Reference no: EM133072508 , Length: word count:3000
HI5020 Corporate Accounting - Holmes Institute
Purpose: Developing an understanding of students on different classes of assets and liabilities reported by companies and the measurement basis used for each class of assets. It also aims at developing an understanding of students on different items reported as Other Comprehensive and their significance (ULO 1, 3, 4, 5). Students are then required to examine the measurement, accounting treatment, and disclosure of asset retirement/environmental rehabilitation obligations in detail.
Part A
Select the latest annual report of an ASX listed company. From the annual report, complete the following tasks:
1. Identify all categories of assets reported by the company.
2. For each identified category of assets, explain the measurement basis used for the asset (e.g. historical cost, fair value, current market price).
3. Identify each category of liabilities reported by the company
4. For each identified category of liabilities, explain the measurement basis used for the liability (historical cost, fair value, current market price)
5. Identify all items that the company has reported as Other Comprehensive Income.
6. What is the significance of classifying an item as other comprehensive income?
Part B
Your client, Hazelton Mining, recently entered into an agreement to obtain the rights to operate a coal mine in West Virginia for $15 million. Hazelton incurred development costs of $6 million in preparing the mine for extraction, which began on July 1, 2016. The contract requires Hazelton to restore the land and surrounding area to their original condition after extraction is complete in three years.
The company controller, Alice Cushing, is not sure how to account for the restoration costs and has asked your advice. Alice is aware of an accounting standard addressing this issue but is not sure of its provisions. She has narrowed down the possible cash outflows for the restoration costs to four possibilities:
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Cash Outflow
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Probability
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$3 million
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20%
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4 million
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30%
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5 million
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25%
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6 million
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25%
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Alice also informs you that the company's credit-adjusted risk-free interest rate is 9%. Before responding to Alice, you need to research the issue.
Required:
a. With reference to relevant accounting standards, explain how to measure assets retirement obligations and how to account for assets retirement obligation.
b. Determine the capitalized cost of the coal mine (what should be the initial costs of the coalmine?)
c. Prepare a summary journal entry to record the acquisition costs of the mine.
d. How much interest expense will the company record in its income statement for the 2016 fiscal year, related to this transaction?
e. Explain to Alice how Hazelton would account for the restoration if the restoration costs differed from the recorded liability in three years. By way of explanation, prepare the journal entry to record the payment of the retirement obligation in three years assuming that the actual restoration costs were $4.7 million.
f. Describe to Alice the necessary disclosure requirements for the obligation.
Attachment:- Corporate Accounting.rar