ACC514 - Financial Accounting
Session 2 2015
Faculty of Business
School of Accounting and Finance Internal Mode
Subject Overview
This subject, which builds upon the introduction to financial accounting provided in the prerequisite subject, begins with an introduction to the regulatory environment for financial reporting and an overview of the conceptual framework for financial reporting principles and standards. The major focus is the form and content of published financial reports and the application of generally accepted accounting principles and specific financial reporting standards relating to concepts of recognition, measurement, disclosure, revaluation and impairment of financial statement elements.
Learning outcomes
On successful completion of this subject, you should
be able to prepare basic financial statements for reporting entities;
be able to discuss critically and comprehensively the statutory and professional requirements upon which published financial statements are based; be able to explain the form and content of financial statements;
be able to interpret and apply generally accepted accounting principles and specific financial reporting standards relating to concepts of recognition, measurement, disclosure, revaluation and impairment of key financial statement elements.
Lecturer Details
Subject Coordinator Girish Buskalowa Email gbuskalowa@studygroup.com Phone To be advised.
Contact phone number 0434 829 332
Campus Other
Building/Room number To be advised.
About your lecturer
TBA
Learning, Teaching and Support Strategies
Class times and location TBA
Please note that all classes will take place in 30 Church Lane (new Building).
Compusory workshop or Residential School
There is a compulsory Workshop for this subject which will be held around the mid semester break. You will be advised of the precise date closer to workshop sessions.
How to contact your lecturer
Your lecturers will be available during certain times every week for Classes.
If you are emailing your lecturer, please email from your studygroup email. This will avoid your email being treated as SPAM. Please send a brief message regarding the issue, stating the subject code and your name and ID number in the email title/subject. This will avoid your email being treated as
SPAM.
The email of your lecturers will appear on the home page of this subject.
How you are expected to engage with the subject
All of your subject materials are available on the Interact site under the Topics link in the left hand side menu. I suggest that for each topic you read the learning objectives carefully, review the topic powerpoint, review the topic notes and read the relevant text references. As you are undertaking these tasks, try and make a good set of notes highlighting the key concepts being covered in the topic. Once you feel satisfied with what you have learnt in the topic, complete the relevant tutorial exercise.
In this subject there are many opportunities for you to engage with myself, with other students in class.
Successful study is directly linked to the student's early engagement with the subject. Assessment Item 1 have been designed to facilitate your early and regular engagement with the ACC514 subject matter. If you cannot complete Assessment Item 1, the university may contact you by email and/or phone to see if you are experiencing problems and whether you require assistance.
If you have any issues or concerns, please do not hesitate to contact your class lecturer.
Your workload in this subject
Each week you should spend around 9 - 11 hours studying this subject including your class participation – obviously some weeks may require more time than other depending on how you work – but the following is a guide for your information.
Online study guide and supporting readings: 3.0 hours
Preparation of answers to topic review questions: 2.0 hours
Online quiz for reinforcement of learning: 1.0 hour
Participation in weekly classes : 3.0 hours Preparation of assessment items: 2.0 hours
Text and Learning Materials
Prescribed text(s)
Loftus, J., Leo, K., Picker, R., Wise, V., & Clark, K. (2013). Understanding Australian Accounting Standards. (1st edition). Brisbane: John Wiley & Sons Ltd.
AND
CAANZ Financial Reporting Handbook 2014 or 2015. Brisbane: John Wiley & Sons Ltd.
*The learning activities for each topic include:
1. Reviewing the following:
- The topic notes in Interact ‘Topics’.
- The topic powerpoint revision slides.
2. Completing the following:
- The textbook and handbook readings as directed in the 'Topic' notes. - Review questions and forum activities / discussion questions as detailed in the Interact ‘Topic’ notes.
- Revision True/False quiz in Interact 'Tests'.
3 . Class Attendance and participating during the session.
Please note that depending on which class day you allocate yourself to, the classes might have the catch up class in either week 3,4 or 5. This information will appear on the front page of this ACC514 site. This version of the study plan assumes the make-up class will be in week 3. Hence your study plan may differ to this one.
Assessment Information
Introduction to assessment
To protect the academic integrity of the subject, you may be asked to complete an additional test ( which may be verbal) if I or another member of the teaching staff have doubts that the work that you have submitted for an assessment item is your own. This test would be held within 4 weeks of the submission of the assessment.
Detailed information regarding:
Sample exam (for subjects with a formal exam)
Pass requirements
Grades
Presentation
Submissions
Extensions
Penalties for late submission
Assignment return
Resubmission Plagiarism
are included in Appendix 1.
* due date is the last date for assessment items to be received at the University
** applies only to assessment items submitted by the due date
Assessment item 1
5 Online tests
Value: 10 %
Due date: Variable
Return date: -
Submission method options
Interact2 Test
Task
This assessment task consists of 5 online tests, each contributing to 2% of your overall assessment mark, as detailed below. Each test will consist of 6 multiple choice questions, and advice will be given as how to access the tests at the beginning of the session. The online tests will be timed, with 20 minutes to complete each test.
Online Test 1 (covering topics 1 and 2): This test will be open from 27 July – 14 August 2015 (11:59 pm AEST ).
Online Test 2 (covering topics 3 and 4): This test will be open from 27 July – 28 August 2015 (11:59 pm AEST ).
Online Test 3 (covering topics 5 and 6): This test will be open from 27 July – 25 September 2015 (11:59pm AEST).
Online Test 4 (covering topics 7 and 8): This test will be open from 27 July – 25 September 2015 (11:59 pm AEST ).
Online Test 5 (covering topics 9 and 10): This test will be open from 27 July – 9 October 2015 (11:59 pm AEST ).
Please note that each online test can be completed at any time during the periods stated above.
Rationale
This assessment task is designed to assess your understanding of each topic, and to ensure that you are engaging with the subject content on a regular basis. More specifically, it seeks to assess your ability to:
prepare basic financial statements for reporting entities;
discuss critically and comprehensively the statutory and professional requirements upon which published financial statements are based; explain the form and content of financial statements; interpret and apply generally accepted accounting principles and specific financial reporting standards relating to concepts of recognition, measurement, disclosure, revaluation and impairment of key financial statement elements.
