Question 1 (This question has two parts, I and II) (10 marks)

Part I

James Shipton, the chairperson of the Australian Securities and Investments Commission (ASIC), argued in an interview, “in the current environment, the quality of financial reports and related disclosures is more important than ever for investors and to maintain confident and informed markets.” Also, he added, “entities with businesses adversely affected by the COVID-19 pandemic should focus on the reporting of asset values and financial position. Investors will expect clear disclosure about the impacts on an entity’s businesses, any risks and uncertainties, key assumptions, management strategies and future prospects.” In line with the chairperson’s arguments, the ASIC requires the entities and industries adversely affected by the COVID-19 pandemic to focus on: asset values, provisions, solvency and going concern assessments, events occurring after year end and before completing the financial report, and disclosures in the financial report and operating and financial review (OFR) for financial reporting. More specifically, the ASIC announce that it will review the financial reports of about 200 larger listed entities and other public interest entities as at 30 June 2020 and require entities to apply more appropriate experience and expertise in the reporting and audit process, particularly in more difficult and complex areas, such as asset values and other estimates.

Required:

(a) Describe the most possible reasons that the ASIC requires companies affected by COVID-19 to provide more detailed and adequate information on some focus areas, such as asset values, provisions, solvency and going concern assessments, events occurring after year end and before completing the financial report, disclosures in the financial report and Operating and Financial Review (OFR). (2 marks)

(b) Some people argue that the disclosure requirement (or regulation) above may not be necessary for financial reporting even under COVID-19 pandemic. Explain their reasons from the free-market perspective. (2 marks)

Part II

Burwood Ltd is listed on the Australian Securities Exchange (ASX). It has 10 million ordinary shares publicly issued at a price of $3.00 per share. The terms of the issue are that $2.00 is to be paid on application and the remaining $1.00 within one month of allotment. Applications are received for 12 million shares during July 2023. The directors allot 10 million shares on 1 August 2023. All applicants receive shares on a pro rata basis. The amounts payable on allotment are due by 30 August 2023.

Subsequently, the holders of 2 million shares have failed to pay the amounts due on allotment by 30 August 2023. The directors forfeit the shares on 10 September 2023. The shares are resold on 15 September 2023 as fully paid. An amount of $2.50 per share is received for each share sold. The costs of conducting the resale amount to $10,000. The surplus amounts are returned to the original shareholders after payment of all of the expenses associated with reissuing the shares.

Required:

Provide the journal entries necessary to account for the above transactions and events along with the dates. (6 marks)

Question 2 (This question has two parts, I and II) (10 marks)

Part I

ABC Ltd acquired a property on 30 June 2016 at a cost of $4,000,000. The company initially measured the property at cost in accordance with AASB 116 “Property, Plant and Equipment” and depreciated it over a useful life of 50 years on a straight-line basis.

At 30 September 2020, ABC Ltd decided to revalue the property because the value of commercial property significantly increased over the last year, and the property is now worth more than the original $4,000,000 cost.

Melbourne Appraiser Ltd, an independent valuer, has prepared a report on the market value of the property based on use as an office block. It measures the value of the property to be $4,800,000. In recent transactions for similar properties, sellers wishing to achieve a quick sale have accepted offers of 10 per cent less than market value.

Required:

(a) Describe the advantages and disadvantages of using the revaluation model rather than the cost model in the context of the qualitative characteristics of the AASB “Conceptual Framework for Financial Reporting”. (2 marks)

(b) AASB 116 “Property, Plant and Equipment” requires disclosure of whether an independent valuer was involved in the asset revaluation process and the carrying amount that would have been recognised under the cost model. Explain why these disclosures are required in the context of the qualitative characteristics of the AASB “Conceptual Framework for Financial Reporting”. (2 marks)

Part II

Geelong Ltd purchases land for $300,000 in cash on 1 July 2020. In the subsequent periods, Geelong Ltd applies revaluation accounting for the land. It has the following information related to the land.

Geelong Ltd sold the land on 2 July 2023 for $330,000. Ignore tax effects.

Required:

(a) Determine the amounts to be reported by Geelong Ltd on 30 June 2022 and 2023, as Other Comprehensive Income (OCI), Loss on revaluation, and Revaluation Surplus (or Accumulated Other Comprehensive Income). (2 marks)

(b) Prepare all journal entries related to the land in 2021, 2022, and 2023, including the journal entries related to the sale of land on 2 July 2023. (4 marks)

(a)

*P/L (Profit/Loss) indicates that the item is reported as profit or loss in a statement of profit of loss and other comprehensive income, which is distinct from other comprehensive income (OCI).

(b)

Question 3 (10 marks)

Apple Co enters into a contract with Deakin University to sell 1,000 Ipads to be used in class on 1 July 2019. The total sales price of this contract is $1,000,000 ($1,000 for each Ipad). The two parties agree that Apple Co delivers Ipads in 2 separate deliveries and thus, 500 ipads are to be delivered in each delivery. The control over the Ipads will be transferred to Deakin University at delivery. After the first delivery (500 Ipads) is made, Deakin University and Apple Co decide to amend the contract to meet the increasing demand of the electronic devices for educational purposes. As a result of the contract amendment, Apple Co will supply 200 additional Ipads (1,200 Ipads in total). The following two cases are independent.

Required:

How should Apple Co account for the revenue for the year ended 30 June 2020 from the contract in each case above in accordance with AASB 15 “Revenue from Contracts with Customers”? Calculate the total amount of revenue arising from the 1,100 Ipads delivered for the year ended 30 June 2020 in each case and show your workings.

(a) Case 1 (5 marks)

(b) Case 2 (5 marks)