Assessment item 3

Assignment 2
Value: 15%
Due date: 15-Sep-2014
Return date: 06-Oct-2014
Submission method options
Hand delivery (option applies to Internal only)
Alternative submission method
Task
This assessment task consists of four (4) questions. A total of 60 marks are allocated to
the questions below, which will then be converted to a mark out of 15%.
Rationale
This assessment task is designed to assess your understanding of topics 3 to 6.
Marking criteria
General marking criteria

Short answer questions
In the awarding of marks for short answer questions, consideration will be given to:
Evidence of understanding of the key issues identified in the question;
Active analysis of identified elements as appropriate;
Clear indication of reading of the texts, readings and other relevant references as
appropriate;
Clear and logical written expression; and
Appropriate referencing.
Practical questions
In the awarding of marks for practical questions, consideration will be given to:
Correctness of answers;
Appropriate formatting and headings;
Relevant workings;
Approach taken to solve the problem; and
Completeness of answers.
A detailed marking rubric has been provided in the 'Requirements' section below for each
question.
Presentation
Physical presentation of assignments
It is essential that presentation of assignments adheres to accepted standards in relation to
neatness and layout, as you are practising to present material in a work situation. Correct
formatting and referencing procedures of material should be strictly adhered to for
essays. You should submit a proper reference list (using APA referencing style) for all
essay type assignments. A reference list contains only those works cited or quoted from
in your essay. A bibliography is acceptable for practical-type assignments.

For practical questions:
all journal entries must include narrations unless otherwise specified;
any ledger accounts should preferably be shown in 'T' account format and dates
and descriptions be included;
journal entries and ledger accounts must reflect the strict order of sequence of
events;
financial statements (including extracts) should include proper headings and
accord with presentation standards.
Penalties will be incurred if material is not correctly referenced and if presentation is not
of an acceptable standard.

Please also note the following:
Journal entries, ledger accounts, worksheets and financial statements should
always balance. If you have to submit a piece of work that does not balance
because you cannot detect your error please include some comment about the
source of your problem so the marker can provide appropriate feedback.
Include workings where appropriate. Partial marks can be allocated for workings
where the final answer is incorrect.
Requirements
All workings, when appropriate, must be shown to substantiate your answers.
Question 1 [15 marks]

Events after the reporting period

Bob Ltd is finalising its financial statements for the reporting period ending 30 June
2014. On 21 July 2014, before the financial statements have been finalised and authorised
for issue, the companys directors became aware of the following situations:

a) 2 July 2014: The directors proposed a dividend of $10,000.

b) 3 July 2014: The directors approved the sale of an off-shore agency to another
entity for a profit of $30,000.

c) 4 July 2014: The company received an invoice from a supplier for $85,000 for
goods delivered in June; the goods were included in closing inventory at an estimated
cost of $100,000.

d) 5 July 2014: The company executed a guarantee in favour of the banks for an
outstanding loan of $1,000,000 that the bank made to X Ltd, the companys major
supplier, in January of that year; the guarantee was executed because the bank was
demanding payment, which would have disrupted inventory supplies.

e) 6 July 2014: An agreement was signed to take over a production facility in Adelaide
at a cost of $5,000,000, which will be paid for using a long-term finance lease.

f) 7 July 2014: The Australian Taxation Office waived fines for the inclusion of
incorrect information in the companys 2012 income tax return; the adjusted return was
reflected in the companys financial statements and the fine of $30,000 was recognised as
an expense and liability at reporting date.

Required:

i) Given that financial statements are prepared for the financial period up to the
reporting date, explain why there is a need for a standard that refers to events occurring
after the reporting date.
(3 marks)

ii) Explain whether the above events will be classified as either adjusting or non-
adjusting events after the end of the reporting period (assuming the amount is material),
providing reasons for your decision. State the appropriate accounting treatment for each
event in Bob Ltds 2014 financial statements.
(12 marks)

(Source: Adapted from Deegan, C. (2010). Australian financial accounting. (6
th
edition)
Sydney: McGraw Hill.)