Marking criteria
A total of 6 marks are allocated to each online test, which will then be converted to a mark out of 2%. 1 mark will be awarded for selecting the correct answer to each question. No marks will be awarded ( or lost) for incorrect answers.
The following rubric applies for the overall assessment mark of 10 (i.e. based on a total of 30 multiple choice questions in the 5 tests).
High Distinction (HD) Distinction (D) Credit (CR) Pass (PS)
To meet this level you
To meet this level you To meet this level you
To meet this level you will attain a
will attain a cumulative will attain a cumulative will attain a cumulative cumulative mark
mark between mark between
mark between 65%-74%. between 50%-64%.
85%-100%. 75 %-84%.
A mark in this range A mark in this range
A mark in this range A mark in this range indicates that you have indicates that you
indicates that you have indicates that you have selected no more than 10 have selected no more
selected no more than 4 selected no more than 7 incorrect answers in the than 15 incorrect
incorrect answers in the incorrect answers in the five tests in this answers in the five
five tests in this five tests in this assessment. tests in this
assessment. assessment.
assessment.
Assessment item 2
Assignment 1
Value: 15 %
Due date: 31- Aug -2015
Return date: 21- Sep -2015
Submission method options Alternative submission method
Task
Complete the 2 questions given below. A total of 50 marks are allocated to the questions below, which will then be converted to 15% in total.
All workings, when appropriate, must be shown to substantiate your answers.
Question 1 [35 marks]
The regulatory environment for financial reporting
You are a member of a large accounting firm which is responsible for preparing financial reports, including statements and notes to the accounts; and for advising staff in client firms who are responsible for preparing financial reports. The firm only deals with large Australian companies listed on the Australian Stock Exchange. One of your key tasks is to monitor the changes and developments in the financial reporting environment and summarise them in a regularly published newsletter.
Required:
Prepare a 2 page newsletter that identifies and summarises developments and changes in the financial reporting environment for the period June to August 2015, inclusive.
Detailed guidelines for completing this question:
1. Monitoring of changes and developments
This will involve regular monitoring of a number of sources over the required period. The sources should be varied in range, as you will need to identify and consider developments/changes relating to:
Technical issues such as issue of new accounting standards, exposure drafts or other pronouncements or interpretations.
Regulation and monitoring of financial reporting.
Political influences or other potential developments (such as identification of any reporting failures) that could impact or may be of interest to staff (such as Enron or Parmalat failure). 'Political' does not only mean action from politicians – it would also include lobbying/actions by other groups to promote their own interests – for example there may be articles about companies, or particular interest groups such as Group of 100, saying that if certain accounting standards are introduced this will disadvantage or have a negative impact.
You will need to consider both local (Australian) and international sources and developments. A section on 'international' items/developments must be included in the newsletter.
2. Potential sources
Given the scope of the potential influences on financial reporting you will need to monitor a range of sources. Below is a list of sources that may be of interest, note that this list is not exhaustive, you should search for sources outside of these. You should not rely on any one type of source, but a range of sources from each category, i.e. do not just look at websites, also check journals, newspapers etc. Examples of possible information sources include:
(i) Websites such as those of:
Australian Accounting Standards Board
Financial Reporting Council
Australian Securities and Investment Commission
Australian Securities Exchange
International Federation of Accountants
Chartered Accountants in Australia and New Zealand
CPA Australia
International Accounting Standards Board Financial Accounting Standards Board Websites of large accounting firms.
(ii) Professional publications :
In the Black (CPA)
Acuity (CAANZ)
(iii) Newspapers/journals
3 . Contents
The restriction of a 2 page newsletter means that you need to use your own judgement as to whether to include information about specific changes and developments and how much information to include. It is not intended that you provide complete details of changes/developments (although you may consider in particular cases that more detail is needed). The purpose of the newsletter is to alert staff to changes and developments that may impact on their work and provide enough information about these changes/developments to satisfy the following:
For staff (the intended audience) to understand the nature of the development/change and its potential impact (so staff can decide whether they need to investigate further given the nature of their own work),
Provide sufficient information for staff to be able to obtain further information on the development/change if they wish to,
The newsletter should where possible be in your own words with sources adequately referenced using the appropriate referencing system. Some examples of significant items to be considered include:
Revised or reissued accounting standards or interpretation (both national and international), ASIC reviews on financial reporting,
New ASX disclosures for listed companies.
Given the target audience, it would be assumed that they have a working knowledge of common terms and abbreviations (such as AASB, FASB) so abbreviations may be used. Don't be afraid to be creative. The effectiveness of a newsletter is impacted by how interesting the readers find it.
What not to consider?
You need to take care that the developments and the changes considered and included in the newsletter are relevant to the objective, in particular the issues/developments that directly relate to the preparation of financial reports for large companies listed on the Australian Stock Exchange. The newsletter SHOULD NOT consider areas only INDIRECTLY related to the preparation of financial reports such as (and this is not an exhaustive list):
Fraud,
Auditing,
Taxation,
Other disclosures by listed companies such as:
Industry disclosures required by peak organisations,
Voluntary disclosures in the area of corporate social responsibility, Voluntary Environmental disclosures.
4 . Format
The newsletter should be in the following format:
The top of the newsletter must include the title (you need to decide on what to call your
newsletter) and details of the period the newsletter is considering.
The newsletter should not read as one continuous 'essay'. It must include headings and sub-headings that assist in identifying the nature of changes/developments and help to guide the reader, and also enable the reader to distinguish between items of interest and the relative importance of changes.
You must refer the reader to specific sources so that they are able to obtain more detailed information of the development/change.
The newsletter must be printed in minimum font size of 11 points (You may wish to use larger fonts etc for headings etc). You may wish to set your newsletter out using columns but this is optional. Apart from minimum font size, there are no specific requirements in relation to line spacing, margins etc. However, you should note that simply reducing line spacings, margins to 'fit more in' may impact on the presentation and effectiveness of the newsletter.
There is no specific 'word limit'. The newsletter must be no longer than 2 pages. In cases where the newsletter exceeds the 2 page limit, only the first 2 pages will be marked.
Do not attach actual articles/printouts of web sources etc to your assessment. You are only required to include details of these in the bibliography.
