HI6025 Accounting Theory And Current Issues

Questios:

Q 1.

Asia Pacific Ltd started operating on 1 July 2017 with 12 employees. Three years later all of those employees were still with the company. On 1 July 2019 the company hired 15 more people but by 30 June 2020 only 10 of those employed at the beginning of that year were still employed by Asia Pacific Ltd.

All employees are entitled to 13 weeks’ long-service leave after a conditional period of 10 years of employment with Asia Pacific Ltd.

At 30 June 2020 Asia Pacific Ltd estimates the following:

• The aggregate annual salaries of all employees hired on 1 July 2017 is now $1,200,000.
  
• The aggregate annual salaries of all current employees hired on 1 July 2019 is now $800,000.
• The probability that employees hired on 1 July 2017 will continue to be employed for the duration of the conditional period is 40 per cent.
• The probability that employees hired on 1 July 2019 will continue to be employed for the duration of the conditional period is 20 per cent.
• Salaries are expected to increase indefinitely at 1 per cent per annum.

The interest rates on high-quality corporate bonds are as follows:

Corporate bonds maturing in seven years	6%
Corporate bonds maturing in eight years	8%
Corporate bonds maturing in nine years	8%
Corporate bonds maturing in ten years	10%

At 30 June 2019 the provision for long-service leave was $12,000.

Required:

Calculate the total accumulated long-service leave benefit as at 30 June 2020.

1. What amount should be reported for the long-service leave provision as at 30 June 2020 in accordance with AASB 119?
2. Prepare the journal entry for the provision for long-service leave for 30 June 2020 in accordance with AASB 119.
3. Which employee benefits are required to be discounted in accordance with AASB 119?

Q 2.

Big Construction Company signs a contract on 1 July 2019, agreeing to build a warehouse for Buyer Corporation Ltd at a fixed contract price of $10 million. Buyer Ltd will be in control of the asset throughout the construction process. Big Construction Company estimates that construction costs will be as follows:

2019	2.5 million
2020	$4 million
2021	$1.5 million

The contract provides that Buyer Corporation Ltd will make payments on 31 December each year as follows:

2019	$2 million
2020	$5 million
2021	$3 million

The contract is completed and accepted on 31 December 2021. Assume that actual costs and cash collections coincide with expectations and that cost (an input measure) is used as the basis for assessing progress on the construction contract. Big Construction Company has a financial year ending 31 December.

Required:

1. Using the above data, compute the gross profit to be recognised for each of the three years, assuming that the outcome of the contract can be reliably estimated.
   
2. Prepare the journal entries for 2019, 2020 and 2021 financial year to recognise revenue on the assumption that the measure of progress on the contract can be reliably estimated.
3. Prepare the journal entries for 2019, 2020 and 2021 financial year, assuming that the measure of progress on the contract cannot be reliably assessed. (

Q 3.

Gem Limited commences operations on 1 January 2019. During 2019 Gem Limited explores three areas and incurs the following costs:

	Exploration and Evaluation expenditure ($)
Desirable	25,000,000
Undesirable	20,000,000
Neutral	28,000,000

In 2020 oil is discovered at Desirable Site. Undesirable Site is abandoned. Neutral Site has not yet reach a stage that permits a reasonable assessment at the existence or otherwise of economically recoverable reserves, and active and significant operations in the area of interest are continuing. In relation to the exploration and evaluation expenditures incurred at Desirable Site and Neutral Site, 70 percent of the expenditures related to property, plant and equipment, and the balance relates to intangible assets.

In 2020, development costs of $48,000,000 are incurred at Desirable Site (to be written off on a production basis). $32,000,000 of this expenditure relates to property, plant and equipment, and the balance relates to intangible assets. The development of Desirable Site is completed but the production is not started yet. (i.e. there is no production, inventory and sales)

Required:

Provide the necessary journal entries using the area-of-interest method

Q 4.

Alps Ltd has a net income after tax of $1 500 000 for the year ended 30 June 2019. At the beginning of the period Alps Ltd has 900 000 fully paid-up ordinary shares on issue. On 1 December 2018 Alps Ltd had issued a further 300 000 fully paid-up ordinary shares at an issue price of $2.00. On 1 March 2019 Alps Ltd made a one-for-six bonus issue of ordinary shares out of retained earnings. The last sale price of an ordinary share before the bonus issue was $2.50. At the beginning of the current period Alps Ltd also had 500 000, $1.00, 8% cumulative preference shares on issue. The dividends on the preference shares are not treated as expenses in the statement of comprehensive income. The basic earnings per share for the period ended 30 June 2018 was $1.50 per share.

Required:

Calculate the basic EPS amount for 2019 and provide the adjusted comparative EPS for 2018.

1. Explain what is diluted EPS. Give one example of a security that can dilute the basic EPS.

Q 5.

Fujitsu Ltd purchases inventory from DFO Ltd, a listed British company. Relevant events and the spot rates at each date are shown as follows:

Date	Event	Spot rate
15 March 2019	Order £300,000 of inventory	A$1.00 = £0.37
11 May 2019	Purchase takes place as inventory shipped to Fujitsu Ltd (FOB)	A$1.00 = £0.41
30 June 2019	End of financial year	A$1.00 = £0.43
02 July 2019	Inventory arrives at warehouse	A$1.00 = £0.42
14 August 2019	Payment of £300,000 to supplier	A$1.00 = £0.39

Required:

1. Prepare appropriate journal entries for each relevant event. (7 marks) (Round amounts to thenearest dollar). Show your working.
2. What is a qualifying asset? Provide two (2) examples. (3 marks, maximum 300 words)

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