SOLUTION: Financial Accounting & Reporting | My Assignment Tutor

TRIMESTER 2 2020 FINAL EXAMINATION STUDENT ID1484196STUDENT NAMESyed Mazharul Huq SUBJECT NAME: Financial Accounting & Reporting SUBJECT CODE: MAC001A TIME ALLOWED: 2 hours PERMITTED MATERIALS: This is an Open Book exam INSTRUCTIONS FOR STUDENTS: You do not require a separate answer booklet. Please type your responses in the spaces provided.Type your full name and ID at the top of this page.This examination consists of two compulsorysections and questions. Section A (Answer any five questions out of six) 5 x 6 = 30 marks QUESTION 1 Beta Chemicals Pty Ltd is a proprietary company with five shareholders, each of whom is involved in its day to day operations Beta is a pool chemical producer and distributor, but it also has some investments in other industries. Beta dominates the pool chemical sector in Victoria and New South Wales and is expanding its operations into other states as its resources permit. The company employs 100 people and has sales of $30 million. It only majors creditor is a syndicate of banks to whom it owns $2 million Is Beta a reporting entity in accordance with the provision of SAC 1 “Definition of the Reporting Entity”?(6 marks) [Answer here] QUESTION 2 What is the difference between the presentation currency and the functional currency when preparing financial reports?(3 marks) How would an organisation determine the appropriate presentation currency?(3 marks) [Answer here] ##There is a definite distinction between presentation currency and the functional Currency. Presentation currency involves the chance that once a business dealing is organized in a very foreign currency, the worth of that currency could amendment before the dealing is complete. Should the foreign currency appreciate, it’ll price a lot of within the business’s home currency. Translation risk focuses on the amendment in a very foreign-held asset’s price supported a amendment in rate between the house and foreign currencies.##The term presentation currency or coverage currency is associate to accounting thought outlined by the International Accounting Standards (IAS 21) that refers to the currency during which associate entity presents its monetary statements. The presentation currency is mostly constant because the practical currency, that is, the currency of the first setting wherever the corporate operates. The currency that influences costs for product and services. The currency of the country that sets the rules and market conditions that outline the company’s rating policy. The currency during which most of the company’s prices and expenses are generated. The currency during which most of the company’s funding is generated. However, the presentation currency can be completely different to the company’s practical currency, for example within the case of overseas subsidiaries, whose monetary statements can be conferred within the currency of the parent company. QUESTION 3 Explain three ways that accountants can be creative when preparing financial reports. (6 marks) [Answer here] The words ‘creative’ and ‘accounting’ are seldom spoken along as a result of their furnished the impression that unsure accounting practices are going down. This but isn’t continuously true. Here three ways are explained below how accountant can be creative- # Artistic accounting could be a method whereby accountants use their data of accounting rules to regulate the figures rumoured within the accounts of a business. This could go while not voice communication, however sadly we’ve got all seen things wherever associate comptroller bends, or perhaps breaks, the principles to realize results. Accountants are sure by those who believe their info to figure among associate atmosphere of legal and moral pointers. ## Creativity in forensic accounting can also include embracing new technology and using new or existing technology to gather, summarize, and communicate information to the client. ## Manipulating revenue and sales figures is a very basic thing most of the companies are doing. Sometimes they lower the sales revenue in their books to get rid of taxes, and sometimes they increase the sales figure with some arbitrary transaction to show the revenue of the company to encourage their investors. QUESTION 4 An asset is defined as future economic benefits controlled by an entity because of a past event. Future economic benefits may come from two sources value-in-use and value-in-exchange. Explain both terms and provide examples.(6 marks) [Answer here] This Introductory Note explains the aim of this Statement and summarizes the first ideas come into being in this, to help people who want to obtain an outline of these ideas. It’s necessary to notice that a full appreciation of the ideas and their implications will be obtained solely when the ideas area unit scan within the context of the connected statement. The background to the event of this Statement and also the basis for the conclusions mirrored in this area unit made public within the attachment to the Statement. The Statement forms a part of the abstract framework for general purpose financial reportage within the personal and public sectors that is being developed by the Australian Accounting Standards Board (AASB) and By the Public Sector Accounting Standards Board (PSASB) of the Australian Accounting analysis Foundation. The framework can comprise a series of Statements of Accounting ideas that come into being the ideas that have been adopted by the AASB and PSASB in respect of the character, subject, purpose and broad content of general purpose monetary reportage.The satisfaction which one obtains from the use of a commodity is known as the value-in-use. For example water has immense use value, because it quenches thirst and without it daily life is just impossible. The quality of water is the value-in-use of water. QUESTION 5 “Performing tasks for which an accountant is not competent is unethical’. Discuss this statement and provide two (2) example to support your viewpoint.