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BFA201 Financial Accounting

1) Revenue Recognition

On 1 February 2023, FastNet Ltd entered into an agreement with Smith Ltd to develop a new database system (both hardware and software) for Smith Ltd. The agreement states that the total consideration to be paid for the system will be $430 000. FastNet Ltd expects that its total costs for the system will be $335 000. As the end of its reporting period, 30 June 2023, FastNet Ltd had incurred labour costs of $65 000 and materials costs of $180 000. Of the materials costs, $30 000 is in respect of materials that have not yet been used on the system. Of the labour costs, $12 500 is an advance payment to a subcontractor who had not performed their work on the project as at 30 June 2023. As at 30 June 2023, Smith Ltd had made progress payments to FastNet Ltd of $250 000.

FastNet Ltd calculates the measurement of progress using input methods in accordance with paragraph B18 of AASB 15/IFRS 15.

Required

a. Calculate the revenue to be recognised by FastNet Ltd for the year ended 30 June 2023

b. Prepare the journal entries to record the transactions described in accordance with AASB 15.  Assume all of FastNet Ltd’s costs are paid for in cash.

On 30 June 2022, the statement of financial position of Kookaburra Ltd showed the following non-current assets after charging depreciation.

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 $28 000. On 30 June 2022, an independent valuer assessed the fair value of the building to be $320 000 and the vehicle to be $180 000.

Required

Prepare any necessary entries to revalue the building and the vehicle as at 30 June 2022.

3) Impairment

On 30 June 2023, an item of machinery had a carrying amount of $525 000. The machinery’s cost at acquisition was $750 000 at which time its estimated useful life was 10 years with no residual value.

On 30 June 2023, the same item of machinery was assessed as having a recoverable amount of $455 000 and a remaining useful life of 7 years.

On 30 June 2026, the machinery was assessed as having a recoverable amount of $315 000 and a remaining useful life of 3 years.

All machinery is carried under the cost model.

Required

Show the journal entries for depreciation and any adjustments relating to impairment on each of the following dates. 

30 June 2023

30 June 2026

30 June 2027

4) Leases

On 1 July 2023, Sherlock Ltd leased a processing plant to Holmes Ltd. The plant was purchased by Sherlock Ltd on 1 July 2023 for its fair value of $348 942. The lease agreement contained the following provisions:

Holmes Ltd intends to return the processing plant to Sherlock Ltd at the end of the lease term. The lease has been classified as a finance lease by Sherlock Ltd.

Required

a. Prepare the lease payments schedule for Holmes Ltd.

b. Prepare the journal entries in the books of Holmes Ltd for the year ended 30 June 2025 in accordance with AASB 16.

5) Research and Development

A small manufacturing company, Ousmane Ltd, has significantly increased it expenditure on research and development over the past year.

Required

a. Advise Ousmane Ltd on how research and development expenditure should be accounted for under AASB 13

6) Tax

Magpalitan Ltd recorded an accounting profit before tax of $100 000 for the year ended 30 June 2025. Included in the accounting profit were the following items of revenue and expense:

For tax purposes the following applied:

Required

a. Calculate the current tax liability for the year ended 30 June 2025, and prepare the adjusting journal entry in accordance with AASB 112.