Marking Guide - Question 1 Max. marks
awarded
i)
Discussion re the need for a standard
that refers to events occurring after the
reporting date.
3
ii)
Classification and
justification/discussion of events
6
Stating the appropriate accounting
treatment for each event
6
Total 15



Question 2 [15 marks]

Accounting for share capital

The constitution of Henrietta Sweeney Ltd indicated that the company could issue up to
5,000,000 ordinary shares and 1,000,000 preference shares. Prospectuses had been
published offering 1,000,000 preference shares at $1.50 payable in full on application by
31 March 2014, and 2,000,000 ordinary shares at $1.20 with 50% due on application by
31 March 2014, 25% due on allotment, and 25% due on a call to be made by the directors
at a later date.

By 31 March 2014, the company had received amounts due on 800,000 of the preference
shares and on applications for 2,400,000 ordinary shares. On 15 April 2014, the ordinary
and preference shares were allotted. The ordinary shares were allotted to applicants on a
pro rata basis and the amounts received in excess of that due were to be credited against
amounts due on allotment. The amount due on allotment of the ordinary shares was due
by 15 May 2014 and this was received on all shares.

The directors made the call on the ordinary shares on 31 August 2014, with amounts due
by 30 September. By this date, amounts due on 1,997,000 ordinary shares had been
received. On 15 October 2014, the shares on which call money was not received were
forfeited and sold as fully paid. An amount of $0.75 was received for each share
sold. Costs of the forfeiture and reissue amounted to $800, and were paid. The
constitution does not provide for refund of any balance in the forfeited shares account
after reissue to former shareholders.

Required:

Prepare the journal entries to record the transactions of Henrietta Sweeney Ltd up to and
including that which took place on 15 October 2014. Show all relevant dates, narrations
and workings.

(Source: Adapted from Dagwell, R., Wines, G., Lambert, C. (2012). Corporate
Accounting in Australia. (1
st
edition) Sydney: Pearson Australia.)


Marking Guide - Question 2 Max. marks
awarded
Journal entries 11.5
Dates 1
Narrations 1
Workings 1.5
Total 15


Question 3 [15 marks]
Accounting for income tax

Twinkle Ltd commences operations on 1 July 2013 and presents its first Statement of
Profit or Loss and Other Comprehensive Income, and first Statement of Financial
Position on 30 June 2014. The statements are prepared before considering taxation. The
following information is available:

Statement of Profit or Loss and Other Comprehensive
Income for the year ended 30 June 2014
$ $
Gross profit 420,000
Royalty revenue (exempt
income)
30,000
Expenses:

Administration expenses 75,000
Salaries 150,000
Long service leave 15,000
Warranty expenses 20,000
Depreciation expense - plant 80,000
Insurance 30,000 370,000
Accounting profit before tax 80,000


Assets and liabilities as disclosed in the Statement of
Financial Position as at 30 June 2014
$ $
Assets

Cash 10,000
Inventory 110,000
Accounts receivable 40,000
Prepaid insurance 15,000
Goodwill 20,000
Plant cost 400,000
Less: accumulated
depreciation
80,000 320,000
Total assets 515,000

Liabilities

Accounts payable 35,000
Provision for warranty
expenses
10,000
Loan payable 225,000
Provision for long service
leave
15,000
Total liabilities 285,000
Net assets 230,000

Other information:
All administration and salaries expenses incurred have been paid as at year end.
None of the long service leave expense has actually been paid. It is not deductible
until it is actually paid.
Warranty expenses were accrued and, at year end, actual payments of $10,000
had been made. Deductions are available only when the amounts are paid and not
as they are accrued.
Actual amounts paid for insurance are allowed as a tax deduction.
Amounts received from sales, including those on credit terms, are taxed at the
time the sale is made.
The plant is depreciated over five years for accounting purposes, but over four
years for taxation purposes.
The tax rate is 30%.

Required:

i) Determine the balance of any current and deferred tax assets and liabilities (using
appropriate worksheets) as at 30 June 2014, in accordance with AASB 112. Show all
necessary workings.
(9 marks)

ii) Prepare the journal entries to record the current tax liability and movements in
deferred tax assets and liabilities.
(2 marks)

iii) What would your answer for part (a) if the following items on the statement of profit
or loss and other comprehensive income were changed: Gross profit was $360,000
(instead of $420,000) and the Royalty revenue (exempt income) was $90,000 (instead
of $30,000). Show all calculations and necessary workings.
(4 marks)

(Source:Adapted from Deegan, C. (2010). Australian financial accounting. (6
th
edition)
Sydney: McGraw Hill.)