(6 marks) [Answer here] All members have a responsibility to behave professionally and ethically in any respect times. Additionally, knowledgeable controller who could be a principal or a senior worker among a apply can have a very necessary role to play in making, promoting and maintaining an moral culture among the apply and, possibly, among the shoppers of the apply. He’ll be approached by others among the practice who wants to report unethical behaviour and, as a senior figure, he’ll have an impact on its moral tone. If he is created responsive to unethical practices among shoppers, it should be harder to determine responsibility. When partitioning associate moral conflict, take into account rigorously whether or not different parties may or ought to be concerned in discussions and, if acceptable, however those parties ought to be approached. As a professional controller publicly observe, he’ll end up beneath vital time pressure as he is attempting to satisfy the competitor demands for purchasers. Unethical accounting happens once businesses bend accounting rules or falsify their monetary statements to gift a lot of favourable image than truly exists. For example, a business might purposely list higher assets however hide debt or alternative liabilities, maybe to qualify for a loan or to sell a business. QUESTION 6 How can stakeholder theory be used to explain companies voluntarily undertaking corporate social responsibility? Discuss, using examples.(6 marks) [Answer here] The growth of voluntary company social responsibility (CSR) news reflects society’s expectations for business to line higher moral standards and to undertake business in an exceedingly means that meets the profit imperative /the bottom line. In addition, the community expects socially and atmosphere ally accountable behaviour practices; the alleged triple bottom line approach. The paper shortly reviews the event of company social responsibility news from the attitude of two massive Australian banks and tries to grasp their motivation for voluntary speech act. Neutral theory and theory of games offer a method to research why banks undertake CSR news. The paper compares Westpac and National Australia Bank’s CSR news over the amount utilizing external rating agencies and CSR reports to see the extent of speech act in reference to staff, environment, community and customers. The paper concludes with a discussion of the professionals and cons of CSR, the role of regulation and suggestions for future policy direction. Section B – ANSWER ALL QUESTIONS QUESTION 7 12 marks On 1 July 2015, LMN Ltd sells a tractor having a carrying amount on its books of $100,000 to XYZ Ltd for $140,000 and immediately leases the tractor back under the following conditions: The terms of the lease are 10 years, non-cancellable, and requires rental payments of $22,784 at the end of each year. The estimated economic life of the tractor is 10 years. There is no residual value. LMN Ltd pays all executor costs (meaning, not included in the lease payments). The rate of interest is 10% per year Required: Classify the above lease as either operating or finance lease. Provide arguments to support your classification. (4marks) [Answer here] It is a finance lease as the sale value of $140,000 matches the present value of all the lease rentals that is being paid.In the given case, PV of lease rentals = = 22,784 X PVAF (10%,10 years) = 22,784 X 6.14456 = $140,000Further the lease term is 10 years which is significant part of the assets useful life. Hence it is a finance lease. Prepare the general journal entries in the books of LMN Ltd for the first year of the lease. (8 marks) [Answer here] In the books of the LMN Ltd, 1 July 2015 Cash Dr 140,000 Tractor(net) Cr 100,000 Deferred gain on sale of tractor Cr 40,000 Leased asset Dr 140,000 Lease liability Cr 140,000 30 June 2016 Interest Exp. Dr 14000 Lease liability Dr 8784 Cash Cr 22784 (140,000x .10=14000) Amortisation of leased asset Dr 14000 Accumulated amortisation Cr 14000 QUESTION 8 13 marks Orange Ltd. has 3 employees. According to their employment award, long service leave (LSL) can be taken after 13 years, at which time the employee is entitled to 10 weeks leave. If the employee leaves before the completion of 13 years’ service, then there will be no entitlement to leave or to a cash payment in lieu of leave. The names of the employees, their current salaries, and their years of service as at 30 June 2016 are as follows: NameCurrent salaryYears of serviceFred45,0006David50,0009John60,00013 The provision for long service leaves as at 1 July 2015 is $10,000. Government bonds exist with periods to maturity, which exactly match the various periods that must still be served by the employees before LSL entitlements vest with them. These bond rates are as follow: Years to maturityBond Rate %75.245.004.0 The projected inflation rate for the foreseeable future is 2%. The projected probabilities that the employees will stay until