5 . Bibliography and referencing
This assessment must include a bibliography rather than a reference list (this should not be part of your newsletter and to be given on a separate page). A bibliography includes all materials used in the preparation of your assignment, not just those referenced within the paper. The reason a bibliography is required (rather than a reference list) is that this will provide an insight into the range and regularity of your monitoring activities (not just those specifically referenced within your 'paper') which is part of the criteria for assessment. It is expected that the bibliography will be quite long. The bibliography needs to include specifics of what you have actually accessed and read that is related to the area - not just a general link to a website or newspaper etc. Therefore if you use a source such as the AASB website, please reference every article that you read separately. Assessments without a bibliography will not be accepted or marked.
When citing electronic sources, please include the date accessed. If you are unsure how to cite electronic sources check the referencing guides that are available from the library or online at the student services site. APA referencing style should be used for all citing format.
Please be reminded that plagiarism is regarded as a serious issue within the University system with severe consequences for students who have been found to have deliberately plagiarised, the minimum penalty being zero for the assignment. You should ensure that they are familiar with the plagiarism policy and referencing requirements before commencing assessment.
Question 2 [15 marks]
Preparation of a statement of financial position
The summarised trial balance of Smithy’s Ltd, a snack food manufacturing company, includes the following accounts at 30 June 2015:
Additional information:
Bank loans and other loans are all repayable in 3 years time.
$325,000 of the debentures is repayable within 1 year.
Lease liabilities include $125,000 repayable within 1 year.
Investments in other companies are long-term investments.
Provision for annual leave includes $107,000 payable within 1 year.
Provision for long service leave includes 12,000 payable within 1 year.
Provision for warranty includes $23,000 estimated to be incurred within 1 year.
Required:
Prepare the statement of financial position of Smithy’s Ltd at 30 June 2015 in accordance with AASB 101 , using the minimum line items specified in AASB 101. Sub-classifications of the minimum line items should not be shown on the face of the statement. Show all workings. Notes are not required to be prepared.
Rationale
The purpose of this assignment is to help you further develop some of the skills and knowledge required and valued by the accountancy profession. The task that you will be required to undertake is similar to the tasks required of a professional accountant working within the financial reporting field. Accounting professionals need to ensure they are aware of current developments and that their knowledge is 'up to date'. They need to be able to identify changes that have occurred that may impact on their work and to know where they can obtain information about these changes. In this assignment you are asked to provide a summary of recent developments relating to financial reporting. As such this assignment aims to:
Develop the student's ability to identify and source changes to financial reporting requirements so as to update professional knowledge required for practice;
Acquire an awareness of current developments and changes (both locally and internationally) that may impact on current and future financial reporting rules and regulations; Develop the student's ability to provide written material appropriate to the accountancy profession;
Help students appreciate the limitations of the currency of knowledge in a technical financial reporting area;
Allow students to understand the relationships between technical issues and community attitude to financial reporting.
This assignment will assess your ability to:
prepare basic financial statements for reporting entities; and discuss critically and comprehensively the statutory and professional requirements upon which published financial statements are based.
Marking criteria
You will be assessed on the following:
QUESTION 1: Newsletter
The newsletter will be assessed in relation to the criteria specified in the following marking rubric:
Element Criteria HD D CR PS
Technical Local Correctly Correctly Correctly identify and Correctly content reporting identify and identifies and report some of the news identifies some news [25%] report a large report most of relating to changes in relevant local range of news the news local financial reporting news. Provides relating to relating to environment. some level of changes in local changes in local detail but
financial financial newsletter has reporting reporting major omissions
environment. environment. or incorrect
reporting.
International Correctly Correctly Correctly identify and Correctly reporting identify and identify and report some of the news identifies some news [25%] report a large report most of relating to changes in relevant range of news the news international financial international relating to relating to reporting environment. news. Provides changes in changes in some level of
international international detail but financial financial newsletter has reporting reporting major omissions
environment. environment. or incorrect
reporting.
EffectivenessDetail of Provides a high Provides detail Provides appropriate Provides some discussion level of detail for all news. level of detail for most level of detail [15%] for all news. Provides of the news. for most of the
Element Criteria HD D CR PS
Provides detailed Provides effective news.
effective summaries and summaries and further Provides summaries and further information where effective directions to information appropriate for most of summaries and
staff to access where the news. further
further appropriate for Accurately identifies information information all news. significant and minor where
where Discriminates news. appropriate for appropriate for between some of the all news. significant and news. Discriminates minor news Identifies between events. significant and significant and minor news. minor news.
Creativity Titles/headings Titles/headings Titles/headings Titles/headings
[15%] provided attract provided attract provided sometimes provided
attention. attention. attract attention. sometimes
Design of Design of Design of newsletter is attract attention. newsletter is newsletter is original not based on a Design of highly creative, creative, well standard template. newsletter is
memorable, structured, and simplistic but easy to read and is easy to read. effective. exemplary.
Academic The Accurate use of Accurate use of Accurate use of syntax, Mostly accurate writing skills newsletter syntax, spelling syntax, spelling vocabulary, spelling andsyntax, spelling meets and punctuation. and punctuation. and punctuation.
academic Correctly refers punctuation. Correctly refers to more Correctly refers standards of to an extensive Succinct and than the minimum to minimum syntax, variety of effective use of requirement of sources number of vocabulary, sources to vocabulary. to support arguments, sources to spelling and support Correctly refers including prescribed support punctuation arguments, to a broad range texts and recommended arguments, and reflects including of sources to readings. including an awareness prescribed texts support Reference list formatted prescribed texts. of audience and a broad arguments, in APA style, with Reference list needs [20%] range of including minor errors. used, formatted additional prescribed text in APA style, readings. and a variety of with some Reference list further errors. of an extensive readings.
range of Reference lists
resources used, a broad range of correctly relevant
formatted using resources used,
APA style. correctly formatted using APA style.
QUESTION 2: Preparation of Financial Statements
Criteria HD D CR PS
Question 2: financial Financial financial Financial
Prepare financial statements are statements are statements are statements are statements in prepared without prepared with prepared with someprepared with some accordance with the flaw. minor flaws. errors. errors.
accounting standards. Explanations Explanations Explanations Explanations shown are shown are clear shown are shown are basic. exemplary and and succinct. adequate. Some workings are clear. Appropriate Appropriate shown. Appropriate workings are workings are Work shown is
Presentation
It is essential that presentation of assignments adheres to acceptable standards in relation to neatness and layout, as you are practicing to present material in a work situation. Correct formatting and referencing procedures of materials should be strictly adhered to for all assignment tasks.
