2.1

Boston Ltd provides the following details regarding Machine Z PRIOR to any impairment or revaluation adjustments for the year ended 30 June 2015:

REQUIRED:

Prepare journal entries to record the above asset revaluations and asset value adjustments for Machine Z as at 30 June 2015. (Ignore any tax effect)

2.2

Spear Ltd provides the following information regarding a cash generating unit (CGU) during the 2014 and 2015 reporting period:

Information for year ended 30.6.2014

Note: Receivables are all collectable (not impaired).

Information for year ended 30.6.2015

For the period ending 30 June 2015, the depreciation charge on plant was increased to $25,000. If the plant had not been impaired the charge would have been $20,000. At 30 June 2015, the recoverable amount of the CGU was calculated to be $60,000 greater than the carrying amount of the assets of the CGU.

REQUIRED:

Prepare the journal entries to record the above events for the year ended 30 June 2014. (Ignore any tax effect)

3.1

Ted Ltd signed a contract with Mark Ltd. The contract requires Mark Ltd to transport a specified quantity of goods of Ted Ltd by using 10 specified rail cars in accordance with a stated timetable for a period of five years. Mark Ltd provides the rail cares, driver and engine as part of the contract. The contract states the nature and quantity of the goods to be transported as well as the type of rail car to be used to transport the goods. Mark Ltd has a large pool of similar cars that can be used to fulfil the requirements of the contract. Mark Ltd can choose to use any one of a number of engines to fulfil the requests from Ted Ltd. The engine could be used to transport not only the goods of Ted Ltd, but also the goods of other customers. The cars and engines are stored at Mark Ltd’s premises when not being used to transport goods.

REQUIRED:

According to AASB 16, can the contract between Ted Ltd and Mark Ltd be treated as a lease contract? Please explain.

3.2

On 30 June 2020, Small Ltd leases a large item of machinery from Fred Ltd. Small Ltd makes an initial payment of $200 000 on 30 June 2020 when the least term starts. All remaining lease payments are made in arrears. Small Ltd will return the leased asset at the end of the lease term. The lease agreement also contains the following information:

REQUIRED:

Calculate the lease liability and right-of-use asset that Small Ltd should recognise on its balance sheet on 30 June 2020.

3.3

Based on the information provided in Q3.2, list all the items and amounts related to the above lease contract that would be included (but not necessarily disclosed separately) in extracts from the Income Statement and Balance Sheet of Small Ltd (the lessee) for the year ended 30 June 2021. Ignore the effect on cash account.

4. Income Tax

Skye Ltd commenced operations on 1 July 2017. At 30 June 2020, the entity provided the following information:

· Accounting profit before tax was $500 000.

· The gross amount of accounts receivable is $80 000. A doubtful debt provision of $10 000 was created at the end of June 2020.  No bad debts were written off during the year.

· Revenue of $20 000 was received in advance in June 2020. The revenue is assessable for tax purposes when received.

· Plant was purchased at a cost of $450 000 on 1 July 2018. For accounting purposes, plant is depreciated using the straight-line method over 5 years. For tax purposes plant is depreciated over 3 years.  Plant has a residual value of nil for tax and accounting purposes.

· During 2020 the balance of long service leave increased by $30 000 to $100 000. Long service leave is only deductible when paid.

· Penalties and fines paid of $30 000 during the year are included in expenses used to calculate accounting profit.  Penalties and fines are not allowable tax deductions.

· Deferred tax balances at 1 July 2019 were:

· Deferred Tax Assets = $21 000

· Deferred Tax Liabilities = $10 000

· The tax rate is 30 per cent.

REQUIRED:

4.1 Based on the information above, complete the following deferred tax worksheet.

4.2 Prepare the journal entries associated with deferred tax for the year ended 30 June 2020.

4.3

As a result of a drop in global oil prices, Fortescue Ltd recognized a $50 million taxable loss in the current period. The management of Fortescue Ltd are debating whether it can raise a deferred tax asset in relation to this loss in the financial statements in the current period.

REQUIRED:

Provide advice to the management on the raising of a deferred tax asset and specifying the conditions, if any, under which the asset could be recognized.

5. Revenue

5.1

A supermarket, XYZ Ltd, offers its regular customers a customer loyalty card. The customer is entitled to $20 off their groceries after each $3,000 spent in the supermarket. On 14 August 2016 a customer comes into the supermarket. The customer has already accumulated grocery purchases of $2,850 on their card. The customer buys $350 worth of groceries. As the customer has now spent an accumulated total of more than $3,000 on grocery purchases in the supermarket, the customer is entitled and decides to redeem their $20 off their groceries. The customer pays only $330 for the $350 worth of groceries.

Assume all customers will redeem.

REQUIRED:

Show the journal entry in the books of XYZ Ltd to record the transaction on 14 August 2016 (assume a 60% mark-up on the price of these goods).

5.2

Rocky Ltd provides a bundled service offering to Customer A. Rocky charges Customer A $70 000 for initial connection to its network and two ongoing services — access to the network for two years and ‘on- call troubleshooting’ advice for two years (ending

30 June 2022).

Customer A pays the $70 000 upfront, on 1 July 2020. Rocky determines that, if it were to charge a separate fee for each service if sold separately, the fee would be:

REQUIRED:

Prepare the journal entries to account for this transaction for the year ended

30 June 2021 in accordance with AASB 15 Revenue from Contracts with Customers, assuming Rocky applies the relative fair value approach.

6. Financial Instruments

6.1

On 1 July 2014, Ball Ltd purchases a debt instrument with a 4-year term for its fair value of $526,210 (including transaction costs). The instrument has a principal amount of $580,000 (the amount payable on redemption) and carries fixed interest of 5.2% per annum paid annually in arrears on 30 June every year. The effective interest rate is 8% per annum. The debt instrument is classified as subsequently measured at amortised cost.

REQUIRED:

Prepare the journal entries for the year ended 30 June 2018.

6.2

Smith Ltd issues 100,000 $1 redeemable convertible notes. The notes pay interest at 5% per annum. Each note converts at any time at the option of the holder into one ordinary share. The notes are redeemable at the option of the issuer for cash after 5 years. If after 5 years the notes have not been redeemed or converted, they cease to carry interest. Market rates for similar notes without the conversion option are 7% per annum.

REQUIRED:

Determine whether the entity has a financial liability or equity instrument, and calculate the amount of any financial liability or equity instrument in accordance with AASB 132 Financial Instruments: Presentation. Give reasons to support your answer.

6.3

Golden Ltd acquired some government bonds. Under what condition(s) can Golden Ltd subsequently measure the government bonds at amortised cost? Please identify the relevant accounting standard and explain.

7. Business combinations

On 1 July 2020, GWS Ltd confirmed and contracted to acquire all the assets and liabilities of Power Ltd. Power Ltd would then liquidate. The purchase consideration was agreed as follows:

Upon liquidation, shareholders of Power Ltd to receive 4 shares in GWS Ltd for every five shares held in Power Ltd. Each GWS Ltd shares has a fair value of $2.50 at 1 July 2020. GWS Ltd incurred and paid share issue costs of $1,000.

The Balance Sheet of Power Ltd on 1 July 2020 is as follows: