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Question 1 (10 Marks) An item of depreciable machinery is acquired on 1 July 2016 for $ XXXXXXXXXXIt is expected to have a useful life of 10 years and a zero-residual value (straight-line). On 1 July...

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Question 1 (10 Marks)
An item of depreciable machinery is acquired on 1 July 2016 for $ XXXXXXXXXXIt 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 (10 marks)
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.
Formula for PV of $1 in n periods =1/ (1+k) n
Formula for present value of annuity of $1 per period for n periods = {1-1/(1+k)^n}/k
Where, k is the discount rate expressed in decimal
Required:
(i) Determine the issue price of the debenture.
(ii) Provide the journal entries at 1 July 2018 and 30 June 2019.
Question 3 (10 marks)
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): $ XXXXXXXXXXannual) which includes $80 000 for Maintenance and insurance costs per annum.
Guaranteed residual value (Added to final payment): $190 000
Interest rate: 7%
Formula for PV of $1 in n periods =1/(1+k)^n
Formula for present value of annuity of $1 per period for n periods = {1-1/(1+k)^n}/k
Where, k is the discount rate expressed in decimal
Required:
a) Determine the present value of minimum lease rental payment. (5 Marks)
b) Prepare the journal entries for FRM Ltd (the Lessee) using the Net Method for the following; (5 Marks)
i. Transfer of control
ii. Payment of annual payments for 2015 and 2016.
Question 4 (10 marks)
A. You are provided with the following information from the accounts of BBS Ltd for the year ending 30 June 2019
Cash Sales XXXXXXXXXX
Cost of Goods Sold XXXXXXXXXX
Amount received in advance for services to be performed in August XXXXXXXXXX
Rent expenses for year ended 30 June XXXXXXXXXX
Rent Prepaid for two months to 31 August 2019 – 1200
Doubtful debts expenses - 1200
Amount provided in 2019 for employees’ long-service leave entitlements – 5000
Goodwill impairment expenses – 7000
Required:
Calculate the taxable profit and accounting profit for the year ending 30 June 2019.
B. GYV Ltd has the following defe
ed tax balances as at 30 June 2019.
Defe
ed tax asset - $ XXXXXXXXXX
Defe
ed tax liability - $ XXXXXXXXXX
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 ca
y-forward balances of the defe
ed tax asset and defe
ed tax liability.
Question 5 (10 marks)
“Mining, explorations and other similar extractive businesses are naturally and fundamentally possessing risk, in addition to uncertain outcome” consequently all expenditures of such activities should be accounted for as expenses as and when incu
ed.
Required: Assess, evaluate and
iefly discuss this statement.
Answered Same Day Jun 12, 2021

Solution

Chirag answered on Jun 13 2021
149 Votes
Q1
     Question 1 (10 Marks)
    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.
    ANSWER:
    WORKINGS
    Depreciation per year=280000/10    28000
    Depreciation for 4 years    112000
    Balance as on 1st july 2020    168000
    Fair Value as on 1st july 2020    150000
    Revaluation Loss    18000
    Journal Entries
    Revaluation Loss A/c Dr    18000
     To Machinery A/c Cr    18000
    Profit & Loss A/c Dr    18000
     To Revaluation Loss A/c Cr    18000
Q2
    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.
     Formula for PV of $1 in n periods =1/ (1+k) n
     Formula for present value of annuity of $1 per period for n periods = {1-1/(1+k)^n}/k
     Where, k is the discount rate expressed in decimal
     Required:
     (i) Determine the issue price of the debenture.
    (ii) Provide the journal entries at 1 July 2018 and 30 June 2019.
    ANSWER:
    i) Issue Price of the Bond ( PV of Debenture)
    Face Value    2000000
    Coupon Rate    10
    Coupon Payment    Semi Annually
    Market Rate    12
    Maturity Period    10
    Since Coupn Payment Is semi- annually, hence
    Coupn rate for calculation    5
    Coupon Payment    100000
    Market rate for calculation    6
    Period    20
    Present Value Of Coupon Payments
    PV of Annuity for 20 periods at 6%        11.46992
    PV of Coupon Payments        $1,146,992
    Present Value Of Maturity Value
    PV of $1 for 20 periods at 6%        0.31180
    PV of Maturity Value         623609
    PV of Debenture= PV of Coupon Payment + PV of Maturity Value
    PV of Debenture= 1146992+623609        1770601
    (ii) Journal entries at 1 July 2018 and 30 June 2019.
    Bond Amortization Schedule
    Period    Cash Paid    Interest Expense    Discount Amortized    Unamortized Discount    Ca
ying Value
    43107                229399    1770601
    30/12/2018    100000    106236    6236    223162    1776838
    30/06/2019    100000    106610    6610    216552    1783448
    DATE
    43107        CASH         1770601
            DISCOUNT ON DEBENTURES PAYABLE        229399
             DEBENTUERS PAYABLE            2000000
            ( TO RECORD ISSUE OF DEBENTURES)
    30/06/2019        INTEREST EXPENSE        106610
             CASH             100000
             DISCOUNT ON DEBENTURES PAYABLE            6610
            (TO PAYMENT OF INTEREST)
Q3
    Question 3 (10 marks)
     FRM Ltd acquired an item of equipment and enters into a non-cancellable lease agreement with FEN Equipment Ltd on 1 January 2015. The...
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