Requirements
You must submit your assignment via Turnitin using a 'Word' file only.
Assessment item 3
Assignment 2
Value: 15 %
Due date: 21- Sep -2015
Return date: 12- Oct -2015
Submission method options Alternative submission method
Task
This assessment task consists of four (5) questions. A total of 75 marks are allocated to the questions below, which will then be converted to a mark out of 15%.
All workings, when appropriate, must be shown to substantiate your answers.
Question 1 [12 marks]
Events after the reporting period
Boots Ltd is finalising its financial statements for the reporting period ending 30 June 2015. On 20 September 2015, before the financial statements have been finalised and authorised for issue, the company’s directors became aware of the following situations:
a) The company owns a factory in Sydney that was completely destroyed by a severe hail storm on 10 July 2015. The factory had a carrying amount in the draft financial statements of $600,000. The factory was insured for $600,000, and Boots Ltd expects to receive this money from the insurer in October 2015.
b) On 12 July 2015, the financial cost of inventory shipped from overseas is determined. The inventory was received in June 2015 and the cost was estimated for accounting purposes. The revised cost is $200,000 lower than the prior estimate.
c) On 15 July 2015, Smith Ltd, a major customer of Boots Ltd, indicated that it was bankrupt. At this date, Smith Ltd owed $45,000 to Boots Ltd. This amount was owed to Boots Ltd from a sale made to Smith Ltd in June 2015.
d) It is discovered, on 18 July 2015, that a divisional manager has been under-depreciating plant and equipment. The motivation of the manager was to maximise the division’s profit figure in order to maximise his bonuses. The carrying amount of the relevant plant and equipment in Boots’ draft financial statements is $2,500,000. An investigation by the company’s internal audit division, presented to Boots’ directors on 25 July 2015, suggests that the plant and equipment has a recoverable amount of $1,500,000.
Assume all amounts are material for financial statement purposes.
Required:
With reference to AASB 110, explain whether the above events will be classified as either adjusting or non-adjusting events after the end of the reporting period, providing reasons for your decision. State the appropriate accounting treatment for each event in Boots Ltd’s 2015 financial statements.
Marking Guide - Question 1 Max. marks awarded
Classification as adjusting or non-adjusting events 4 Discussion and reasons to support classification decision 4
Appropriate accounting treatment 4
Total 12
Question 2 [16 marks]
Sugar Ltd was incorporated on 1 July 2014. The following transactions and events occurred during the year ended 30 June 2015:
1 Aug 2014: Sugar Ltd makes an offer to the public for investors to subscribe for 10,000,000 shares, at an issue price of $3.00 per share, with $1.50 payable on application, $1.00 being payable within one month of allotment, and $0.50 payable on a call to be made at a later date. The issue is underwritten at a commission of $2,000.
31 Aug 2014: Applications close, with applications received for 9,500,000 shares.
2 Sep 2014: Shares are allotted, and the underwriter forwarded the application and allotment money due on the 500,000 shares less their commission.
2 Oct 2014: All allotment money is received.
30 Nov 2014 : The call is made, with money due by 31 December 2014.
31 Dec 2014: All call money is received except for holders of 20,000 shares who fail to meet the call.
20 Jan 2015: The shares on which call money was not received are forfeited and sold as fully paid. An amount of $2.60 is received for each share sold. Costs of the forfeiture and reissue amount to $6,000, and are paid. The constitution does allow the refund of any balance in the forfeited shares account after reissue to former shareholders.
Required:
Prepare the journal entries to record the transactions of Sugar Ltd up to and including that which took place on 20 January 2015. Show all relevant dates, narrations and workings.
Question 3 [17 marks]
Accounting for income tax
Fresh Ltd commences operations on 1 July 2014 and presents its first statement of profit or loss and other comprehensive income and first statement of financial position on 30 June 2015. The statements are prepared before considering taxation. The following information is available:
Extract from statement of profit or loss and other comprehensive income for the year ended 30 June 2015
$ $
Gross profit 380,000 Other income:
Interest revenue 2,000
Government grant (exempt from income tax) 10,000
Expenses:
Administration expenses 145,000
Doubtful debts expense 6,000
Salaries 130,000
Rent 26,000
Annual leave 3,000
Entertainment expenses (not tax deductible) 5,000
Warranty expenses 12,000
Depreciation expense – plant 40,000
Insurance 10,000 (377,000)
Accounting profit before tax 15,000
Assets and liabilities as disclosed in the Statement of Financial Position as at 30 June 2015
$ $
Assets:
Cash 35,000
Inventory 120,000
Accounts receivable 50,000
Less Allowance for doubtful debts (5,000) 45,000
Interest receivable 1,000
Prepaid insurance 5,000
Plant – cost 200,000
Less Accumulated depreciation (40,000) 160,000
Total assets 366,000
Liabilities:
Accounts payable 40,000
Provision for warranties 8,000
Rent payable 6,000
Loan payable 200,000
Provision for annual leave 2,000
Total liabilities 256,000
Net assets 110,000
Additional information:
All administration and salaries expenses incurred have been paid as at year end. Tax deductions for annual leave, warranties, insurance and rent are available when the amounts are paid, and not as amounts are accrued.
Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.
Interest income is taxed when amounts are received, and not as amounts are accrued. The plant is depreciated over five years for accounting purposes, but over four years for taxation purposes. The tax rate is 30%.
Required:
i) Determine the balance of any current and deferred tax assets and liabilities as at 30 June 2015, in accordance with AASB 112. Show all necessary workings.
(14 marks )
ii) Prepare the journal entries to record the current tax liability and deferred tax assets and liabilities.
(3 marks )
Question 4 [15 marks]
Property, plant and equipment
Storm Ltd commences operations on 1 July 2013, and on this date, acquires two items of plant:
Plant A: $120,000
Plant B: $350,000
Both assets are depreciated on a straight-line basis. Plant A has an estimated useful life of 10 years, and an estimated residual value of $20,000. Plant B has an estimated useful life of 5 years, and an estimated residual value of $0.
At 30 June 2014, Storm Ltd decides to use the revaluation model for the plant. The fair value of Plant A is $80,000, and the fair value of Plant B is $300,000. The remaining useful life and residual value of each item has not changed.
