Unit Code: HI6025
Unit Name: Accounting Theory and Current Issues
Assignment: Tutorial Questions 2-
Due: 11.30pm 24 June 2020
Total Assignment Marks: 50 marks
Purpose: This assignment is designed to assess your level of knowledge of the key topics covered in this unit
Unit Learning Outcomes Assessed:
1. Examine conceptual issues and the sources of authority for the accounting requirements which apply to reporting by Australian companies, including Company Law, International and Australian Accounting Standards, and Stock Exchange requirements;
2. Understand and evaluate different theories of accounting such as positive accounting theory, normative accounting theory, stakeholders’ theory, legitimacy theory, institutional theory, and different initiatives of relevant global organisations such as GRI, IR;
3. Apply Australian Accounting Standards and Corporate Legislation to the financial reporting processes;
4. Evaluate advanced level financial accounting problems and select appropriate accounting strategies for the accounting entity;
5. Understand different provisions of accounting standards and the compliance requirements of the professional and legal bodies in Australia;
6. Make judgments about appropriate use of accounting standards and accurately apply appropriate treatments for different advanced level accounting issues;
Description: Each week students were provided with three tutorial questions of varying degrees of difficulty. These tutorial questions are available in the Tutorial Folder for each week on Blackboard. The Interactive Tutorials are designed to assist students with the process, skills and knowledge to answer the provided tutorial questions. Your task is to answer a selection of tutorial questions for weeks 6 to 10 inclusive and submit these answers in a single document.
The questions to be answered are:
Asia Pacific Ltd started operating on 1 July 2017 with 12 employees. Three years later all of those employees were still with the company. On 1 July 2019 the company hired 15 more people but by 30 June 2020 only 10 of those employed at the beginning of that year were still employed by Asia Pacific Ltd.
All employees are entitled to 13 weeks’ long-service leave after a conditional period of 10 years of employment with Asia Pacific Ltd.
At 30 June 2020 Asia Pacific Ltd estimates the following:
• The aggregate annual salaries of all employees hired on 1 July 2017 is now $1,200,000.
• The aggregate annual salaries of all current employees hired on 1 July 2019 is now $800,000.
• The probability that employees hired on 1 July 2017 will continue to be employed for the duration of the conditional period is 40 per cent.
• The probability that employees hired on 1 July 2019 will continue to be employed for the duration of the conditional period is 20 per cent.
• Salaries are expected to increase indefinitely at 1 per cent per annum.
The interest rates on high-quality corporate bonds are as follows:
Corporate bonds maturing in seven years 6%
Corporate bonds maturing in eight years 8%
Corporate bonds maturing in nine years 8%
Corporate bonds maturing in ten years 10%
At 30 June 2019 the provision for long-service leave was $12,000.
a) Calculate the total accumulated long-service leave benefit as at 30 June 2020. (3 marks)
b) What amount should be reported for the long-service leave provision as at 30 June 2020 in accordance with AASB 119? (3 marks)
c) Prepare the journal entry for the provision for long-service leave for 30 June 2020 in accordance with AASB 119. (3 marks)
d) Which employee benefits are required to be discounted in accordance with AASB 119? (1 mark, maximum 100 words)
Big Construction Company signs a contract on 1 July 2019, agreeing to build a warehouse for Buyer Corporation Ltd at a fixed contract price of $10 million. Buyer Ltd will be in control of the asset throughout the construction process. Big Construction Company estimates that construction costs will be as follows:
2019 2.5 million
2020 $4 million
2021 $1.5 million
The contract provides that Buyer Corporation Ltd will make payments on 31 December each year as follows:
2019 $2 million
2020 $5 million
2021 $3 million
The contract is completed and accepted on 31 December 2021. Assume that actual costs and cash collections coincide with expectations and that cost (an input measure) is used as the basis for assessing progress on the construction contract. Big Construction Company has a financial year ending 31 December.