such time that the LSL vests are as follows: NameProbability (%) of staying until vesting of LSLFred40David50John100 Required: Prepare a schedule and calculate the LSL obligation for Orange Ltd. as at 30 June 2016. Show all workings. (10 marks) [Answer and show workings here] LSL Obligation:Name Salary Years remaining Bond Probability LSL Fred 45000 7 5.2 40 8654 David 50000 4 5 50 9615 John 60000 0 4 100 1153829808 Provide the journal entry for LSL expense for the year ended 30 June 2016. (3 marks) [Answer here] Journal Entry: Employee Benefit A/c Dr. 29,808 LSL Cr. 29.808 QUESTION 9 10 marks On 1 June 2016, Eastern Ltd made an initial cash margin deposit of $25,000 with its broker. On the same day it sold five (5) “October 2016 SPI 200 futures contracts”, each unit is valued at $25. The relevant prices for 2016 are as follows: Date 1 June 30 June 31 July Market price of SPI futures 1442 1450 1385 Market price of shares $175,000 $176,560 $169,000 Required: Assuming futures contracts are only for speculative purposes, prepare journal entries to record the above in the books of Eastern Ltd for the months of June and July. (10 marks) [Answer here] Journal entries for Eastern Ltd. Date Journal Entry Dr/cr Amount Amount June 1 Bank A/c Dr. 125Futures Contract A/c Cr.125June 30 Futures Contract A/c (5 X 25 X 1450/1442 – 125) Dr. 0.6935SPL A/c Cr.0.6935June 30 SPL A/c Dr. 4.9411Futures Contract A/c (5 X 25 X 1385/1442 – 125) Cr.4.9411 QUESTION 10 10 marks Kangaroo Ltd is an Australian company for which the Australian dollar is the functional and presentation currency. The company has enteredseveral foreign activities, and these include the following: Kangaroo Ltd has sold some inventory to a company in Hong Kong for HK$50,000. The order was placed by the Hong Kong company on 12 May 2016, with delivery made on 20 June 2016. Under the conditions of the contract, title to the goods passes to the Hong Kong company on delivery (i.e., term of the sale was FOB delivery or destination). Kangaroo Ltd receives payment for the goods on 20 July 2016. The following exchange rates are applicable: 12 May 2016: A$1.00 = HK$5.70 20 June 2016: A$1.00 = HK$6.20 30 June 2016: A$1.00 = HK$6.50 20 July 2016: A$1.00 = HK$6.40 Required: Prepare necessary journal entries in books of Kangaroo Ltd following the requirements of AASB121, The Effects of Changes in Foreign Exchange Rates. [Answer here] Journal Entry of Kangaroo Ltd. Date Journal Entry Dr/cr Amount Amount 20 June 2016 Accounts Receivables (50,000 / 6.2) Dr. 8065Sales Revenue Cr.806530 June 2016 Exchange Loss (8065 – 50,000 / 6.50) Dr. 372Accounts Receivables Cr.37220 July 2016 Account Receivables(50,000 / 6.40 – 8065 – 372) Dr. 120Exchange Gain Cr.12020 July 2016 Bank A/c Dr. 7813Account Receivables Cr.7813 QUESTION 11 10 marks Parsifal Ltd had the following capital structures on 1 July 2015. Number of ordinary shares4,000,000Number of 10% preference shares400,000 On 31 March 2015, 300,000 ordinary shares were issued for cash. During the year ended 30 June 2015 the company made a profit from continuing operation after tax of $450,000. Preference dividends of $80,000 were paid during the year. Required: Calculate the earnings available to ordinary shareholders. (4 marks) [Answer and show workings here] a) Net Profit tax ( PAT) = $ 450000 Less: Preference Dividend = $ 80000 $ 370000 Calculate the weighted average number of ordinary shares outstanding during the year ended 30 June 2015. (4 marks) [Answer and show workings here] )Weight average number of ordinary shares ; Total Number of ordinary share + ( 3/12) * No. of ordinary share issued for cash = 4000000 + ( 3/12) * 300000 = 4075000 Note : 3 months from 31 March to 01 July Calculate basic earnings per share for Parsifal Ltd for the year ended 30 June 2015. (2 marks) [Answer and show workings here] EPS = Earning available for ordinaru shares/ weighted average number of ordinary shares = $370000/4075000 shares = $0.0980 QUESTION 12 15 marks Three friends of yours have formed a partnership to sell dietary supplements made from organic ingredients. They have been operating for one year. Their bank balance at the end of the year is $41,000. A summary of their transactions is below: Sales to customers 256,000Receipts from customers 199,000Payments for inventory 103,000Payments for electricity, telephone, rent and insurance 5,000Purchase of a motor vehicle 30,000Drawings 50,000Payment of interest 8,000Loan proceeds 20,000Interest received 1,000Income taxes paid 3,000Additional capital contribution by owners 20,000 Required: Prepare a statement of cash flows based on information given for your friends for the year ended 30 June 2018 in accordance with the requirements of AASB107 [Answer and show workings here] Cash flow statement for the year ended 30 June 2018 Cash flow from operating activities Receipt from customer 199,000 Paid suppliers and customers (103000) Paid interest (8000) Payments for electricity, telephone, rent and insurance (5000) Paid income tax (3000) Net cash flow from operating activities 80,000 Cash flow from financing activities Loan proceeds 20,000 Net cash flow from financing activities 20,000 Cash flow from investing activities Purchase of a motor vehicle (30,000) Interest received 1000 Drawings (50,000) Additional capital contribution by owners 20,000 Net cash flow from investing activities (59000) Net cash increase or decrease 41000 add: previous year cash balance (opening cash) – cash at the end of current year 41000 END OF EXAM PAPER