At 30 June 2015, the fair value of Plant A is $75,000, and the fair value of Plant B is $200,000.
Assume a tax rate of 30%.
Required:
Prepare journal entries for Storm Ltd at 1 July 2013, 30 June 2014 and 30 June 2015 to record the above. Show narrations and all relevant workings.
Question 5 [15 marks]
Impairment of assets
Rosie Ltd has a division that represents a separate cash generating unit. At 30 June 2014, the carrying amounts of the assets of the division, valued pursuant to the cost model, are as follows:
Assets: $
Cash 5,000
Plant and equipment 200,000
Less: accumulated depreciation (60,000)
Land 300,000
Inventory 30,000
Accounts receivable 35,000
Patents and trademarks 60,000
Goodwill 10,000
Carrying amount of cash generating unit 580,000
The receivables were regarded as collectable, and the inventory’s fair value less costs to sell was equal to its carrying amount. The patents and trademarks have a fair value less costs to sell of $50,000, and the land has a fair value less costs to sell of $280,000.
The directors of Rosie estimate that, at 30 June 2014, the fair value less costs to sell of the division amounts to $520,000, while the value in use of the division is $530,000.
As a result, management increased the depreciation of the plant and equipment from $30,000 p.a. to $40,000 for the year ended 30 June 2015.
By 30 June 2015, the recoverable amount of the cash generating unit was calculated to be $28,000 greater than the carrying amount of the assets of the unit.
Required:
Determine how Rosie Ltd should account for the results of the impairment test at 30 June 2014 and 30 June 2015, and prepare any necessary journal entries. Provide explanations where appropriate to support your answer. Show all workings.
Marking Guide - Question 5 Max. marks awarded
Journal entries, calculations and workings for 2014 7.5
Journal entries, calculations and workings for 2015 7.5
Total 15
Rationale
This assessment task is designed to assess your understanding of topics 3 to 7, and the following subject learning outcomes:
be able to prepare basic financial statements for reporting entities;
be able to discuss critically and comprehensively the statutory and professional requirements upon which published financial statements are based; be able to explain the form and content of financial statements;
be able to interpret and apply generally accepted accounting principles and specific financial reporting standards relating to concepts of recognition, measurement, disclosure, revaluation and impairment of key financial statement elements.
Marking criteria
The assessment rubric for this assessment task is provided below. The detailed allocation of marks for each question has been provided above for your information.
Criteria HD D CR PS
Question 1: Determine how Determine how Determine how events Determine how events
Apply relevant events after reporting events after reporting after reporting period after reporting period accounting period are to be period are to be are to be classified and are to be classified and principles in classified and classified and accounted for, with accounted for, with a accounting for accounted for accounted for, with some errors. number of errors. events after the without flaw. minor flaws. Many of the key Some references to reporting period. All key references to Most of the key references to AASB AASB 110 are provided. AASB 110 are references to AASB 110 are provided. Explanations shown are provided. 110 are provided. Explanations shown basic.
Explanations shown Explanations shown are adequate. are exemplary and are clear and succinct. clear.
Question 2: All entries made are All entries made are Most of the entries Most of the entries made Prepare journal accurate accurate with some made are correct. but contain errors. entries to account Dates shown are minor flaws. Dates shown are Dates shown are mostly for share issue correct for the Dates shown are mostly correct for the correct for the transactions. transactions. correct for the transactions. transactions. Narrations are transactions. Narrations are shown. Narrations are shown shown. Narrations are shown. Some workings are but lack detail or are Appropriate Appropriate workings shown. unclear.
workings are shown. are shown. Some workings are
shown but lack detail or are unclear. Question 3: Determine current Determine current Determine current and Determine current and Apply relevant and deferred tax and deferred tax deferred tax balances deferred tax balances
accounting balances without balances with minor with some errors. with a number of errors principles in flaw flaws. Workings shown are made.
recognising and Workings shown are Workings shown are logical and well Workings are shown but measuring income logical and well logical and well presented. contain errors or lack tax. presented. presented. Journal entries made detail.
All journal entries All journal entries contain some errors. Journal entries made made are accurate. made are accurate / contain some errors.
with minor flaws.
Question 4: All entries made are All entries made are All entries made are Most entries are made Apply relevant accurate. accurate but with mostly correct with but contain errors.
accounting Appropriate minor flaws. some errors. Some workings are principles in workings are shown Appropriate workings Appropriate workings shown.
accounting for and accurate. are shown and are shown. Narrations are shown
property, plant Narrations are accurate. Narrations are shown. but lack detail or are and equipment. shown. Narrations are shown. unclear.
Question 5: Apply the Apply the Apply the requirements Apply the requirements Apply relevant requirements of requirements of of AASB136 to of AASB136 to accounting AASB136 to AASB136 to calculate and account calculate and account principles for calculate and account calculate and account for the impairment of for the impairment of impairment of for the impairment of for the impairment of cash generating units, cash generating units, assets. cash generating cash generating units, with some errors / with a number of errors units, without flaw. with minor flaws. flaws. / flaws.
All journal entries All journal entries Journal entries made Journal entries made made are accurate. made are accurate / contain some errors. contain some errors. Explanations and with minor flaws. Explanations and Explanations and workings presented Explanations and workings presented workings presented show mastery of the workings presented shows adequate shows a basic topic. show a thorough understanding of the understanding of the understanding of the topic. topic. topic.
Presentation
Physical presentation of assignments
It is essential that presentation of assignments adheres to accepted standards in relation to neatness and layout, as you are practicing to present material in a work situation. Correct formatting and referencing procedures of material should be strictly adhered to for essays. You should submit a proper reference list (using APA referencing style) for all essay type assignments. A reference list contains only those works cited or quoted from in your essay. A bibliography is acceptable for practical-type assignments.
For practical questions:
All journal entries must include narrations unless otherwise specified;
Any ledger accounts should preferably be shown in 'T' account format and dates and descriptions are included;
Journal entries and ledger accounts must reflect the strict order of sequence of events; financial statements (including extracts) should include proper headings and accord with presentation standards.
Penalties will be incurred if material is not correctly referenced and if presentation is not of an acceptable standard.
