If environmental disclosure in business financial statements remain unregulated and in the hands of individual accountants, then financial reporting of the environmental impacts of business in likely to remain piecemeal and biased’ (Australian Financial Review 1995, p.34). Suggest two regulations that can improve the quality of corporate reporting on environmental issues.

6

Question Six: Statement of Cash Flows

(17 marks)

A summarised comparative statement of financial position of Gold Ltd is presented below, together with a statement of profit or loss and other comprehensive income for the year ended 30 June 2018.

Cash Trade receivables Allowance for doubtful debts Inventories Available-for-sale investments Plant Accumulated depreciation

Accounts payable Accrued interest Current tax payable Deferred tax Borrowings Share capital Investment revaluation reserve Retained earnings

30 June 2017 $ 135 000 207 000 (9 000) 135 000 159 000 561 000 (105 000) $1 083 000 $ 195 000 15 000 45 000 90 000 240 000 300 000 6 000 192 000 $1 083 000

30 June 2018 $ 105 000 315 000 (18 000) 201 000 180 000 675 000 (159 000) $1 299 000 $ 225 000 21 000 54 000 111000 300 000 300 000 21 000 267 000 $1 299 000

GOLD LTD Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2018 Sales $3 105 000 Cost of sales (2 322  000) Gross profit 783 000 Distribution costs (228  000) Administration costs (288  000) Interest expense (21  000) Profit before tax 246  000 Income tax expense (72 000) Profit for the year 174 000 Other comprehensive income Gain on revaluation of investments (net of tax) 15  000 Total comprehensive income $ 189 000 Additional information (a) The movement in the allowance for doubtful debts for the year comprises: Balance at 30 June 2017 $ 9  000 Charge/expense for year 15  000 Bad debts written off (6  000) Balance at 30 June 2018 18  000 (b) Available-for-sale investments are measured at fair value, with increases/decreases being recognised in other comprehensive income, and accumulated in the investment revaluation reserve until investments are sold. (c) There were no disposals of plant during the year. (d) A dividend of $99 000 was paid during the year. (e) There were no acquisitions or disposals of investments during the year.

Required: Using the direct method of presenting cash flows from operating activities, prepare a statement of cash flows in accordance with AASB 107/IAS 7 for the year ended 30 June 2018. 7

Question Seven: Company Accounting

(15 marks)

On 1 February 2018 the directors of Marvel Ltd invited applicants for 100 000 ordinary shares for an issue price of $5 per share, payable $3 on application, $1 on allotment and the balance when needed to be called at a later date. Under the prospectus, in case of oversubscription, the directors can apply the surplus application money to offset against the payable on allotment and call. By the 28 February 2018 closing date, applications for 110 000 shares were received of which applicants for 30 000 shares paid the full issue price on application and the balance paid only the application money. On 2 March 2018, the directors decided to issue 100 000 shares as per the following breakdown: a) allot shares in full for the applicants who had paid the full share price b) allot the remaining shares on a proportional basis to the remaining applicants. The balance of the allotment money was received by 20 March 2018. Share issue costs of $2 800 were also paid on the same date. On 10 November 2018, the directors made a further call for the remaining unpaid balance. All outstanding call monies except a parcel of 5 000 shares were received by 30 November 2018. The directors decided to forfeit the 5 000 shares on the same date. On 10 December 2018, the forfeited shares were reissued as fully paid ordinary shares for a consideration of $4.60 per share. The constitution allows for the refund of any balance in the forfeited shares account after reissue to former shareholders.

Required: Prepare journal entries to record all of the above events. Narrations are NOT required. (15 marks)

8

9

10...