You are required to complete each of two questions below. Provide detailed solutions and ensure that you include any relevant calculations. You should submit your assignment to Moodle using a single file; it can be Excel format, Word format or PDF format. There is no specified word limits. Any references included should use APA style. Question 1 (20 marks), Question 2 (10 Marks),
- John Pty Ltd is an Australian diversified industrial company with its major business activity being to manufacture flotation devices for babies and toddlers. Over the past decade, the business has been very profitable and the directors, Simon and Lisa, have kept payment of dividends to a minimum to allow the company to diversify into other activities. The following is a list of property, plant and equipment held by the company:
| Investments in companies | Carrying Value ($) | Current fair value ($) |
| Property, plant and equipment | ||
| Factory (NSW) | ||
| Land | 100 000 | 140 000 |
| Buildings | ||
| – Cost | 70 000 | 80 000 |
| – Accumulated depreciation | (20 000) | – |
| Factory (Qld) | ||
| Land | 150 000 | 120 000 |
| Buildings | ||
| – Cost | 125 000 | 70 000 |
| – Accumulated depreciation | (45 000) | – |
Mr Anderson informs you that the directors intend to revalue the property, plant and equipment during the year. The company has not revalued any assets in the past.
Required
(a) How would you account for the revaluation of the above assets?
(b) What would the relevant journal entries be?
- Sun City Limited commences construction of a multi-purpose water park on 1 July 2014 for Pretoria Limited. Sun City Limited signs a fixed-price contract for total revenues of $40 million. The project is expected to be completed by the end of 2017 and Pretoria Limited controls the asset throughout the period of construction. The expected cost as at the commencement of construction is $38 million. The estimated costs of a construction project might change throughout the project—in this example, they do change. The following data relates to the project (the financial years end on 30 June):
| 2015 ($m) | 2016 ($m) | 2017($m) | |
| Costs for the year | 10 | 18 | 12 |
| Costs incurred to date | 10 | 28 | 40 |
| Estimated costs to complete | 28 | 12 | – |
| Progress billings during the year | 12 | 20 | 18 |
| Cash collected during the year | 11 | 19 | 20 |
Required
(a) Using the above data, compute the gross profit to be recognised for each of the three years, assuming that the outcome of the contract can be reliably estimated.
(b) Prepare the journal entries for the 2015 financial year using the percentage-of-completion method.
(c) Prepare the journal entries for the 2015 financial year, assuming the stage of completion cannot be reliably assessed.
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