Advanced Financial Accounting | My Assignment Tutor

1Instructions to candidates:La Trobe UniversitySEMESTER ONE sample Alternative Assessment Period 1 – 2021Advanced Financial AccountingCampus: ☒ Bundoora☒ Sydney☒ Dandenong 1. Students are required to type their ID number on front page when they type the answer in word document2. Students should attempt ALL the five questions and type the answers in a word document using Microsoftword3. Present value tables can be found at the end of this question paper.4. This paper represents 60% of the final grade.5. The duration allowed for this assessment including typing and uploading of the typed answer are 4 hours intotal Please note, this Alternative Assessment sample is NO WAY reflects the actual content of theAlternative Assessment for semester 1, 2021, nor is it a guide to what is contained within thefinal examination.It is a guide to the type of question that you MAY be asked and the level of difficulty that youMIGHT expect. It in no way reflects the actual questions on the “2021 – semester 1 finalalternative assessment task.”Instructions to candidates: Subject code:ACC3AFAPaper number:1Number of pages:8(including cover sheet) 2Question 1 (20 marks)Part AFor the year ending 30 June 2019, XYZ Ltd earns a profit after tax of $1.05 million. Dividendson 400 000 convertible, cumulative preference shares amount to $200 000. The preferencedividends are not treated as expenses in the accounts of XYZ Ltd (the preference shares havebeen disclosed as equity in the statement of financial position). As at 1 July 2018 there were500 000 fully paid ordinary shares. There were no additional share issues during the yearAs at 1 July 2018 there were also:• $250 000 in convertible debentures, which paid interest at a rate of 10% per year, andwhich could be converted to 125 000 ordinary shares, at the option of the debentureholder• 20 000 share options currently on issue, with an exercise price of $2.00• the 400 000 convertible, cumulative preference shares, which were issued in 2014 andare convertible into 120 000 ordinary shares at the option of the preference shareholdersAssume the tax rate is 30% and that the average market price for ordinary shares during theyear was $5.Required: (a) Calculate the basic EPS for year ending 30th June 2019.(b) Calculate the diluted EPS for year ending 30th June 2019.(2 Marks)(8 Marks) Part Ba) Where would the information about earnings per share be disclosed in an annual report ofa company? (2 marks)b) If an entity has issued mandatorily convertible instruments, can they be ignored when weare calculating basic earnings per share? (4 marks)c) All things are being equal, will a higher EPS lead to a higher or lower dividend payoutratio? Discuss. (4 marks)3Question 2 (20 Marks)Part A (8 marks)What is the difference between a positive and normative accounting theory in financialaccounting? Do you think one theory is better than the other?Part B (12 marks)Explain the following within the positive accounting theory context: i.Management bonus hypothesisii.Debt to Equity hypothesisiii.Political cost hypothesis 4Question 3 (22 Marks)Part A (8 marks)XYZ Windows Ltd is involved in a research and development project to create a filteringwindow that removes the need for curtains. For the current year ended 30 June 2020expenditure on the project is as follows: Research$235,000Development$500,000 The window is expected to return profits of $70,000 per year for the 10 years commencing 1July 2020. Assuming the company uses a straight-line method amortisation. This company usesa discount rate of 8 per cent.Required:i) How much research and development cost should be expensed in the year to 30 June 2020?(4 marks)ii) How much development expenditure should be amortised in the year to 30 June 2021 andprepare the journal entries?(4 marks)Part B (6 marks)An assistant of yours has encountered the following matter during the preparation of the draftfinancial statements of XYZ Ltd for the year ending 30 June 2020. He /She has given anexplanation of his/her treatment of the item.