a) Using the above data, compute the gross profit to be recognised for each of the three years, assuming that the outcome of the contract can be reliably estimated. (1.5 marks)
b) Prepare the journal entries for 2019, 2020 and 2021 financial year to recognise revenue on the assumption that the measure of progress on the contract can be reliably estimated. (5 marks)
c) Prepare the journal entries for 2019, 2020 and 2021 financial year, assuming that the measure of progress on the contract cannot be reliably assessed. (3.5 marks)
Gem Limited commences operations on 1 January 2019. During 2019 Gem Limited explores three areas and incurs the following costs:
Exploration and Evaluation expenditure ($)
In 2020 oil is discovered at Desirable Site. Undesirable Site is abandoned. Neutral Site has not yet reach a stage that permits a reasonable assessment at the existence or otherwise of economically recoverable reserves, and active and significant operations in the area of interest are continuing.
In relation to the exploration and evaluation expenditures incurred at Desirable Site and Neutral Site, 70 percent of the expenditures related to property, plant and equipment, and the balance relates to intangible assets.
In 2020, development costs of $48,000,000 are incurred at Desirable Site (to be written off on a production basis). $32,000,000 of this expenditure relates to property, plant and equipment, and the balance relates to intangible assets. The development of Desirable Site is completed but the production is not started yet. (i.e. there is no production, inventory and sales)
Provide the necessary journal entries using the area-of-interest method (10 marks)
Alps Ltd has a net income after tax of $1 500 000 for the year ended 30 June 2019. At the beginning of the period Alps Ltd has 900 000 fully paid-up ordinary shares on issue. On 1 December 2018 Alps Ltd had issued a further 300 000 fully paid-up ordinary shares at an issue price of $2.00. On 1 March 2019 Alps Ltd made a one-for-six bonus issue of ordinary shares out of retained earnings. The last sale price of an ordinary share before the bonus issue was $2.50. At the beginning of the current period Alps Ltd also had 500 000, $1.00, 8% cumulative preference shares on issue. The dividends on the preference shares are not treated as expenses in the statement of comprehensive income. The basic earnings per share for the period ended 30 June 2018 was $1.50 per share.
a) Calculate the basic EPS amount for 2019 and provide the adjusted comparative EPS for 2018. (8 marks)
b) Explain what is diluted EPS. Give one example of a security that can dilute the basic EPS. (2 marks, maximum 300 words)
Fujitsu Ltd purchases inventory from DFO Ltd, a listed British company. Relevant events and the spot rates at each date are shown as follows:
Date Event Spot rate
15 March 2019 Order £300,000 of inventory A$1.00 = £0.37
11 May 2019 Purchase takes place as inventory shipped to Fujitsu Ltd A$1.00 = £0.41
30 June 2019 End of financial year A$1.00 = £0.43
02 July 2019 Inventory arrives at warehouse A$1.00 = £0.42
14 August 2019 Payment of £300,000 to supplier A$1.00 = £0.39
a) Prepare appropriate journal entries for each relevant event. (7 marks) (Round amounts to the nearest dollar). Show your working.
b) What is a qualifying asset? Provide two (2) examples. (3 marks, maximum 300 words)
The assignment has to be submitted via Blackboard. Each student will be permitted one submission to Blackboard only. Each student needs to ensure that the document submitted is the correct one.
Academic honesty is highly valued. Students must always submit work that represents their original words or ideas. If any words or ideas used in a class posting or assignment submission do not represent the student’s original words or ideas, the student must cite all relevant sources and make clear the extent to which such sources were used. Written assignments that include material similar to course reading materials or other sources should include a citation including source, author, and page number.
In addition, written assignments that are similar or identical to those of another student in the class is also a violation of Academic Conduct and Integrity Policy.
The consequence for a violation of this policy can incur a range of penalties varying from a 50% penalty through to suspension of enrolment. The penalty would be dependent on the extent of academic misconduct and the student’s history of academic misconduct issues.
All assessments will be automatically submitted to Safe Assign to assess their originality.
For further information and additional learning resources, students should refer to their Discussion Board for the unit.