Reference no: EM132554043

ACC5200 Financial Reporting Assignment - University of Southern Queensland, Australia

A. On 30^th June, 2017 Utensilite Ltd had the following Motor Vehicle assets:

On 1^st July 2017 Utensilite Ltd acquired a 3^rd Motor Vehicle for $45,000 paying cash of $12,500 and negotiating a loan for the balance. The estimated life of the vehicle was 12 years and residual value $3,000. The vehicle was to be depreciated at the rate of 30% using the declining balance method.

Depreciation is recorded on 30^th June each year.

On 30^th September, 2017 and 30^th September, 2018 all three vehicles were serviced at a cost of $5,400.

On 31^st March, 2019 Vehicle No 1 is sold to Extratta Traders because for $8,000.

You are required to -

a. Prepare an extract from the Balance Sheet dated 30^th June, 2017 to show the Motor Vehicles account;

b. Record all the journal entries that took place from 1^st July 2017 to 30^th June 2019 (ignore GST and show all calculations).

c. If revenue for the financial year 2018 was $61,500, prepare an extract from the Profit and Loss Statement at 30^th June 2018 indicating associated expenses for motor vehicles for the year.

d. Prepare an extract from the Balance Sheet dated 30^th June, 2019 to show the Motor Vehicles account.

B. Why would Utensilite choose the two methods of depreciation it has? What is the impact of each method on Profit figures over the life of the asset? Describe two other depreciation methods that could have been used to depreciate the motor vehicles. Which of the four methods do you believe is most appropriate for motor vehicles and why?

Question 2 -

A. What, if anything is the difference between cost, recoverable amount and fair value and why is this important in relation to non-current assets?

B. How is 'impairment of an asset' different from 'amortisation of an asset'? Give an example that enhances your explanation.

C. Describe three incentives that management might have to revalue assets?

D. Who should be responsible for providing valuations on which to base revaluations and how should they be derived? What are the disclosure requirements for these valuations?

E. Mattamax Ltd owns two buildings acquired in 2016 for the purpose of future development. Building A cost $290,000 and Building B cost $330,000.

Valuations of the blocks are undertaken by an independent valuer on 30^th June 2018 and 2020. The assessed values are as follows:

(a) Provide the journal entries for the revaluations that were undertaken in 2018 and 2019 for the buildings.

(b) What might the economic consequence of asset revaluations be for the business?

Question 3 -

A. What is the difference between internally generated intangible assets and those generated through external transactions? Discuss with examples.

B. Do you think recognising internally generated intangible assets leads to incorrect reporting of intangible assets? Give an example to support your answer.

C. Innovation Ltd reports the following intangible assets

The following information is available:

(i) Patents were acquired at a cost of $95m and were revalued soon afterwards. They have an estimated life of 20 years of which 15 remain.

(ii) The trademark can be renewed indefinitely subject to continued use. The costs were for registration fees which were initially expenses but recognised five years later as the trademark became recognised by consumers.

(iii) Goodwill has been purchased 3 years ago and will be amortised on the straight line basis.

(iv) The brand name has been internally generated and is stated at fair value.

(v) The licence has a 15 year life of which 10 years remain. It can be traded in an active market and has a fair value of 25m.

You are required to -

a. State how each asset or class of asset, should be reported in accordance with AASB 138.

b. Apply AASB 138 and state the carrying amount and whether each asset/asset class should be amortised. As part of this answer specify any choice of methods permitted for Iinvent Ltd.

Question 4 -

A. In 2019 AASB 16 the Leasing standard changed. You are required to research the implications of the AASB 16 standard in terms of the questions below (maximum 400 words).

Make sure you reference any material used in your answer and include the reference list at the end of your answer.

a. Describe major changes to be adopted under standard AASB16 in terms of agreements that meet the definition of a lease? For example what key evaluations will need to be made in order to apply the definition?

b. Which businesses will be affected under AASB16?

c. Are there any exceptions from lease accounting? For example will hire purchases agreements and rights held under licencing agreements such as motion picture films, patents and copyrights be caught by AASB16?

d. What are the impacts of AASB 16 in terms of how leases are reported on the Income Statement and Balance Sheet?

B. Determine for each of the following arrangements the manner in which the relevant lease should be classified by the lessor according to IFRS 16/AASB 16. Give reasons for your answers.

(i) Company A enters into a non-cancellable lease for machinery with a term of 8 years. The machinery has a useful economic life of 12 years. Company A as an option to renew the lease with the same rental for a further four years, even though market rentals are expected to increase with inflation over the next decade. The present value of the lease payments is 70% of the fair value of the machinery.

(ii) Company B enters into a non-cancellable lease with a 7 year term for an item of plant which has a useful life of 10 years. The present value of future lease payments is equal to 75% of the fair value of the asset at the date of inception of the lease. The residual value accounts for the remaining 25%. So confident is the lessor that the plant will retain its value that it is guaranteeing 50% of the residual value, with the lessee being responsible for guaranteeing the remaining 50% of the residual value.

Question 5 -

a. What is a provision and how is it measured?

b. What is a 'contingent liability' and how will it be disclosed in the financial reports?

c. Surfcom makes powered surf boats. At the end of the reporting period data provided suggests:

(i) If small defects arise with all of the products that have been sold, the related repair costs would be $3.5 million.

(ii) If significant defects arise with all of the products sold the related costs would be $12 million.

(iii) Based upon past experience within the company and within the industry, it is believed that 75% of all products will have not defects, 15% will have small defects and 10% will have significant defects.

Required:

1. Show calculations to determine what the balance for provision for warranty repairs should be.

2. What journal entry would be made to record this?

d. The draft financial statement for the year ending 30 June 2019 for Greenwood Ltd are being completed. You have been informed that a senior employer who was dismissed in January 2019 has taken action against the company alleging wrongful dismissal and claiming damages of $600,000. Greenwood Ltd's lawyers are not sure of the likelihood that the former employee will be successful with the claim but they think the probability is less than 25%. The outcome of the action is expected to be settled by December 2019. Legal costs, not recoverable, are estimated at $150,000 regardless of the outcome of the action. Of this amount $30,000 has already been incurred in the months to June 30, 2019. This amount has not yet been paid as at 30^th June.

(i) Explain how the above matter should be treated within the financial statements and accompanying notes of Greenwood Ltd for the year ending 30^th June, 2019.

(ii) Record any necessary journal entries.

Attachment:- Financial Reporting Assignment Files.rar