Marking Guide - Question 3 Max. marks
awarded
i)
Determination of taxable income and
current tax liability, and workings
4
Determination of deferred tax
balances
5
ii)
Journal entries 2
iii)
Determination of impact on current
and deferred tax balances, and
workings
4
Total 15



Question 4 [15 marks]

Property, plant and equipment

Petersen Ltd has the following land and buildings in its accounts as at 30 June 2014:

$
Residential land, at cost 1,000,000
Factory land, at valuation 2011 900,000
Buildings, at valuation 2010 800,000
Accumulated depreciation (100,000)

At 30 June 2014, the balance of the revaluation surplus is $200,000, of which $100,000
relates to the factory land and $100,000 to the buildings. On this same date, independent
valuations of the land and building are obtained. In relation to the above assets, the
assessed fair values at 30 June 2014 are:

$
Residential land, previously recorded
at cost
1,100,000
Factory land, previously revalued in
2011
700,000
Buildings, previously revalued in
2010
900,000

The company has adopted fair value for the valuation of non-current assets.

The company tax rate is 30%.

Required:

i) Prepare journal entries to record the revaluations on 30 June 2014. Petersen Ltd
classifies the residential land and factory land as different classes of assets.
(12 marks)

ii) The directors of Petersen Ltd are now concerned about the impact of reporting the
decline in the fair value of the factory land in the companys financial statements. They
have now asked you (the company accountant) to use the 2011 valuation for the 2014
financial statements, stating that the decline in value of the factory land is only temporary
and will increase again in the near future, after a nearby multi-million dollar development
is approved. You need to prepare a response to the directors request. Provide references
to AASB 116 to support your answer. (Word limit: 200 words)
(3 marks)

(Source: Adapted from Deegan, C. (2010). Australian financial accounting. (6
th
edition)
Sydney: McGraw Hill.)


Marking Guide - Question 4 Max. marks
awarded
i)
Journal entries 12
ii)
Response to directors request 3
Total 15


Marking criteria

The assessment rubric for this assessment task is provided below. The detailed allocation
of marks for each question has been provided above for your information.

Criteria Exceeds expectation
(HD/D)

Meets expectation
(CR/PS)
Fails to meet
expectation (FL)
Question 1:
Apply relevant
accounting principles
to events occurring
after reporting date.

- correctly explain
why there is a need
for a standard that
refers to events
occurring after the
reporting date;
- classify adjusting
and non-adjusting
events and state
appropriate
accounting treatment
without flaw/with
minor flaws;
- explanations shown
are exemplary and
clear.
- correctly explain
why there is a need
for a standard that
refers to events
occurring after the
reporting date;
- classify adjusting
and non-adjusting
events and state
appropriate
accounting treatment
with some errors;
- explanations shown
are adequate.
- fails to accurately
explain why there is a
need for a standard
that refers to events
occurring after the
reporting date;
- fails to classify
most of the adjusting
and non-adjusting
events and state
appropriate
accounting treatment;
- explanations shown
are inadequate.
Question 2:
Prepare journal
entries to account
for share issue
transactions.

- all entries made are
accurate/with minor
flaws;
- dates shown are
correct for the
transactions;
- narrations are
shown.
- workings shown are
logical and well
presented.
- most of the entries
made are correct with
some errors;
- dates shown are
mostly correct for the
transactions;
- narrations are
shown.
- workings shown are
logical and well
presented.
- most of the entries
made are incorrect;
- most of the dates
shown are incorrect
for the transactions;
- narrations are not
shown.
- workings shown are
illogical and ill
presented.
Question 3:
Apply relevant
accounting principles
- determine current
and deferred tax
balances without
- determine current
and deferred tax
balances with some
- fails to determine
current and deferred
tax balances;
in recognising and
measuring income
tax.

flaw/with minor
flaws;
- workings shown are
logical and well
presented;
- all journal entries
made are
accurate/with minor
flaws.
errors;
- workings shown are
logical and well
presented;
- journal entries
made are accurate
with some errors.
- workings shown are
inadequate;
- most of the journal
entries made are
incorrect.
Question 4:
Apply relevant
accounting principles
in the
asset revaluation
model.
- all entries made are
accurate/with minor
flaws;
- response to directors
is clear and shows
mastery of the topic.

- all entries made are
mostly correct with
some errors;
- response to
directors is clear and
shows adequate
understanding of the
topic.
- most of the entries
made are incorrect;
- response to
directors shows little
or limited
understanding of
topic.