Please also note the following:
Journal entries, ledger accounts, worksheets and financial statements should always balance. If you have to submit a piece of work that does not balance because you cannot detect your error please include some comment about the source of your problem so the marker can provide appropriate feedback.
Include workings where appropriate. Partial marks can be allocated for workings where the final answer is incorrect.
Requirements
You must submit your assignment via Turnitin using a 'Word' only.
Assessment item 4
Final Exam
Value: 60 %
Date: To be advised
Duration: 3 hours
Submission method options
N/A - submission not required/applicable
Rationale
Covering all topics, the final examination paper is designed to give you an opportunity to demonstrate the depth of knowledge and understanding of theoretical and practical aspects of financial reporting. The examination will assess your ability to:
prepare basic financial statements for reporting entities;
discuss critically and comprehensively the statutory and professional requirements upon which published financial statements are based; explain the form and content of financial statements; interpret and apply generally accepted accounting principles and specific financial reporting standards relating to concepts of recognition, measurement, disclosure, revaluation and impairment of key financial statement elements.
Requirements
The final exam will be a three hour exam held during the exam period at the end of session. It will consist of 6 problems, similar to those in the sample exam. All questions must be attempted.
Marking criteria
Criteria High Distinction Distinction Credit Pass
Problem-solving To meet this level you To meet this level To meet this level To meet this level you questions will attain a you will attain a you will attain a will attain a
cumulative mark cumulative mark cumulative mark cumulative mark between 85%-100% between between 65%-74% between 50%-64% for this examination. 75%-84% for this for this for this examination. Overall, in meeting examination. examination. Overall, in meeting this level you will Overall, in Overall, in this level you will demonstrate meeting this level meeting this level demonstrate a basic
exceptional you will you will knowledge,
knowledge, demonstrate a demonstrate a understanding, and understanding, and comprehensive sound knowledge, ability across the ability across the knowledge, understanding, and majority of topics in majority of topics in understanding, ability across the this subject.
this subject. and ability across majority of topics the majority of in this subject.
topics in this subject.
Material provided by the University
2 x 12 page answer booklets
Material required by the student
Writing implements, battery/solar calculator (no printer, non-programmable). Ipads and other hand-held computers are not accepted as calculators.
CAANZ Financial Reporting Handbook (2014 or 2015) (bound version only - loose leaf version not permitted, unmarked except for highlighting, underlining and tagging). Writing is strictly allowed on the tags only and must be limited to brief captions such as -AASB 112- or -Income Tax-.
Appendix 1 Assessment Information
Sample exam
A sample exam paper which is indicative of the structure for the final exam has been provided below. The solutions for this sample exam will be made available on the subject's interact site.
Faculty of Business, School of Accounting and Finance
SAMPLE EXAMINATION
ACC514 FINANCIAL ACCOUNTING
EXAM CONDITIONS:
This is an open book exam - restricted materials
Battery/Solar Calculator (no printer, non programmable)
Bilingual Dictionary permitted (printed copy only, unmarked and unannotated)
The student may NOT retain the question paper
WRITING TIME: 3 hours 10 minutes MATERIALS SUPPLIED BY UNIVERSITY: 2 x 12 page answer booklets
MATERIALS PERMITTED IN EXAMINATION: As listed in exam conditions
No electronic aids are permitted eg. laptops, phones
Textbook permitted in exam: CAANZ Financial Reporting Handbook 2014 OR 2015 (bound version only – loose leaf version not permitted, unmarked except for highlighting, underlining or tagging. Brief captions allowed on tags only)
NUMBER OF QUESTIONS: 6 questions
VALUE: 60%
INSTRUCTIONS TO CANDIDATES:
1. Enter your name and student number and sign in the space provided at the bottom of this page and on each answer booklet.
2. No written material, reference books or notes will be permitted into the examination room, except for the materials permitted above.
3. All questions must be attempted and answered in the answer booklets provided.
STUDENT NAME: ……………………………………………... STUDENT ID:
……………..........…………...
STUDENT SIGNATURE:
……………………………………………………………………………………………
Calculator model (if used):………………………………………………………………………………………….
QUESTION 1 (12 marks )
Regulatory environment and the Conceptual Framework
(A) What is the International Accounting Standards Board and how does it influence financial reporting in Australia?
(6 marks ) (B) What is the difference between a conceptual framework and accounting standards? Discuss.
(6 marks )
QUESTION 2 (15 marks )
Accounting for share capital
Noosa Ltd makes an offer of shares to the public. In its prospectus it notes that the shares are to be issued at $1.00 per share. The shares are to be paid in three instalments. The first payment, to be made on application, is $0.40. A second amount of $0.40 will be due within one month of allotment, and the third amount of $0.20 will be due within one month of the first and final call, which will be made within six months of the shares being allotted. Noosa Ltd will seek to issue 10,000,000 shares. The closing date for applications is 31 August 2012.
By the closing date, applications have been received for 14,000,000 shares. The directors meet on 5 September 2012 and decide to allot shares on a first-come first-served basis, and application money is refunded to unsuccessful applicants.
All amounts due on allotment are paid by the due date. The first and final call for $0.20 is made on 30 November 2012, with the amounts being due by 31 December 2012. Holders of 2,000,000 shares fail to pay the amount due on the call by the due date, and on 15 January 2013 these holders have their shares forfeited. The forfeited shares are auctioned on 15 February 2013. An amount of $0.70 per share is received. The cost of holding the auction is $5,000. The shares are sold as ‘fully paid’.
The balance of the Forfeited Shares Account is returned to the former shareholders on 20 February 2013.
Required:
Provide the journal entries to account for the above entries. Show all relevant dates and workings. Narrations are not required.
QUESTION 3 (20 marks )
Accounting for income tax
The accounting profit before tax for the year ended 30 June 2013 for Superstar Ltd amounted to $18,500 and included:
$
Depreciation – motor vehicles (25%) 4,500
Depreciation – equipment (20%) 20,000
Rent revenue 16,000
Royalty revenue (non-taxable) 5,000
Doubtful debts expense 2,300
Entertainment expense (non-deductible) 1,500
Proceeds on sale of equipment 19,000
Carrying amount of equipment sold 18,000
Annual leave expense 5,000
The following are extracts from the draft financial statements for the year ended 30 June 2013:
Additional information:
The company can claim a tax deduction of $15,000 (15%) for depreciation on equipment, but the motor vehicle is fully depreciated for tax purposes. Accumulated depreciation on the equipment for tax purposes was $45,000 at 30 June 2013.
