Question 1

ABC Ltd acquired a Machine from BAN Ltd for the following consideration:

Cash    $70 000, Land in the books of ABC Ltd the land is recorded at its cost of $700 000. It has a fair value of $750 000.

ABC Ltd also agrees to assume the liability of BAN Ltd bank loan of $95 000 as part of the Machine acquisition.

 

REQUIRED 

(a) Calculate the acquisition cost of the Machine

(b) Provide the journal entries that would appear in ABC Ltd’s books to account for the acquisition of the Machine

 

Question 2

An item of depreciable machinery is acquired on 1 July 2015 for $280 000. It is expected to have a useful life of 10 years and a zero-residual value (straight-line). On 1 July 2019, it is decided to revalue the asset to its fair value of $240 000.

 

Required

  1. Provide journal entries to account for the revaluation
  2. In your own words explain and discuss when do you think should a revaluation increment be included as part of profit or loss?

 

Question 3                                                                                                   

On 1 July 2018 JTX Ltd issues $2 million in 10-year debentures that pay interest each six months at a coupon rate of 10 per cent. At the time of issuing the securities, the market requires a rate of return of 12 per cent. Interest expense is determined using the effective-interest method.

Formula for PV of $1 in n periods =1/(1+k)n

Formula for present value of annuity of $1 per period for n periods =

where, k is the discount rate expressed in decimal

 

REQUIRED

  1. Determine the issue price of the debenture.
  2. Provide the journal entries at 1 July 2018 and 30 June 2019

 

Question 4                                                                                                   

Win Box Ltd acquired an item of equipment and enters into a non-cancellable lease agreement with Melbourne Equipment Ltd on 1 January 2015. The lease consists of the following:

 

  • Date of inception:                   1/1/15
  • Duration of lease:                    4 years
  • Life of leased asset:                5 years
  • Lease payments (annual):       $180,000 (annual) which includes $20,000 for Maintenance and insurance costs per annum.
  • Guaranteed residual value (Added to final payment):   $50,000
  • Interest rate:   12%

Required:

  1. Determine the present value of minimum lease rental payment.
  2. Prepare the journal entries for ABC (the Lessee) using the Net Method for the following
    1. Transfer of control
    2. Payment of annual payments for 2015 and 2016.

 

Question 5

Assume that for a particular company the only temporary difference for tax-effect accounting purposes relates to the depreciation of a newly acquired machine. The machine is acquired on 1 July 2015 at a cost of $500,000. lts useful life is considered to be five years, after which time it is expected to have no residual value. For tax purposes it can be fully written off over two years. The tax rate is assumed to be 30 per cent.

Required

  1. Determine whether the depreciation of the machine will lead to a deferred tax asset, or a deferred tax liability?
  2. What would be the balance of the deferred tax asset or deferred tax liability as at 30 June 2018?

 

Question 6                                                                                                   

On 1 October 2015, Mirvac Ltd acquires goods on credit from a US supplier. The cost of the goods is US$400,000 and this amount remains unpaid at 31 December 2015 at the time of year end accounts closing. The amount was paid at 20 January 2016.

On 1 October 2015, the exchange rate is A$1.00 = US$ 0.71.

On 31 December 2015, the exchange rate is A$1.00 = US$ 0.73.

On 20 January 2016, the exchange rate is A$1.00 = US$0.70

Required:

  1. Determine the amount of the debt in AUD, as at:
    • 1 October 2015 and
    • 31 December 2015.
    • 20 January 2016
  2. Prepare the journal entries for the above dates showing the amount of exchange gain or loss.

 

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