Professional Documents
Culture Documents
Question 2
According to the AASB Framework, an item of information is relevant if it is likely to influence
users resource allocation decisions. An item of information is reliable if it faithfully represents,
without bias, a particular transaction.
There is normally considered to be a trade-off between relevance and reliability. For example,
historical cost information may be particularly reliable, but for many decisions it may not be
particularly relevant. Current fair value data may be particularly relevant for particular decisions (for
example, in relation to a decision about selling an asset), but what management thinks the item is
currently worth will not ultimately be known until disposal. That is, the reliability of the information
may not be clear. This may particularly be the case for the market valuations attributed to unique and
thinly traded assets.
Further, financial statement data is typically audited prior to distribution. This may take many weeks.
The data becomes more reliable as a result of the audit but, being less timely, it becomes less relevant
for current investment decisions.
01/07/2014
30/06/2015
01/07/2015
01/07/2015
01/07/2015
01/07/2015
01/07/2015
30/06/2016
DETAILS
Vehicles
Cash
Acquisition of delivery truck
DR
50,000
CR
50,000
Insurance expense
Cash
Truck Insurance
1,200
5,200
Vehicles
Cash
Acquisition of flat-top truck
30,000
Vehicles
Cash
Amounts paid on flat top truck (2,300 + 620)
2,920
1,200
5,200
30,000
2,920
Servicing expense
Cash
Service of flat top truck
480
Vehicles
Cash
Installation of truck radios (300 + 300)
600
480
600
Insurance expense
Cash
Insurance on trucks (1,200 + 900)
2,100
14,370
2,100
14,370
Dr
25,000
60,000
120,000
200,000
80,000
65,000
Cr
20,000
50,000
100,000
380,000
Topic 4 - Liabilities
Question 5
(a) At 31 December 2014
Is there a present obligation as a result of an obligating event?
On the basis of the evidence available when the financial statements were approved, there is no
obligation as a result of past events.
Conclusion
No provision is recognised (see paragraphs 15 and 16). The matter is disclosed as a contingent
liability unless the probability of any outflow is regarded as remote (paragraph 86 (b)).
(b) At 31 December 2015
Is there a present obligation as a result of an obligating event?
On the basis of the evidence available, there is a present obligation.
Is there a probable outflow?
Probable.
Can a reliable estimate be made?
Yes. Given that the company is being sued, it is probably possible for them to make an estimate,
based on a range of possibilities (para 25).
Conclusion
A provision is recognised for the best estimate of the amount to settle the obligation (paragraphs 1416).
30/06/2015
30/06/2015
30/06/2015
DETAILS
Loss on revaluation (P/L)
Land
Revaluation of land from $1,600,000 to $1,500,000
DR
100,000
40,000
60,000
60,000
CR
100,000
40,000
60,000
60,000
Question 7
Step 1: Determine the Recoverable Amount
RA is the higher of:
Therefore, RA = $205,000
Step 2: Compare RA and CA
RA = $205,000
CA = $185,000 ($250,000 cost - $65,000 accumulated depreciation)
RA ($205,000) > CA ($185,000) so there is NO impairment loss
the lease term, at 67% (4years/6years), could be argued to represent a major part of the
economic life of the machine, and
the present value of the minimum lease payments is substantially all of the fair value of the
machine at the inception of the lease:
PV of MLP = 40,000 + 40,000 x 2.5771 [T2 8% 3 yrs]
= 40,000 + 103,084
= 143,084/154,109
= 93%
Requirement 2(a)
Lease schedule
MLP
$
1 July 2016
1 July 2016
1 July 2017
1 July 2018
1 July 2019
40,000
40,000
40,000
40,000
160,000
40,000
31,753
34,294
37,037
143,084
Liability
balance
$
143,084
103,084
71,331
37,037
-
Requirement 2(b)
Journal entries for the year ended 30 June 2017
True Ltd (Lessee)
Journal entries
DATE
1/07/2016
1/07/2016
DETAILS
Leased machine
Lease liability
Inception of lease
Lease liability
Executory costs expense
Cash
First lease payment
DR
143,084
CR
143,084
40,000
1,500
41,500
30/06/2017
Interest expense
Interest payable
Interest accrued at balance date
8,247
Depreciation expense
Accumulated depreciation
Depreciation for the year (143,084/4)
35,771
8,247
35,771
21/07/2017
31/07/2017
31/07/2017
31/07/2017
31/07/2017
31/07/2017
DETAILS
DR
CR
No journal entry
Cash trust
Application ordinary
Monies received from applicants for ordinary shares
= (100,000 shares + 20,000 share oversubscription) x $2
240,000
Cash trust
Application preference
Monies received from applicants for preference shares
= (50,000 shares 15,000 share undersubscription) x $2
70,000
240,000
70,000
Application ordinary
200,000
Share capital ordinary
Issue of ordinary shares applied for only 100,000 ordinary shares x $2
200,000
Application preference
70,000
Share capital preference
Issue of preference shares applied for 35,000 preference shares x $2
70,000
30,000
270,000
2,500
2,500
5,000
14/08/2017
1/05/2018
10/05/2018
15/05/2018
25/05/2018
25/05/2018
25/05/2018
Application - ordinary
40,000
Cash trust
Return of cash to unsuccessful applicants = 20,000 shares x $2
Share capital ordinary
Share capital preference
Cash
Receivable from underwriter
Receipt from Underwriter
Call ordinary
Share capital ordinary
Call of $1 on 100,000 shares
3,250
3,250
23,500
30,000
100,000
100,000
Cash
Call ordinary
Receipt of call money of $1 on 95,000 shares
95,000
15,000
14,000
1,000
Forfeited shares
Cash
Payment of share issue costs
Forfeited shares (10,000 1,000 550)
Cash
Payment of monies refundable to shareholders
40,000
95,000
5,000
10,000
15,000
550
550
8,450
8,450
The manufacturer should recognise revenue when JJs Transport resells the goods to a third party.
JJs Transport has an unlimited right of return if it is not able to sell those goods to a third party.
Accordingly, the manufacturer has not transferred to JJs Transport the significant risks and
rewards of ownership.
If there is no market for the goods, it is the manufacturer who suffers, not JJs Transport (who can
simply return the goods to the manufacturer).
OPERATING ACTIVITIES
Receipts from Customers
Account Reconstruction Method
Opening balance
Sales
10,000
30,000
$40,000
Accounts Receivables
107,500 Cash received
550,000 Allow. D.Debts
Closing balance
657,500
437,500
20,000
200,000
657,500
OR Formula Method
Cash receipts from customers =
Sales revenue
Increase in accounts receivable
Bad debts written off
Cash Received (Inflow) *CFS*
550,000
(92,500)
(20,000)
437,500
277,000
305,500
582,500
Accounts Payable
Discount Received
Cash paid
Closing balance
36,200
400,000
436,200
10
277,000
123,000
6,900
750
406,150
60,250
3,000
63,250
406,150
63,250
469,400
6,000
52,500
43,500
15,000
INVESTING ACTIVITIES
Plant and Equipment
Plant sold
Closing balance
27,000
38,500
65,500
11
FINANCING ACTIVITIES
General reserve
Dividend paid
Closing balance
Retained Profits
35,000 Opening balance
22,500 P & L Summary
78,500
136,000
49,000
87,000
136,000
$
437,500
(469,400)
(31,900)
(43,500)
(75,400)
(148,000)
47,500
(100,500)
85,000
(22,500)
62,500
(113,400)
(58,800)
(172,200)
12