ACCT6003 FAP Assessment 2 Part B Brief
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ASSESSMENT BRIEF
Subject Code and Title ACCT6003 FINANCIAL ACCOUNTING PROCESS
Assessment Assessment 2 Part B
Individual/Group Individual
Length Not applicable
Learning outcomes
1. Explain the regulatory framework that governs
financial reporting in Australia with emphasis on the
Conceptual Framework for financial reporting
3. Apply accounting principles and standards when
accounting for non-cu
ent assets, revenue and liabilities
and recognise the judgements required in a range of
diverse business contexts
5. Differentiate between shares and debentures and
apply appropriate accounting procedures
Submission Sunday of Week 8 by 11:55pm AEST/AEDT
Weighting 25% (Part B only, Full assessment 30%)
Total Marks 100 marks
Context:
This is Part B of assessment 2. A business scenario had been provided in part A, in
which an entrepreneur, Xiaojing Wu, from China immigrated to Australia 10 years ago
and considered setting up a business in South Australia. Xiaojing decided to change the
usiness structure from a partnership to a private company, ChiHe
al Pty Ltd, and it
had been working well for them till now.
Cu
ently, the company has grown beyond the cu
ent structure and they have made a
decision to move onto a public company structure ChiHe
al Ltd from private company
structure.
In this assessment, journal entries will need to be prepared to account for a range of
transactions undertaken by ChiHe
al Ltd.
Business Case
Refer to the transactions for Modules 2, 3 and 4 (Impairment of Assets will not be
assessed in this part).
ACCT6003 FAP Assessment 2 Part B Brief
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Instructions
Students are expected to review the content of Module 2, 3 and 4 (excluding Impairment of
Assets in Module 4). Students are required to account for the formation and operation of
CHiHe
al Ltd, i.e. transactions regarding the company’s financing activities, fixed assets,
and intangible assets.
Assignment Part B Questions
Assuming you were the accountant of ChiHe
al Ltd, address the requirements of the
following independent scenarios for the company. Present each scenario as a fresh
section on your assessment report.
Scenario 1 Financing Company Operations (30 marks)
On 1 July 2017, ChiHe
al Ltd was registered and offered 500,000 ordinary shares to
the public at an issue price of $8, payable as follows. As per the company’s constitution,
all surplus money from application would be transfe
ed to allotment and/or calls
accounts.
$3 on application (due by 1 August 2017)
$2.5 on allotment (due by 30 August 2017)
$1.5 on Call 1 (due by 15 June 2018)
$1 on Call 2 (due by 30 July 2018)
Application has been closed and by 1 August 2017, 600,000 shares have been
applied for, of which applicants for 100,000 shares forwarded the full $8 per share,
and the reminder paid application money only.
On 15 August, directors decided to allot shares in full to applicants who had paid the full
amount and to all remaining applications on a pro rata basis.
The cost of publishing prospectus and stamp duty ($29,000) was also paid on 15 August.
Other legal fees of $7,000 were paid on this date too.
All outstanding allotment money was received by the due date above.
The Call 1 was made on 1 May 2018 with money due by 15 June. Subsequently Call 2
was made on 1 July 2018 with money due by 30 July 2018. All money was received on
the due dates except for the holder of 15,000 shares who failed to meet both call 1 & call
2. On 1 September 2018, as provided for in the constitution, the directors decided to
forfeit these shares. They were reissued, on 15 September 2018, as paid to $8 for $6
cash with a
okerage fee of $4,000. The balance of the forfeited shares account (after
the reissuing share costs) was returned to the former shareholder on 30 September
2018.
Required
Prepare the journal entries to record the transactions of ChiHe
al Ltd up to and including
that which took place on 30 September XXXXXXXXXXShow all workings and na
ations are
compulsory)
ACCT6003 FAP Assessment 2 Part B Brief
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Scenario 2 Property, Plant and Equipment (25 marks)
The end of the reporting period for ChiHe
al Ltd is 30 June. The company depreciates all
depreciable assets using the straight-line method.
The following events / transactions occu
ed during 2017 and 2018:
01 April 2017 Paid $90,000 cash for a Truck A. ChiHe
al Ltd estimated the
truck’s useful life and residual value at 5 years and $10,000.