The equipment sold during the year (sold on 1 July 2012) had been purchased for $30,000 2 years before the date of sale. For taxation purposes, the equipment was depreciated at 15% p.a.
Rent is assessed for tax when received in cash.
Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.
The company tax rate is 30%.
Required:
a) Determine the balance of any current and deferred tax assets and liabilities for Superstar Ltd as at 30 June 2013, in accordance with AASB 112. Show all necessary workings.
(16 marks )
b) Prepare the journal entries to record the current tax liability and movements in deferred tax assets and liabilities.
(4 marks )
QUESTION 4 (25 marks )
Statement of cash flows
Cabarita Ltd is involved in manufacturing swimming pool accessories. Cabarita Ltd’s statement of financial position as at 30 June 2012 and 30 June 2013 are presented below:
2013 ($000) 2012 ($000)
Assets
Cash 96 -
Accounts receivable 36 60
Provision for doubtful debts (12) (8)
Property, plant and equipment 156 120
Accumulated depreciation – property, plant & equip (36) (20)
Inventory 92 52
Total assets 332 204
Liabilities
Bank overdraft - 40
Accounts payable 60 60
Accrued wages 20 16
Provision for annual leave 8 12
Loans 60 -
Total liabilities128 Net assets 76
Equity
Share capital (ordinary shares) 140 20
Asset revaluation reserve 28 8
Retained profits 16 48
Total equity 184
The profit and loss account of Cabarita Ltd for the year ended 30 June 2013 was: 76
2013 ($000)
Revenues
Sales 60
Interest (no interest receivable at year end) 4
Profit on sale of property (which had a written down value of $20,000) 8
Expenses
Cost of goods sold 40
Doubtful debts 8
Depreciation 20
Wages 20
Employee entitlements 16
Operating loss for the year (32)
The bank overdraft is payable on demand and forms part of cash equivalents.
Required:
Using the direct method of presenting cash flows from operating activities, prepare a statement of cash flows in accordance with AASB 107 for the year ended 30 June 2013, including a reconciliation of cash flows arising from operating activities and profit. Show all workings.
QUESTION 5 (18 marks )
Property, plant and equipment
PART A
Under the revaluation model, how are revaluation increases and revaluation decreases accounted for?
(4 marks )
PART B
On 30 June 2013, the statement of financial position of Cook Ltd showed the following non-current assets after charging depreciation:
Building $300,000
Accumulated depreciation ($100,000) $200,000
Motor vehicle $120,000
Accumulated depreciation ($40,000) $80,000
The company has adopted fair value for the valuation of non-current assets. This has resulted in the recognition in previous periods of an asset revaluation surplus for the building of $14,000. On 30 June 2013 , an independent valuer assessed the fair value of the building to be $160,000 and the vehicle to be $90,000. The income tax rate is 30%.
Required:
a) Prepare any necessary entries to revalue the building and the vehicle as at 30 June 2013.
(10 marks )
b) Assume that the building and vehicle had remaining useful lives of 25 years and 4 years respectively, with zero residual value. Prepare entries to record depreciation expense for the year ended 30 June 2014 using the straight-line method.
(4 marks )
QUESTION 6 (10 marks )
Business combinations
Little Ltd, a supplier of snooker equipment, agreed to acquire the business of a rival firm, Mermaid Ltd, taking over all assets and liabilities as at 30 June 2013.
The price agreed upon was $40,000, payable $20,000 in cash and the balance by the issue to the selling company of 16,000 fully paid shares in Little Ltd, these shares having a fair value of $1.25 per share.
The trial balances of the two companies as at 30 June 2013 were as follows:
Little Ltd Mermaid Ltd
Dr Cr Dr Cr
Share capital $100,000 $60,000
Retained profits 12,000 $24,000
Accounts payable 2,000 20,000
Cash $ 30,000 -
Land and buildings 50,000 -
Inventory 14,000 26,000
Accounts receivable 8,000 20,000
Government bonds 12,000 -
Goodwill - 10,000
$114,000 $114,000 $80,000 $80,000
All the identifiable net assets of Mermaid Ltd were recorded by Mermaid Ltd at fair value except for the inventory which was considered to be worth $28,000.
Little Ltd incurred incidental costs of $500 in relation to the acquisition. Costs of issuing shares in Little Ltd were $400.
Required:
a) Prepare the acquisition analysis in relation to Little Ltd’s acquisition.
(4 marks )
b) Prepare the journal entries in the records of Little Ltd to record the acquisition.
(6 marks )
Pass Requirements
You must obtain at least 50% in both the examination and the total mark in order to pass this subject. You must pass the exam to pass the subject.
Grades
Final grades for this subject are awarded by the Business Faculty Assessment Committee in accordance with the University's Assessment Regulations. (See current Academic Regulations at https://policy.csu.edu.au/view.currect.php?id-00301#s3
(https://policy.csu.edu.au/view.currect.php?id=00301#s3)). University's Assessment Policy: Coursework Subjects (https://policy.csu.edu.au/view.current.php?id=00301).
Your final grade for the subject as a whole will be based on the grading scale outlined in the CSU Assessment Policy: Coursework Subjects https://policy.csu.edu.au/view.current.php?id=00301 ( https:// policy.csu.edu.au/view.current.php?id =00301).
HD High Distinction 85% - 100%
An outstanding level of achievement in relation to the assessment process.
DI Distinction 75% - 84%
A high level of achievement in relation to the assessment process.
CR Credit 65% - 74%
A better than satisfactory level of achievement in relation to the assessment process.
PS Pass 50% - 64%
A satisfactory level of achievement in relation to the assessment process.
FL Fail 0 - 49%
An unsatisfactory level of achievement.
The percentages specified above should be viewed only as guidelines for the award of final grades.
The Faculty has an obligation to ensure that grades are equitable across different cohorts of the same subject offering and will undertake appropriate moderation processes to ensure that grades are awarded consistently in accordance with the University’s Moderation Policy.
For further information please consult the CSU Assessment Policy: Coursework Subjects http://policy.csu.edu.au/view.current.php?id=00301
Presentation
The following points are a general guide for presenting assessment items.
