Question 1
Gunna Ltd acquired a printing machine on 1 July 2018 for $100,000. It is expected to have a useful life of 5 years, with the benefits being derived on a straight- line basis. The residual is expected to be $nil.
On 1 July 2019 the machine is deemed to have a fair value of $75,000 and a revaluation is undertaken in accordance with Gunnamatta Ltd’s policy of measuring property, plant and equipment at fair value.
The asset is sold for $89 000 on 1 July 2020.
Required:
Provide the journal entries necessary to account for transactions and events at the following date. Narrations are required.
- 30 June 2019
- 1 July 2019
- 30 June 2020
- 1 July 2020
Question 2
M&N company issues $20 million of ten-year, 7 per cent, semi-annual coupon debentures to public which pay interest each six months. The market also requires a rate of return of 7 per cent.
Assume that the monies come in and the debentures are allocated on the same day 30 June 2020.
Required:
Provide the accounting entries at 30 June 2020, 31 December 2020. Narrations are required.
Question 3
Adam & Smith Ltd purchases a machine on 1/07/2019 for $450,000. Expected life is 6 years using straight-line method and no residual value. For tax purposes, ATO allows the company to depreciate over 5 years. The profit before tax of the company for the year ended at 30 June 2020 is $550,000. Tax rate is 25%.
Required:
- What is the amount of the temporary difference? Does this give rise to a deferred tax asset or a deferred tax liability? Provide relevant journal entries that relates to the temporary difference at 30 June 2020.
- Determine the taxable profit and the taxes payable and provide relevant journal entries at 30 June 2020.
Question 4
On 1/04/2019, AUS Ltd enters into a binding agreement with a Canadian company to construct an item of machinery that manufactures spoons. The cost of the machinery is $400,000 Canadian Dollars.
The construction of the machinery is completed on 1/06/2020 and shipped FOB Canada on that date. The debt is unpaid at 30 June 2020, which is also AUS Ltd’s end of reporting period.
The exchange rates at the relevant dates are:
- 01/04/2019 A$1.00 = C$1.10
- 30/06/2019 A$1.00 = C$1.05
- 01/06/2020 A$1.00 = C$1.02
- 30/06/2020 A$1.00 = C$1.00
Required:
Provide the required journal entries for the above transactions.
Question 5
River Ltd enters into a non-cancellable lease agreement with Machinery Ltd on 1 January 2017. River Ltd’s financial year ends on 31 December. The lease consists of the following:
| Date of inception: | 1/1/2017 |
| Duration of lease: | 5 years |
| Life of leased asset: | 6 years |
| Guaranteed residual value (Added to final payment): | $40,000 |
| Implicit rate of interest: | 8% |
| Fair value at the inception of the lease | $346,640 |
There are to be 5 annual payment of $90,000, the first being made on 31 December 2017. Included within the $90,000 lease payment is an amount of $10,000 representing payment to the Lessor Machinery Ltd for the insurance and maintenance of the equipment. The equipment is to be depreciated on a straight-line basis.
Required:
- Verify the implicit rate of interest is correct against Fair Value.
- Develop a table that shows the payment schedule to determine the interest expense for each year.
- Prepare the journal entries for River Ltd. using the Net Method at the following date.
- 1/1/2017
- 31/12/2017
- 31/12/2018
Question 6
Assume that Hunter Ltd commences operations on 1/7/2018. It explores two areas (Site East and Site West) and incurs the following costs:
| Exploration & Evaluation Expenditure ($m) | tangible | intangible | |
| Site East | 18 | 12 | 6 |
| Site West | 24 | 15 | 9 |
| Total | 42 |
Other information:
- Financial year ends at 30 June.
- In the year of 2018, oil is discovered at Site West. Site East is abandoned as no prove of existence of economically recoverable resources, and an impairment loss is recognised.
- Of Site East, $12 million relates to tangible assets, $6 million intangible assets.
- Of the $24 million of Site West, $15 million relates to tangible assets, $9 million intangible.
- Development costs of $26m are incurred at Site West in 2019. Out of the $26m, $16 million are property, plant and equipment, $10 million are in intangibles.
- Development costs are to be written off on a production basis in 2019 for Site West. Development at Site West concludes at the end of 2019 financial year, production commences at the start of July 2020.
- It is estimated that Site West will produce 20 million barrels of oil.
- In 2020, 1.4m barrels are extracted at a production cost of $3.2m.
Required:
Prepare the necessary journal entries for the costs incurred in 2018, 2019 and 2020 (using the area-of-interest method of accounting).
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