Reference no: EM131803989

Part A

Question 1

Framework:

Para 49(a) An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Para 89 An asset is recognised in the balance sheet when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably.

Fishy Company sells fresh fish caught in the river that runs through the company's property. The amount of fish caught in the river is unpredictable. Referring to the Framework, explain whether Fishy Company can recognise the river as an asset.

Question 2

Buzz Ltd uses the cost model for equipment and purchased equipment at a cost of $400,000 on 1 July
2013. It was depreciated using the straight-line method over 8 years with no salvage value.
On 1 July 2014 the recoverable amount was $290,000 so an impairment loss of $60,000 was recorded.
On 1 July 2015 $30,000 reversal of impairment loss was recognised.
Provide the journal entries to record the depreciation entry on 30 June 2015 and the reversal of the impairment loss on 1 July 2015 (round up to the nearest dollar, narrations not required).

Question 3

AASB 138 paragraph 8:

An intangible asset is an identifiable non-monetary asset without physical substance.
Explain why we had to create a new definition for intangible assets (explain why we have to expand on the definition of an asset from the Framework - see Question 1 for the definition).

Question 5

Is there a difference between disclosing for prior period errors and changes in accounting estimates? Briefly explain.

Question 6
Is the equity method of accounting used for joint arrangements? Explain, including why such a method would or would not be used.

Question 7
On 1st July 2012 Spring Co entered a loan agreement, borrowing 2 million USD from Winter Co (US company). The loan was for 4 years with interest of 9% due at the end of each financial year. Record the journal entries (rounded to nearest whole AUD, narrations not required) for the financial year ended 30 June 2013 if the exchange rates were as follows:
1 July 2012 1.00 AUD = 0.98 USD
1 January 2013 1.00 AUD = 0.90 USD
30 June 2013 1.00 AUD = 0.85 USD

Part B

Question 1
Framework:
Para 49(a) An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Para 89 An asset is recognised in the balance sheet when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured. Referring to the Framework, explain whether the lessor (the owner of the asset) or the lessee (the one that is leasing the asset) should record the leased asset as an asset in the balance sheet. Would your answer depend on whether it was a finance or an operating lease?

Question 2 Solid Company paid $150,000 for a machine on I July 2013. It was expected to have a life of six years after which it would be worthless. Solid Company uses the straight-line method for depreciation. On 1 July 2015 the machine is revalued to$120,000 with a remaining useful life of five years. Ignore tax. Provide the journal entries to record the revaluation on 1 July 2015.

Question 3 Explain the different accounting treatment for revaluing intangible as compared to tangible assets.

Question 4 Date of commencement of lease 1 July 2015 Duration of lease 8 years Fair value of machine at lease inception $871,172 Initial up-front payment $200,000 Lease payments at the end of each year $100,000 Lease is non-cancellable. Economic life of machinery is 10 years. Unguaranteed residual of $80,000 at end of lease term.

Required: Prove that the implicit rate of interest is 6% and provide the journal entries for the depreciation expense for the lessee at the end of the first year.

Question 4 Is a joint arrangement a subsidiary? Explain.

Question 5 On 1st June 2015 Lil's Importers Ltd acquires goods from a supplier in China for 1,000,000 CNY (Chinese yuan). The amount will be paid on 30th June 2015. Record the journal entries (rounded to nearest whole $A) if the exchange rates are as follows: 1 June 2015 1.00 AUD = 4.70 CNY 30 June 2015 1.00 AUD = 5.00 CNY