Assessment items should be typed.
Use 1.5 spacing.
Use a wide margin on the right hand side. Markers need space to be able to include their comments.
Use a standard 12pt font such as Times New Roman, Calibri or Arial.
Left-justify body text.
Include a separate title page with your name, student number, subject code, assessment number and assessment question. Include class time and tutor?s name if applicable.
Number your pages (except the cover page).
Use a header or footer with your name and student number on each page.
Always keep a copy of your assessments (both a hard copy and an electronic copy). Most importantly, always use your spelling and grammar checker, but remember that this does not pick up all errors. You must still manually and carefully review and edit your work.
Submission
Online Submission
Assignments should be submitted through TurnItIn. TurnItIn does not accept Excel files. Assignments must be submitted to Turnitin by midnight (AEST) of the date specified. The detailed about your Turnitin classes will be communicated via announcement.
Extensions
In order to ensure that other students who hand their assignments in on time are not disadvantaged, and to enable me to comply with the requirement to return assignments to the class within 15 working days, the following rules about extensions will be strictly enforced:
1. Extensions cannot be granted for on-line tests, as these have to be done within a specific time frame, after which the answers are released to the class automatically.
2. Computer problems (such as the speed of your computer and the time it may take you to upload assignments onto EASTS) and normal work-related pressures and family commitments do not constitute sufficient reasons for the granting of extensions.
3. If it becomes obvious that you are not going to be able to submit an assignment on time because of an unavoidable problem, you must submit your request for an extension to the Subject Coordinator in writing (email is acceptable) prior to the due date.
Requests for extensions will not be granted on or after the due date so you must make sure that any extension is requested prior to the day on which the assignment is due.
You are expected to do all you can to meet assignment deadlines. Work and family- related pressures do not normally constitute sufficient reasons for the granting of extensions or incomplete grades.
4. If you apply for an extension, you may be asked to email your lecturer on what you have done so far on the assignment.
5. You must be able to provide documentary evidence (such as a certificate from a doctor or counsellor) justifying the need for an extension as soon as practicable - but please note that if the circumstances giving rise to the request for an extension arise on a day when you cannot get documentary evidence, you must still apply for the extension before the due date and submit the documentary evidence afterwards.
6. Given the tight deadlines involved in returning assignments to students and putting feedback on Interact, the maximum extension granted generally will be seven (7) days from the due date.
7. Assignments received more than 10 days after the due date or extension date will not be marked unless the staff member decides otherwise. Items received late will be penalised at 10% of the mark available for the assessment item per day it is late (see below).
8. Note that for purposes of measuring lateness, the 'day' begins just after 00.00 hrs AEST - so an assignment received after midnight of the due date will be penalised 10% for lateness. This rule will be applied to all students uniformly.
Penalties for Late Submission
The Faculty of Business has determined that the penalty for the late submission of an assessment task ( without obtaining the Subject Coordinator's approval for an extension) will be :
10% deduction per day, including weekends, of the maximum marks allocated for the assessment task, i.e. 1 day late 10% deduction, or 2 days late 20% deduction.
An example of the calculation would be:
Maximum marks allocated = 20
Penalty for one day late = 2 marks (so, a score of 18/20 becomes 16/20 and a score of 12/20 becomes 10/20).
If an assignment is due on a Friday but is not submitted until the following Tuesday, then the penalty will be four days (40% deduction or 8 marks in the example above).
Submissions more than 10 days late will be acknowledged as received but will not be marked.
Assignment Return
You should normally expect your marked assignment to be returned to you within three weeks of the due date, if your assignment was submitted on time. If you submitted your assignment on time but not received it back by the return date, you should make enquiries in the first instance to the subject coordinator.
Resubmission
Under normal circumstances resubmission of assessment items will not be accepted for any of the assessments required in this subject.
Assessment Requirements
Assessment at CSU is criterion-referenced and standards-based where students' work is assessed against stated criteria that reflect the expected learning outcomes of the course and subject. Subjects that use a satisfactory/unsatisfactory grading scale will have this clearly identified within the Subject Outline.
For further information please consult the University's Assessment Policy: Coursework Subjects ( https://policy.csu.edu.au/view.current.php?id =00301).
Referencing
Referencing is an important component of academic writing. All CSU assessment tasks should be appropriately referenced. The specific details of the referencing requirements are included in each assessment task description.
For further information and assistance with referencing refer to http://student.csu.edu.au/study/referencing-at-csu
Plagiarism
Charles Sturt University expects that the work of its students and staff will uphold the values of academic honesty and integrity. The Guide to Avoiding Plagiarism is located at:
http://student.csu.edu.au/study/plagiarism. This is an important resource that will help you understand these values and apply them in practice. You should familiarise yourself with these requirements and ensure that all assessments submitted by you are your own work, have not been submitted elsewhere and comply with the University's requirements for academic integrity.
The University has purchased Turnitin software. This software has two functions, a pre-emptive education function which students may use to check their own work prior to submission, and a plagiarism detection function which academics may use to check the student’s work for improper citation or potential plagiarism. Use by students is optional and is not a prerequisite for submission.
You are encouraged to check your work for originality prior to submission. You can register with Turnitin to create a Student Account under the CSU Turnitin Licence at http://www.turnitin.com/login_page.asp. Further information on how to use Turnitin is provided within the Guide to Avoiding Plagiarism: http://student.csu.edu.au/study/plagiarism/checking.
Appendix 2 CSU Learning and Teaching Policies
Minimum standards of consultation
According to the Academic Communication with Students Policy
( https://policy.csu.edu.au/view.current.php?id=00139#s3) (clause 8 in section 3), when a student directly contacts a teaching staff member for information, advice and/or support (except in online teaching spaces) the teaching staff member will respond to the request within 3 working days. Clauses
19-21: Use of Online Discussion and Communication Technologies states that for each subject, the Subject Coordinator will be expected to set up and/or activate an appropriate asynchronous communication technology and respond at least once a week to student messages that request information and advice.
The Higher Degree by Research Candidates Policy - Academic Communication
( https://policy.csu.edu.au/view.current.php?id=00283) states that a Communication Plan, a documented agreement between a HDR candidate and his/her supervisory team that establishes common understandings and expectations of how and when communication will occur during the candidature will be developed. The Plan sh
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