Question 1: (Approximately 400 words)

Exercise 3.1- Valuation premise for measurement of fair value

Maple Ltd conducts a business that makes women’s shoes. It operates a factory in an inner suburb of Perth. The factory contains a large amount of equipment that is used in the manufacture of shoes. Maple Ltd owns both the factory and the land on which the factory stands. The land was acquired in 2007 for \$200 000 and the factory was built in that year at a cost of \$520 000. Both assets are recorded at cost, with the factory having a carrying amount at 30 June 2017 of \$260 000.

In recent years a property boom in Perth has seen residential house prices double. The average price of a house is now approximately \$500 000. A property valuation group used data about recent sales of land in the area to value the land on which the factory stands at \$1 000 000. The land is now considered prime residential property given its closeness to the city and, with its superb river views, its suitability for building executive apartments. It would cost \$100 000 to demolish the factory to make way for these apartments to be built. It is estimated that to build a new factory on the current site would cost around \$780 000.

The directors of Maple Ltd want to measure both the factory and the land at fair value as at 30 June 2017.

Required:

Discuss how you would measure these fair values.

Question 2: (Approximately 300 words)

Exercise 5.18 – Revaluation model

On 1 July 2016, Peewee Ltd acquired two assets within the same class of plant and equipment. Information on these assets is as follows.

 Cost Expected useful life Machine A Machine B \$100 000 60 000 5 years 3 years

The machines are expected to generate benefits evenly over their useful lives. The class of plant and equipment is measured using fair value.

At 30 June 2017, information about the assets is as follows.

 Fair value Expected useful life Machine A Machine B \$84 000 38 000 4 years 2 years

On 1 January 2018, Machine B was sold for \$29 000 cash. On the same day, Peewee Ltd acquired Machine C for \$80 000 cash. Machine C has an expected useful life of 4 years. Peewee Ltd also made a bonus issue of 10 000 shares at \$1 per share, using \$8000 from the general reserve and \$2000 from the asset revaluation surplus created as a result of measuring Machine A at fair value.

At 30 June 2018, information on the machines is as follows.

 Fair value Expected useful life Machine A Machine C \$61 000 68 500 3 years 3.5 years

Required:

1. Prepare the journal entries in the records of Peewee Ltd to record the events for the year ended 30 June 2017.
2. Prepare journal entries to record the events for the year ended 30 June 2018.

Question 3: (Approximately 300 words)

Exercise 9.19   –   Accounting for defined benefit superannuation plans

Some years ago, Wattle Ltd established a defined benefit superannuation plan for its employees. The company has since introduced a defined contribution plan, which all new staff join when commencing employment with Wattle Ltd. Although the defined benefit plan is now closed to new recruits, the fund continues to provide for employees who have been with the company for a long time. The following actuarial report has been received for the defined benefit plan:

 2016 \$ Present value of the defined benefit obligation 1 Jan. 20 000 000 Past service cost 2 000 000 Net interest ? Current service cost 800 000 Benefits paid 2 100 000 Actuarial loss on DBO 100 000 Present value of the defined benefit obligation 31 Dec. 23 000 000 Fair value of plan assets at 1 Jan. 19 000 000 Return on plan assets ? Contributions paid to the fund during the year 1 000 000 Benefits paid by the fund during the year 2 100 000 Fair value of plan assets at 31 December 2016 20 130 000

(a)   All contributions received by the funds were paid by Wattle Ltd. Employees make no contributions.

(b)   The interest rate used to measure the present value of the defined benefit obligation was 10% at 31 December 2015 and 31 December 2016.

(c)   The asset ceiling was nil at 31 December 2015 and 31 December 2016.

Required:

1. Determine the surplus or deficit of Wattle Ltd’s defined benefit plan at 31 December 2016.
2. Determine the net defined benefit asset or liability that should be recognised by Wattle Ltd at 31 December 2016.
3. Calculate the net interest and the return on plan assets for the year ended 31 December 2016.
4. Present a reconciliation of the opening balance to the closing balance of the net defined benefit liability (asset), showing separate reconciliations for plan assets and the present value of the defined benefit obligation.
5. Prepare a summary journal entry to account for the defined benefit superannuation plan in the books of Wattle Ltd for the year ended 31 December 2016.

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