Financial Accounting and Reporting - Question 1

Bellago Ltd made an accounting profit before tax of $75,000 for the year ended 30 June 2020.The following items were included in the accounts:

Donations to political parties , non-deductible 4,000

Depreciation machinery ,20% 15,000

Annual leave expense 5,800

Rent revenue 8,000

Goodwill amortised , non-deductible 12,000

For tax purposes the following applied :

Depreciation rate for machinery 15%

Annual leave paid 4,500

Rent received 12,000

Income tax rate 30%

Required

Use a current tax worksheet to calculate the current tax liability for the year ended 30 June 2020. Prepare the adjusting journal entry.

Answer

Calculation worksheet for the tax liability as on 30th June 2020:-

Particulars

In $

Profit before Tax

75000

Add:

Donation to political Parties

4000

Depreciation -Machinery

15000

Rent Received

12000

Annual leave expense

5800

Goodwill

12000

48800

123800

Less:

Rent Revenue

8000

Annual Leave Paid

4500

Depreciation

11250

23750

Net Taxable Income

100050

Tax Liability @30%

30015

Journal Entry:

Income Tax Expense (current) a/c Dr 30015

Current Tax Liability a/c Cr. 30015

(Being recognition of current tax liability)

Financial Accounting and Reporting - Question 2

The Outback Mining Company Ltd has incurred various costs to explore an area of interest and wants to capitalise its Exploration and

Evaluation (E&E)expenditures on an area of interest basis.The following costs have been incurred .

Required:

Explain how each of these costs should be treated under AASB 6 ?

(a) the acquisition of speculative seismic data in relation to the area of interest to help determine whether to apply for an exploration licence ,costing $2,800

(b)labour costs of engineers analysing the seismic data, costing $3,400

(c)the exploration licence fee costing $850

Answer

Treatment of cost as per AASB6

  1. 2800 is to be charged to Profit and loss account , because is pre operational activity and kind of speculation and can also be expense related to bidding where there is no surety that whether the tender will awarded or not, and cost is debited to profit and loss account.
  2. Labour cost of $3400 will also be treated in the similar way as (a) because again it is pre-operative expenses and cannot be capitalised till if there is no gain
  3. It will be Expenses incurred in relation to E and E activity, without this Exploration is not at all possible, hence $850 will be charged as E & E Assets.

State how each of the following items should be valued and explain why:

(a) olives on olive trees

(b)chickens kept on a farm

(c) cooked turkeys at a supermarket

(d) trees in a forest

Answer

Valuation of the item will be as per ASSB41 , which is related to Agricultural income and expense

Agricultural Produce - Measured at FV, AS olives are sold as exactly as olives without turning into oil or some other form, then shall be treated as under As 41.

Chickens kept on a farm- Valuation at FV, AS chickens are under poultry farm, Shall be governed by 41, as the chickens basic nature is not changed, once change shall be scope out of 41.

Should be valued as inventories, because these are there for final sale in the super market and will not be in scope of AASB 41, it is final product.

Trees in the forest – it will be treated as capital Fixed asset, as it will produce further the agricultural products and can grow also.

Financial Accounting and Reporting - Question 3

(a) Explain the differences in implications for accounting when leave is said to be vesting as against non-vesting.

Answer

If leave is Vesting (Encashable), the employee is entitled to cash settlement for unused leave. A liability is recognised for proportion of accumulated leaves that the entity expects to be taken by employees.

If leave is non vesting (Non - encashable), the employee has no entitlement to cash settlement of unused leave. No liability / provision is created by entity as non-vesting indicates no additional liability will give rise.

(b)Are there any differences in the effects of a defined benefit superannuation scheme from a defined contribution superannuation scheme for a firm and its accounts? Explain

Answer

Defined

Financial Accounting and Reporting - Question 4

Mark wanted to expand his business and so he arranged to lease a special machine from Twain.This machine would enable him to produce his special furniture in half the time he previously used to manufacture the furniture items .To obtain the item Mark agreed to make an annual payment of $39,000 in arrears for three years and agreed to make a guaranteed residual payment of $16,000 .The lease commenced on 1 July 2019 .The financial year ended 30 June each year .The residual value of the asset was $22,000 and the interest rate on the lease was 7% .The fair value of the machine was $120,307.

Required:

(a)Prepare a lease payments schedule for Mark’s payments

(b)Show the journal entries for the year ended 30 June 2020 .

Answer

a) Lease payments schedule for Mark’s payments is as follow:-

Year

Balance

Interest Rate @7%

Lease Amt ($)

Principal Amt (S)

Closing Amt($)

1

115409

8079

39000

30921

84488

2

84488

5914

39000

33086

51402

3

51402

3598

39000

35402

16000

b) Journal Entries as on 30th June 2020

Date

Particulars

Debit (In $)

Credit(in $)

1st July 2019

Machinery Account

Lease Liability Account

115409

115409

30th June 20

Depreciation Account

Machinery Account

(Calculation : (115409-22000)/3

31136

31136

30th June 20

Finance Charges

Lease Liability Account

8079

8079

30th June 20

Lease Liability Account

Cash /Bank

39000

39000

30th June 20

Profit and Loss account

Depreciation Account

Finance Charges Account

39215

31136

8079

 

Financial Accounting and Reporting - Question 5

The following information is provided concerning the accounts of Jazzy Ltd .
You are asked to identify how each of these items is shown in the financial statements.

(a)

gain on revaluation of available-for-sale investments

(b)

dividends paid during the year

(c)

revaluation gain on building (not reversing any previous revaluation)

(d)

transfer to dividend equalisation reserve

(e)

Unsecured notes issued


Answer

a) Gain on revaluation of available for sale investments - credited to income statement.

b) Transfer to dividend equalisation reserve - under the reserves in equity in liabilities.

c) Contractual commitments under a finance lease- recorded both as an asset and liability

d) Corporate bonds issued - increase cash in other assets and increase bonds payable in long term debts.

Explain why comparative information is required to be provided in the financial statements.

Answer

Comparative information of Financial statement are required

To provide a comparison of company’s own financial health from one period to another to establish any trend if possible.

It also helps in understanding any major mistake which might have occurred during the maintenance of accounts

It is helpful in knowing the financial performance of the company as compared to its competitors of industry

It gives an scope for improvement by the identifying the areas where the companies indicators are not upto the mark and need improvement

It helps in making the most informed business decisions by analysing the trends available.

It helps in analysing any unusual increase or decrease in the amount of transactions.

Financial Accounting and Reporting - Question 6

Explain why the impairment of intangible assets causes such difficulty to companies when preparing their accounts.

Answer

The impairment of an intangible asset can be described as a sudden decrease in fair value due to some physical damage, changes in existing laws creating a permanent decrease, increased competition, poor management, and obsolescence of technology or any other factor.

An intangible asset’s annual amortization expense reduces its value on the balance sheet, which reduces the amount of total assets in the assets section of the balance sheet. This occurs until the end of the intangible asset’s useful life.

Annual amortization expense reduces net income on the income statement, which also reduces retained earnings in the stockholders’ equity section of the balance sheet

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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