Question 1

An item of depreciable machinery is acquired on 1 July 2016 for $280 000. It is expected to have a useful life of 10 years and a zero-residual value (straight-line). On 1 July 2020, it is decided to revalue the asset to its fair value of $150 000.

Required:
Provide journal entries to account for the revaluation.

 

Question 2

On 1 July 2018 BMW 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.

Required:
(i) Determine the issue price of the debenture.
(ii) Provide the journal entries at 1 July 2018 and 30 June 2019.

 

Question 3 

FRM Ltd acquired an item of equipment and enters into a non-cancellable lease agreement with FEN 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): $550 000 (annual) which includes $80 000 for Maintenance and insurance costs per annum.
Guaranteed residual value

(Added to final payment):

$190 000
Interest rate: 7%

 

 

Required:

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

Question 4 

A. You are provided with the following information form the accounts of BBS Ltd for the year ending 30 June 2019

Cash Sales 950 000
Cost of Goods Sold 35 000
Amount received in advance for services to be performed in August 2019 9 500
Rent expenses for year ended 30 June 2019 9 000
Rent Prepaid for two months to 31 August 2019 1 200
Doubtful debts expenses 1 200
Amount provided in 2019 for employees’ long-service leave entitlements 5 000
Goodwill impairment expenses 7 000

Required:

Calculate the taxable profit and accounting profit for the year ending 30 June 2019.

 

B. GYV Ltd has the following deferred tax balances as at 30 June 2019.

 

Deferred tax asset                                          $9 00 000

Deferred tax liability                                      $7 00 000

The above balances were calculated when the tax rate, was 20 per cent. On 1 December 2019 the government raises the corporate tax rate to 25 per cent.

 

Required:

Provide the journal entries to adjust the carry-forward balances of the deferred tax asset and deferred tax liability.

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