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Semester Two 2021

Exam - Alternative Assessment Task

ACC/ACF1100

Introduction to Financial Accounting

Question 1 (15 marks)                                                                                     

Squeeze Juice is a mobile retailer of fresh fruit juices. Their products are sold at major events.  The following information relates to the business’s activities for the week of the Great Victorian Bike Ride.

Jan 1       Opening Inventory         20,000 bottles @    84c per bottle

Jan 2        Sales                              18,000 bottles @ $1.40 per bottle   

Jan 3         Purchases                      10,000 bottles @    90c per bottle

Jan 4         Sales                             11,000 bottles @ $1.50 per bottle

Jan 5         Purchases                       15,000 bottles @ $1.00 per bottle

Jan 6         Sales                               14,000 bottles @ $1.60 per bottle

Jan 7         Closing Inventory           1,000 (as per physical stock take)

Four hundred bottles of closing stock have passed their use by date and cannot be sold for human consumption.  They can, however, be sold to a local goat farm for 20c per bottle.

Transportation from the Victoria market, where the juice is squeezed, to Squeeze Juice is 10c per bottle. Transportation to the goat farm is 5c per bottle. These transportation costs are not applicable to customers. Squeeze Juice pays both lots of transportation costs.

Required:

Calculate the value of closing inventory as provided for in AASB 102, applying the FIFO (first-in-first-out) method. Squeeze Juice uses the periodic inventory method. Justify ALL aspects of your calculations.

(15 marks)

Question 2 (25 marks)

On 1 July 2020, Patrick Ltd entered into a non-cancellable, three-year lease of a computer system.  The computer had a fair value of $15,100 and a present value of the minimum lease payments of $14,934. The computer had an estimated useful life of 4 years and a zero-residual value.  The lease involved an initial payment of $2,500 on 1 July 2020 plus 3 annual payments of $5,000.  Payments, except for the initial payment, are made on 30 June each year. The implicit interest rate in the lease is 10% p.a. Ownership of the computer system will transfer to Patrick Ltd at the end of the lease term.

Required:

(i) Prepare a lease schedule for the three years of the lease. (10 marks) 

(ii) Prepare the general journal entries relating to the lease for the financial year ending 30 June 2021. Justify your entries by reference to the appropriate accounting standard AASB 16 Leases. Narrations are NOT required. (9 marks)

(iii) Prepare the Balance Sheet extract as at 30 June 2021. (6 marks)

Question 3 (26 marks)                                                                        

White Ltd purchased land and buildings on 1 July 2014 for $1.8m. The land was valued at $0.8m.  The buildings are depreciated over 20 years using the straight-line method and have zero residual value.  Equipment was also purchased on that date for $200,000 with an estimated $50,000 residual value and a useful life of five years. The straight-line method of depreciation is used for the equipment.

At 30 June 2016, the following information is provided:

                                                                        Fair Value                 Recoverable Amount

Land                                                               $920,000                     $900,000

Equipment                                                     $128,000                    $125,000

Buildings             $790,000          $770,000

White Ltd has adopted the revaluation (fair value) model for both the land and the buildings, and the cost model for the equipment.  No measurement adjustments were made in 2015.

Required: 

(a)        Prepare general journal entries to record any measurement adjustments at

30 June 2016. Show all necessary calculations, assumptions and justifications. Narrations are NOT required. (19 marks)

(b)       Under the revaluation model, when would a downward revaluation be debited to a revaluation surplus account and when would it be debited as an expense? (4 marks)

(c) Calculate the depreciation expense for equipment for the year ended 30 June 2017. There is no change in the residual value and useful life. (3 marks)

Question 4 (16 marks)

Masterchef Ltd sells food processors. The financial year of Masterchef Ltd ends on 30 June. The unadjusted trial balance below of Masterchef Ltd is as follows.

 Further, an age analysis of accounts receivable on 30 June 2017 was conducted: 

The following additional information is available at the end of June 2017:

(a) Debts that have been outstanding for more than 180 days need to be written off.

(b) Based on past experience, Masterchef Ltd decides to make the adjustment necessary to bring the allowance for doubtful debts to the desired figure on 30 June 2017.

(c) Plant and Equipment is depreciated using the Reducing Balance method at a rate of 20%. The estimated residual value is $5,000.

(d) Masterchef Ltd paid the annual rent of $18 600 on 1 February 2017.

(e) At balance date, 25% of the revenue received in advance has now been earned.

(f) The Prepaid Insurance account refers to the following policy:

Required: 

Prepare general journal entries to record the above transactions (including balance day adjustments) on 30 June 2017 (narrations are NOT required). Show all workings.

Question 5(18 marks)

a)  Francesca Ltd. is considering diversifying its operations and is evaluating opportunities in the areas of Exploration of Mineral Resources, or Research and Development. They have asked your advice on the following issues:

(i) Briefly explain the accounting treatment required under appropriate Australian Accounting Standards if they spent money exploring for minerals.

(ii) Briefly explain how the rules in i) are consistent or inconsistent with the definitions and recognition criteria of the elements as detailed in the Conceptual Framework. 

b}    Groot Ltd. was a new company formed on the 1 January 2018. The following events occurred in 2018:

The company issued 250,000 ordinary shares at 80 cents each on 1 January 2018.  The company was extremely successful in its first few months and an interim dividend of 5 cents per share was declared and paid on 29 March 2018. A final dividend of 10 cents per share for the financial year ending 30 June 2018 was paid on 2 August 2018. This dividend had been declared on 30 June 2018. An increase of $100,000 in the general reserve was made on the same date. Profit before income tax for the year ended 30 June 2018 was $725,400 and the company tax rate is 30%.

Required:

Prepare general journal entries to record all the above transactions and events.