“XYZ Ltd management spent $200,000 sending its staff on training courses during the year.This has already led to an improvement in the company’s efficiency and resulted in costsavings. The organiser of the course has stated that the benefits from the training should lastfor a minimum of four years. The assistant has therefore treated the cost of the training as anintangible asset and charged six months’ amortisation based on the average date during theyear on which the training courses were completed.”Required:Comment on the assistant’s treatment of them in the financial statement for the year ended 30June 2020 and advise him how they should be treated under AASB 138 Intangible Assets.Part C (8 marks)If an organisation is constructing a building, and that building will take a number of years tocomplete, can the organisation recognise revenue throughout the contract, or does theconstruction-based organisation have to wait until project completion before it recognises therevenue associated with the construction contract? Discuss this statement in accordance toAASB 15.5Question 4 (13 Marks)ABC Limited is a Melbourne-based mining company and operate in a small scale. It has a yearend of 30 June. ABC has negotiated to acquire the use of a transport truck under a leaseagreement which commences on 1 July 20X7. The lease contains the following key terms: Initial paymentAn initial payment of $100,000 to be paid on 1 July 20X7Lease paymentsTwo payments of $170,000 to be paid on 30 June 20X8 and 30 June 20X9Transfer ofownershipOwnership of the transport truck will transfer to ABC on 30 June 20X9 whenthe final payment is made.Interest rateThe interest rate implicit in the lease is 12% Additional information:• ABC intends to use the transport truck after the lease term has finished.• The truck’s useful life to be eight years.• The incremental borrowing rate is 14%.• ABC incurred legal costs of $10,000 in setting up the lease.• Income tax deductions can be claimed for lease payments and legal costs paid. Interestexpense and depreciation calculated for accounting purposes do not give rise to a taxdeduction.• ABC has a tax rate of 30%.Required:a) Calculate the lease liability amount as at 1 July 20X7. (3 marks)b) Prepare the lease payment schedule from 1 July 20X7 to 30 June 20X8. (4 marks)c) Prepare the journal entries in relation to the lease for the year ending 30 Jun 20X8.(6 marks)Question 5 (20 Marks)Part A (9 Marks)Barry Ltd issued some convertible bonds to Bennett Ltd. They have a life of three years andpay interest to Bennett Ltd each six months. The convertible bonds will be converted to sharesonly if Bennett makes the decision, at any time in the next three years, that it would prefer toreceive shares in Barry Ltd, rather than have its funds repaid.Required:(a) At the time of issue, should Barry Ltd disclose the convertible bonds as debt, equity orpart debt and part equity? (3 marks)(b) Does the probability of conversion to equity influence whether the convertible bondsare disclosed as debt or equity? (3 marks)6(c) If Bennett Ltd notifies Barry Ltd that it would like to convert the convertible bonds toshares in Barry Ltd then will this influence how the convertible bonds are disclosed inthe financial statements of Barry Ltd? (3 marks)Part B (10 marks)Brisbane Ltd manufactures cars. On 15 June 2018 Brisbane Ltd enters into a non-cancellablepurchase commitment with LA Ltd for the supply of engines, with those engines to be shippedon 30 June 2018, at which time control of the assets will be transferred to Brisbane Ltd. Thetotal contract price was US$4 000 000, and the full amount was due for payment on 30 August2018.Because of concerns about movements in foreign exchange rates, on 15 June 2018 BrisbaneLtd entered into a forward rate contract on US dollars with a foreign exchange broker so as toreceive US$4 000 000 on 30 August 2018 at a forward rate of $A1.00 = US$0.75.Brisbane Ltd elects to treat the hedge as a cash flow hedge and the hedge arrangement satisfiesthe criteria within AASB 9 for hedge accounting.Other information:The respective spot rates are provided below. The forward rates offered on particular dates, fordelivery of US dollars on 30 August 2018 are also provided. DateSpot rateForward rates for 30 August delivery ofUS$15 June 2018$A1.00 = US$0.78$A1.00 = US$0.7530 June 2018$A1.00 = US$0.76$A1.00 = US$0.7330 August 2018$A1.00 = US$0.71$A1.00 = US$0.71 Required:Provide the journal entries to account for the ‘hedged item’ and the ‘hedging instrument’. Thefinancial year end is 30 June 2018.Part C (6 Marks)What is the difference between the presentation currency and functional currency of an entity?How would a reporting entity determine the appropriate functional currency and theappropriate presentation currency?……………………………. End of the Alternative Assessment……………………………….78

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