Question 2 [20 marks]
Topic 4: Accounting for equity
On 1 July 2016, Ansett Ltd was incorporated and offered 5,000,000 ordinary shares to the public at an issue price of $2.00 per share, with $1.50 payable on application, and $0.30 due within one month of allotment and $0.20 payable on a call to be made at a later date.
By 31 July 2016, applications had been received for 5,500,000 shares. On 12 August 2016, 5,000,000 shares were allotted, and excess application money refunded to unsuccessful applicants. All allotment money was received by 12 September 2016.
On 20 March 2017, the call was made with money due by 30 April 2017. By 30 April 2017, all call money was received except for holders of 50,000 shares who failed to meet the call. On 31 May 2017, the shares on which call money was not received are forfeited, and on 5 June 2017, they were auctioned as fully paid. An amount of $1.70 was received for each share sold. Share re-issue costs amounted to $5,000 were paid. The constitution provided for any surplus on resale, after satisfaction of unpaid instalments and any costs, to be returned to shareholders whose shares were forfeited.
Provide the journal entries necessary to account for the above transactions and events for the year ended 30 June 2017 for Ansett Ltd. Show all narrations, dates and relevant workings.
|Question 2||Max. marks allocated|
|Dates correctly stated||3.5|
Question 3 [28 marks]
Topic 6A: Accounting for revaluation of assets
On 1 July 2015, Genesis Ltd acquired two items of machinery: Machine G at a cost of $400,000 and Machine Q at $300,000. At the date of acquisition, Genesis’s directors determine to depreciate the machinery on a straight-line basis. Machine G has an estimated useful life of 10 years and an estimated residual value of $40,000. Machine Q has an estimated useful life of 5 years with no estimated residual value.
On 30 June 2016, Genesis Ltd decided to adopt the revaluation model subsequent to acquisition. The fair values of Machine G and Q is $380,000 and $200,000 respectively. The useful life for Machine G at 30 June 2016 is estimated to be 8 years. Other than this, there is no change in the estimated useful life and residual value for the machinery.
On 30 June 2017, the fair values of Machine G & Q are $300,000 and $160,000 respectively.
Assume a tax rate of 30%
Prepare the journal entries for Genesis Ltd from 1 July 2015 to 30 June 2017 to record the transactions above. Show narrations and all relevant workings.
|Question 3||Max. marks allocated|
Question 4 [20 marks]
Topic 6B: Accounting for impairment of assets
Big Friday Ltd conducted an impairment test on 30 June 2017. As a part of that exercise, it measured the fair value less costs to sell of the entity, considered to be a single cash-generating unit, to be $742,800, and the value in use of the entity to be $650,000. The carrying amounts of the assets of the entity at 30 June 2017 were:
|Accumulated depreciation – machinery||(240,000)|
The receivables were all considered to be collectible, and the inventory was measured at the lower of cost and net realisable value.
(i) Provide the journal entries to account for the impairment loss for Big Friday Ltd for the year ended 30 June 2017, assuming that the fair value less costs to sell for the patent is determined at $135,000.
(ii) Now assume that the fair value less costs to sell for the patent is $120,000. Explain whether your answers would be any different from (i) above.
Note: It is essential to show all your workings and explain your answers where necessary. Round all figures to the nearest dollar.
|Question 4||Max. marks allocated|
|Part (i) including computation and allocation of impairment losses, supported by explanations||12|
|Part (i) Journal entries for impairment losses||4|
|Part (ii) explanation||2|
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