30 June XXXXXXXXXXPaid $140,000 cash for equipment. ChiHe
al Ltd
estimated the equipment’s useful life for 10 years with no
esidual value.
31 August 2017 Paid $2,500 cash for Truck A’s transmission repairs and oil change.
01 September 2017 ChiHe
al Ltd decided to change the basis of measuring
equipment to the revaluation model. ChiHe
al Ltd directors
assessed the
equipment’s fair value at 1 September 2017 at $115,000 with
emaining life 8 years.
1 March 2018 Truck A has been sold for $59,000 cash
30 June 2018 ChiHe
al Ltd re-assessed fair value on 30 June 2018 by
independent valuer and the equipment’s fair value at 30 June
2018 was $120,000.
Required
Prepare the journal entries to record the above transactions of ChiHe
al Ltd for the
financial year ended 30 June 2017 and 2018.
Students are required to show depreciation entries as well as closing entry(ies) to
Asset Revaluation Surplus Account only, if any (you do not need to show closing
entries to P+L summary). Show all workings and na
ations are compulsory. Tax
effect on revaluation is ignored.
ACCT6003 FAP Assessment 2 Part B Brief
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Scenario 3 Lease (35 marks)
On 31 December 2016, ChiHe
al Ltd has entered into an agreement to lease a Machine from
a manufacturer, Cessnock Ltd.
The lease agreement details are as follows.
Length of lease, non-cancellable 5 years
Commencement date 1 July 2017
Annual lease payment, commencing 1 July 2017 $8,000
Usual selling price of (fair Value) the Machine at 1 July 2017 $35,322
Lessor’s ca
ying amount of the machine at 1 July 2017 $31,000
Estimated useful life of the Machine 7 years
Estimated residual value of the plant at the end of its economic life $3,000
Residual value at the end of the lease term, 100% is guaranteed by
ChiHe
al Ltd.
$2,160
Interest rate implicit in the lease 9%
Required
a) Prepare a schedule of lease payments for the entire lease term and the journal
entries for ChiHe
al Ltd in respect of the lease for the financial year ended 30
June 2018 and 2019 only (20 marks).
) Prepare a schedule of lease receipts for the entire lease term and the journal
entries for the manufacturer, Cessnock Ltd for the financial year ended 30 June
2018 and 2019 only in respect of the lease for the lease term (15 marks).
Note: Include na
ations for all journal entries. Present value tables (both single dollar and
annuity tables) have been included at the end of the assessment
ACCT6003 FAP Assessment 2 Part B Brief
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Scenario 4 Intangible Assets (10 marks)
ChiHe
al Ltd has undertaken a project to develop an online sales team. The project involves
all sales representatives being equipped with a hologram-projecting equipment which can
project an accurate, image of every stock item ordered by customers.
The costs incu
ed in the cu
ent period on this project for the financial year 30 June 2017
were:
ï‚· Computer equipment (life five years, zero residual value) $500,000
ï‚· Software development $380,000
 Consultants’ fees (for testing) $620,000
ChiHe
al Ltd expected the project to ‘go-live’ by the end of financial year 2017. However
e
ors were detected and the project was still under on-going experimental testing.
Application for a patent has been delayed. ChiHe
al Ltd was hoping to sell the technology
to other companies but the marketing department have confirmed that cu
ently there’s yet
to be existence of a market for the new product.
Required
For the reporting period ended 30 June 2017, applying the provisions of AASB 138, identify
the amount of development and whether the development costs should be capitalised or
ecognised as an expense.
In your answer must refer to the relevant sections and paragraphs in AASB 138 Intangible
Assets to fully justify your conclusion. Journal entries are not required.
ACCT6003 FAP Assessment 2 Part B Brief
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Present value tables for the Question 3 Lease
Present Value Of $1
4% 5% 6% 7% 8% 9% 10% 11% 12%
XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX1.0000
XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX0.8929
XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX0.7972
XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX0.7118
XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX0.6355
XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX0.5674
XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX0.5066
XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX0.4523
XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX0.4039
XXXXXXXXXX5919