Reference no: EM132909834

PART A

Question 1. How is the recoverable amount of an asset determined according to AASB 116?

a The lower of an assets fair value less costs.
b. The higher of an assets fair value less costs.
c. The higher of an assets fair value plus costs.
d. The lower of an assets fair value plus costs.

Question 2. What are the fundamental qualitative characteristics identified in the IA5B Conceptual framework for financial reporting?
a. Completeness and freedom from error.
b. Materiality and measurement
c. Relevance and faithful representation d. Communication and measurement.

Question 3. On 1 July 2020 Ditto Ltd entered into an agreement with a US based company (Faulkner) to build a piece of equipment. As the asset is under construction the item will be treated as a qualifying asset according to AASB 123. The cost of the equipment was $USD 750,000.

The equipment had completed its build on the 30 June 2021 and was shipped to Australia FOB USA an this date.

The relevant exchange rates were as follows;
1 July 2020      $AUD 1.00 = $USD 0.69
30 June 2021   $AUD 1.00 = $USD 0.77

What is the change in the value of the equipment in Ditto's accounts as at 30 June 2021?
a. $60,000 DR
b. $112,931 CR
c. $112,931 DR
d. $60.000 CR

Question 4. Envirocare Ltd acquires a piece of machinery from Blame Ltd for consideration as follows:,
Cash $150,000
Building (In the accounts of Envirocare the building is recorded at its cast of $1,500,000. It has a fair value of $2,000,000.
Envirocare has also agreed to pay out Biome's creditors of $350,000 as part of the purchase price. What is the total acquisition cost?
a. $2,500,000
b. $2,000,000 a $1,800,000 d. $1,300,000

Question 5:  AASEB requires entities to account for business combinations using the acquisition method. According to this standard applying the acquisition requires four steps to be taken. Which of these is not a step according to AASB 3?
a Determining the acquisition date
b. Identifying the acquirer Re,cagasiuc. and measuring the identifiable assets acquired, the liabilities assumed and non control line interest in the acquired
d. Etg,cagnbiag. a gain from a bargain purchase only

Question 6. According to AASB 137 a provision is a liability whereby the timing of the amount is uncertain. Which of the following would not be considered a provision according to the standard'?
a. A car yard has issued its purchasers of the new Mazda 3 a two year warranty on any manufacturer faults.
b. The company is planning on renovating its offices and plans on offsetting an amount to cover these costs in the future.
c. BHP have signed a legal agreement with the Western Australian government to fund the clean u of the tailings from a contaminated mine site
d. A retailer of home wares is concerned that one its largest customers may not pay the amount owing to them. The business has decided to write this amount off in their accounts, just in case this customer does not pay their account.

Question 7. If an entity has generated a net profit for the 2020/2021 financial year of $750,000 and would typically need to pay tax on this full amount However, the company has unused tax losses of $250,000 that it can apply against this profit. The unused tax loss is an example of a?
a. Deferred tax liability b. Temporary difference c. Deferred tax asset
d. Tax expense

Question 8. Maxwell Ltd is an Australian company that has its goods manufactured in China. The Chinese manufacturer prefers that the payments for the goods are in $USD. An order has been placed by Maxwell Ltd with the Chinese manufacturer on 31 March 2021 for $USD 270,000. On this date the exchange rate was $AUD 1.00 = $USD 0.76.

The goods will be delivered on the 30 June 2021 and this is the date that inventory will need to be paid.

In order to minimize the risk of exchange rate fluctuations, the company enters into an agreement with a bank to but $USD 270,000 on 30 June 2021 at a rate of $USD 0.78

This is an example of what type of agreement (explain) and what amount will the company pay on 30 June 2021 for the goods?
a. Forward rate agreement; $346,153.85
b. Foreign exchange option, $355,263.16
c. Forward rate agreement; $355,263.16
d. Foreign exchange option, $346,153.85

Question 9. Apple Ltd owns 100% of Banana Ltd. Banana Ltd owns 100% of Carrot Ltd. During the year Apple Ltd sells inventory to Banana Ltd at a sale price of $225000. The inventory cost Apple Ltd $175000 to produce. During the year Banana Ltd sells this inventory to Carrot Ltd for $300,000 with no additional associated costs. At the end of the year Carrot Ltd has sold half of this inventor)/ to customers outside of the group far $400,000. Carrot Ltd still has half of the inventory an hand at the end of the financial year

From the group's perspective what is the value of the inventory on hand at the end of the financial year?
a. $87500 b. $300.000 c.$112.500 d. $150.000

Question 10. Which of the following is not a major consolidation concept?
a. The entity concept
b. The proprietary concept a The control concept
d. The parent entity concept

PART B

QUESTION 1. Emerald Ltd has capital that comprises of 400,000 shares issued at $3.00 and paid to $1.50 as at 30 June 2023. On 1 September, 2023 a call of $1.20 per share is made.
The amount of the call is due arid payable by 14 November 2023.

A total of 250,000 shares of the total capital of 400,000 shares are paid up on the required call.

On the 30 November 2023: the directors decide to forfeit those shares that are not paid on the call and reissue them at $2.50 per share.
The reissue occurs on the 15 December 2023. Various costs are associated with the reissue of the shares. These costs include,
• Legal fees $5,000
• Brokerage fees $2,500
• Feasibility studies $1,500
• Marketing and promotion $3,000
• Overtime paid to employees $1,000

According to EmeraldU Ltd's constitution there is a requirement that any surplus made on a resale of forfeited shares proceeds are to be returned to the former shareholder.

