EASTERN INSTITUTE OF TECHNOLOGY

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FACULTY OF APPLIED SCIENCE, BUSINESS AND COMPUTING

ACCY7.01 ADVANCED FINANCIAL ACCOUNTING

ASSIGNMENT ONE
SEMESTER TWO 2013
Due Date: 5 September 2013

WEIGHTING: INSTRUCTIONS:

The assessment item carries 20% of final grade

Your assignment must be submitted electronically through the Turnitin section on the ACCY7.01 EIT online site by 8.15 am on 5 September 2013. Students will be able to submit their work as many times as they wish before the final submission. Please see ACCY7.01 EIT online, or the lecturer for more instructions. You should refer to Writing Guidelines for Business Students (Lisa Emerson (ed.)) Dunmore Press, Palmerston North (or equivalent text), in respect of formats for an essay. The assignment must be solely the work of the student who submits it with all sources and quotations acknowledged. The American Psychological Association (APA) referencing method must be used.

SUMMARY OF QUESTIONS: Question 1 Question 2 Essay topic Revenue recognition TOTAL 75 marks 25 marks 100 MARKS

QUESTION ONE:

75 MARKS

Look at the attached letter written by Sherron Watkins (a former Enron employee and accountant) to Kenneth Lay (Enrons Chair) and analyse the issues Sherron Watkins raises with particular regard to: 1. 2. Application of any relevant accounting theories (hint: agency theory); Whether the accounting practices adopted by Enron, including (arguably) overvaluing assets and using structures to remove liabilities from the balance sheet, would be acceptable under New Zealands current financial reporting legislation and underlying framework (note: you are not required to refer to individual financial reporting standards); Your view on whether Enrons management had ethical responsibilities with regard to their financial reporting responsibilities and if so, did they adhere to them.

3.

To answer these questions, you will need to undertake some further research on the nature of the accounting improprieties and valuation issues mentioned in the letter. Available on EIT online is an extract from a case study written by Knapp, M.C., South Western (2010), entitled Debits, Credits and Enron which should help to understand the basic issues involved. Detailed knowledge of the accounting entries will not be required to answer the questions above. While writing your essay, remain aware that the purpose of this essay is to test your knowledge and understanding of the topics covered in class on Accounting Environment, Accounting Theories, The Conceptual Framework, Ethics and Corporate Social Responsibility. The essay should be around 2,000 words. QUESTION TWO: A Customer loyalty programmes 25 MARKS 7 marks

Claytons Cigarettes Ltd is a company established to sell healthy cigarettes. They advertise using the motto, the smoke to have when youre not having a smoke. Claytons Cigarettes have commenced a customer loyalty programme from 1 June 2012 to promote the companys sales. Customers signing up for the scheme earn $10 of bonus vouchers for every $300 of purchases. Sales qualifying for the scheme in the year to 31 May 2013 were $30 million with vouchers valued at $600,000 being redeemed by 31 May 2013. Management expects 90% of qualifying sales to be redeemed in due course. Claytons Cigarettes has not recorded the loyalty points in their draft financial statements for the year to 31 May 2013. Required (a) (b) Prepare the journal entries to record the points earned in the year to May 2013 and the points redeemed by 31 May 2013. (5 marks) Prepare an accounting policy note for the financial statements at 31 May 2013 covering sales under the customer loyalty scheme. (2 marks)

BBS ACCY7.01 Advanced Financial Accounting

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ASSIGNMENT 1 S2 2013.DOCX Semester Two, 2013

Construction Contracts

18 Marks

On 1 April 2011 Build Em Quick Ltd entered a contract to build a shopping plaza for a property developer, Fast Buck Limited. The contract is for a fixed price of $30 million with an initial estimated total cost of $25 million. The contract had estimated and actual costs as shown in the table below which Build Em Quick believes can be reliably estimated. At 31 March 2013, the costs were revised for the final year following cost escalations in years 1 and 2. 2012 ($000) 5,000 6,000 6,000 5,500 5,000 2013 ($000) 12,000 12,500 12,500 11,000 10,500 2014 ($000) 8,000 10,000 10,500 13,500 11,500

Initial estimate of costs for the year Revised estimated costs (31.3.13) Costs incurred Progress billings during year Cash collections during year Required (i)

Using the percentage completion method, calculate the estimated gross profit for each year and prepare the journal entries to incorporate the costs, revenues, billings and cash collections for each year. (14 marks) Explain the significance of why the outcome of the contract must be able to be estimated reliably. (1 mark) Prepare an accounting policy note for this basis of accounting for construction contracts. (3 marks)

(ii) (ii)

BBS ACCY7.01 Advanced Financial Accounting

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ASSIGNMENT 1 S2 2013.DOCX Semester Two, 2013

BBS ACCY7.01 Advanced Financial Accounting

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ASSIGNMENT 1 S2 2013.DOCX Semester Two, 2013

Question 1 - Research Essay Marking Guide

Listed below are features indicative of research essay marking. Grades and marks are a composite of the factors indicated. E Flawed D C Acceptable C C+ Average B Competent B Promising B+ APerceptive Flair A A+ Scholarly

Content of Essay (38 marks) Topic not adequately covered; discussion too Unreflective; personal brief; use of quotations with comment; incoherent little explanation; argument; entirely insufficient support from regurgitated; literature; major points misinterpretation of missed in selected topic. approach. Evidence of research and critical thinking (19 marks) Little evidence of Text material and external external reading in text reading not well developed of essay. in essay Minimal integration of ideas. Writing style, Structure & Presentation (18 marks) Major expression or presentation flaws. Structure confused, logic not clear Minor expression or presentation errors. Limited development of theme or argument.

Acceptable interpretation of topic; development of ideas in line with given theme; clearly addresses important issues; provides sufficient relevant material for research essay; some explanation, illustration and support from literature.

A fuller, more systematic exploration of the topic which may include an attempt at critical comment or appraisal; solid support provided from literature.

Comprehensive exploration of the topic; sound critical comment and personal synthesis of issues detailed support from literature.

Essay evidences attempts to integrate researched material Adequate references support development of ideas. Good expression; prudent use of headings; appropriate citations & bibliography. Correct use of introduction, body and conclusion Logical development of main points.

Main points elaborated and well supported; clear and well supported conclusion(s) Additional reading integrated and appropriately referenced.

Critical evaluation of ideas from readings in well integrated into logical argument and appropriately referenced. Virtually flawless presentation. Excellent English expression. Coherent argument and structure.

Few flaws in expression, structure and presentation. Clear development of theme.

Note: Work that is substantially plagiarised will receive NO marks.

BBS ACCY7.01 Advanced Financial Accounting

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ASSIGNMENT 1 S2 2013.DOCX Semester Two, 2013