ACCT207 Financial Accounting 1

Questions:

Case 1

Wesfarmers Annual Report 2019

Click on one of the following weblinks given below:

https://sitefinity.wesfarmers.com.au/docs/default-source/reports/wesfarmers-2019-annual-report.pdf?sfvrsn=2

https://www.wesfarmers.com.au/investor-centre/company-performance-news/results-presentations
Required:

  1. From the information provided in the website and its most recent annual report, determine the AASB/IFRS standards that are adopted or referred to.
  2. Select between 3 to 5 relevant Accounting Standards discussed during the semester and explain briefly how Wesfarmers have included them in their Financial Statements.
  3. Discuss the benefits to be gained from adopting Accounting Standards mentioned in above.
  4. Discuss the Accounting policies mentioned in the annual report

Case 2

Choose any two (2) from the four (4) cases below.

(a) If a company finds retrospectively that the expected pattern of consumption of future economic benefits of an asset has changed, how must this be accounted for and which standard(s) applies?

(b) Gains on revaluation are included within OCI, but losses on revaluation are included within profit or loss? Is this statement correct? Please justify your answer with reference to the appropriate standard(s).

(c) Explain the importance of the Conceptual Framework for Financial Reporting from the point of view of all relevant stakeholders. Provide examples.

(d) Transfer of ‘control’ of the asset is central requirement in the recognition of revenue under AASB15. Discuss with examples.

Case 3

(a) Sullivan Company acquired a depreciable asset on 1 July 2015 for $500 000. The asset was estimated to have a useful life of 10 years and was depreciated on a straight-line basis. Sullivan chose the cost model for accounting for assets in this class. Indicators of impairment have been identified for the reporting periods ending 2016 and 2018, while indicators for a reversal of impairment have been identified for the period ending 2017.

The recoverable amounts of the asset on these dates were as follows:

Year ended 30 June

Recoverable amount

2016

$360000

2017

340000

2018

245000

 

The asset was sold for $235 000 on 31 December 2018.

Required:

Assuming that the company complies with AASB 116 ‘Property, Plant and Equipment’ and AASB 136 ‘Impairment of Assets’, show general journal entries relating to this asset between 1 July 2015 and 31 December 2018. Comment briefly on the above mentioned standards and its application to the journal entries.

(b) On 1 July 2020 Octavio Ltd acquired some corporate bonds issued by Garnish Ltd. These bonds cost $11,682,000. They had a ‘face value’ of $10 million and offered a coupon rate of 10 per cent paid annually ($1 000 000 per year, paid on 30 June). The bonds would repay the principal of $10 million on 30 June 2025. At the time the market only required a rate of return on 6 per cent on such bonds. We will assume that the market’s required rate of return on these financial instruments remains at 6 per cent throughout the life of the bonds. Octavio Ltd operates within a business model where bonds are held in order to collect contractual cash flows and there is no intention to trade them. Assume that there were no direct costs associated with acquiring the bonds. (The use of Present Value and Annuity tables are required. Please refer Appendix A & B of your prescribed textbook)

Required:

1. Explain why the company was prepared to pay $11 682 000 for the bonds given that, apart from the interest, they expect to receive only $10 million back in five years.

2.  Determine whether Octavio Ltd can measure the bonds at amortised cost.

3.  Calculate the amortised cost of the bonds as at 30 June 2021 to 30 June 2025.

4.  Provide the accounting journal entries for 1 July 2020 and the years ending 30 June 2021 and 30 June 2025.

(c) On 1 July 2018, Jack, John and Jill formed the J, J and J partnership. Jack invested $21 000, John $35 000 and Jill $44 000. Jack will manage the store, John will work in the store three-quarters of the time, and Jill won’t work in the business.

Required:

1. Calculate the partners’ shares of profits and losses under each of the following plans:

a. Loss for the year ended 30 June 2019 is $42 000 and the partnership agreement allocates 45% of profits to Jack, 35% to John and 20% to Jill. The agreement doesn’t discuss the sharing of losses.

b. Profit for the year ended 30 June 2019 is $97 000. The first $25 000 is allocated on the basis of relative partner capital balances. The next $48 000 is based on service, with $38000 going to Jack and $10 000 going to John. Any remainder is shared equally.

Revenues for the year ended 30 June 2019 were $209 000 and expenses were $112 000. Using plan b above, prepare the partnership income statement for the year (and showing each partner’s share of the profit or loss for the year).

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