(a) Provide journal entries to record the transactions for this event (you will need to include narrations for your journals).
(b) Is there any requirement for the equity account of a reporting entity to meet any specific recognition criteria? Explain.

QUESTION 2.

Greenacres Ltd is an organic farming company that sells organic fruit and vegetables as well as seeds and seedlings to its customers_ The company commenced operations on July 1 2019. An accounting profit before income tax of 5420,000 was reported for the year ended 30 June 2020. This accounting profit included the following;
Depreciation of equipment $50,000
Impairment of goodwill  $15,000

Long service leave  $35,000
Annual leave  $25,000
Doubtful debts  $45000
Entertainment costs $17,000

The following information was extracted from the statements of financial position for the company on 30 June 2020:

Additional information
• Total revenue for the 2020 financial year was $6500,000.
• Accumulated depreciation on equipment for tax purposes as at 30 June 2019 was $180,000. Tax depreciation for the year ended 30 June 2020 was $40,000.
• Bad debts written off amounted to $45,000 for the year ended 3D June 2020.
• Payments for long service leave for the financial year 2020 were $25,000
• Annual leave paid during the financial year 2020 amounted to $35000.
• The company tax rate is 30%.
Required:
(a) Determine the taxable income for the financial year ended 30 June 2020.
(b) Provide the amount for income tax expense for the year ended 30 June 2020.
(c) Prepare the journal entry to record the current tax liability as at 30 June 202D.
(d) Prepare a deferred tax worksheet that incorporates taxable and deductible temporary differences.
(e) What was the temporary difference for the equipment for 30 June 2020? What did this temporary difference mean for Greenacres Ltd?
(f) Prepare the journal entries for deferred tax assets and deferred tax liabilities as at 30 June 2020.

QUESTION 3.

Greenacres Ltd purchased a John Deere tractor to assist with harvesting of their crops for $200,000 on 1 July 2018. The tractor is expected to have a useful life of 10 years, arid no residual value. After this time the tractor will be used on the farm as a decoration piece. Greenacres Ltd uses the straight-line method of depreciation for non-current assets.

On 1 July 2020, the tractor was revalued to $220,000 (this has been a common occurrence for farming equipment due to the low supply of equipment from the supply chains). Asa result of this valuation it is expected that the tractor will have a remining useful life of 3 years,

On 31 December, the farm was experiencing significant cash flow issues and has had to sell the tractor as a result for $250,000

The company uses the revaluation model to record non-current assets_ The tax rate is 3D%. The reporting date is 30 June.

Required:
(a) Prepare the relevant journal entries to record the transactions for the tractor for the years 2019, 2020 and 2021 financial years. Ensure that you include all relevant narrations and tax effect entries where required.

(b) If a company chooses to use the cost method or the fair value method in order to measure the property, plant or equipment that it holds, can the company change the method that it uses after it has already implemented a method? Explain

QUESTION 4.

Jimmy Flex Ltd an Australian based company who entered into a long term manufacturing agreement with Space X LL C on 1 January 2020. Space X LL C will produce for Jimmy Flex Ltd a communications satellite, incorporating new laser technology at a fixed price of SLISD 10M.

The new satellite was delivered to the company on 30 April 2021, whereby two months of testing was performed to ensure that the satellite will meet the needs of Jimmy Flex Ltd.

Once the testing is complete and the company is satisfied that the satellite is working payment of $USD 10M is due to Space X LLC for this amount on 31 July 2021.
1 January 2020 $USD 0.7011 = $AUD 1.00
3D June 2020 $USD 0.6872 = $AUD 1.00
30 April 2021 $USD 0.7775 = $AUD 1.00
30 June 2021 $USD 0.7787 = $AUD 1.00
31 July 2021 $USD 0.7815 = $AUID 1.00

a) Prepare the relevant journal entries (including narrations) to record the purchase of the satellite and other relevant transactions associated with this purchase, in accordance with the applicable accounting standards_ Ensure that you also include an explanation as to the treatment that you have adopted for each of the transactions and show any necessary workings.

b) Explain why we need to translate foreign currency balances, the meaning of functional currency and three (3) examples of foreign currency transactions

QUESTION 5.

Royal Pines Ltd acquired 100 per cent interest in Emerald Lakes Ltd on 1 July 2019 for $1,500,000. All of the assets arid liabilities were fairly stated at acquisition date. At the date of acquisition the equity of Emerald Lakes Ltd included the following:

Share capital  $1,000,000
Retained earnings 300,000
                         $1,300,000

The reconciliation or retained earnings and statements of financial position of Royal Pines Ltd and Emerald Lakes Ltd as at 30 June 2020 were as follows-,

Other information
• Emerald Lakes Ltd paid Royal Pines Ltd management fees of $45,000 on 31 May 2020.
• The management of Royal Pines believed that goodwill acquired was impaired by 15% for the financial year 2020.
• During the 2020 financial year Royal Pines Ltd sold inventory to Emerald Lakes Ltd at a sale price of $80,000.
• The inventory cost Royal Pines Ltd $60,000 to produce. As at 30 June 2020 half of the inventory is still on hand with Emerald Lakes Ltd.
• The tax rate is 30 per cent.

Required:
a) Prepare the consolidation entry to eliminate the investment in Emerald Lakes Ltd.
b) Prepare relevant consolidation journal entries based on information provided.
c) Prepare the consolidated statement of financial position and consolidated statement of profit or loss as at 30 June 2020. Use the worksheet provided in preparation of the consolidated financial statements.

Attachment:- Exam.rar