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Unit Code: Unit Name: Writing Time: Reading Time: MAA 716 FINANCIAL ACCOUNTING 2 HOURS 15 MINUTES

This examination is CLOSED BOOK.

Instructions for Candidates: 1. This paper consists of two parts. 2. This paper carries 60 marks. (This is equal to 60% of your total assessment in this unit). 3. Part A Multiple Choice is worth 15 marks. All Multiple Choice Questions must be answered on the answer sheets supplied. Part B questions are worth 45 marks as indicated at the end of each question.


5. ALL QUESTIONS IN PART A MUST BE ANSWERED. 6. ALL QUESTIONS IN PART B MUST BE ANSWERED. Start each question on a new page and number each question and part of each question clearly. THIS PAPER MUST REMAIN IN THE EXAMINATION ROOM. Materials authorised for this examination must be in accordance with Deakin University policy.

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MAA716 Financial Accounting Trimester Two 2012 Examination

PART A. Multiple Choice Questions

Question 1 The audit of the financial reports of Matilda Ltd had been completed except for the outcome of a material contingent liability that is still subject to the outcome of a court decision. The case is still ongoing and it is expected that a decision will be made after three months. The deadline for submitting the financial reports is next month. Which action is consistent with the notion of timeliness in the preparation of financial reports? A. Matilda Ltd should wait for the court decision to be completed before releasing the financial reports as the amount of the liability is material. B. Matilda Ltd should release the financial report on or before the deadline but exclude the contingent liability from the report as the outcome is still uncertain. C. Matilda Ltd should release the financial report on or before the deadline but disclose the contingent liability in the notes to the accounts. D. Matilda Ltd must wait for the court decision to be completed before releasing the financial reports as it is expected to occur in the near future anyway (i.e. three months). Question 2 The cost of an item of property, plant and equipment will typically include the purchase price and: A. other expenditures on material and services required to generate the asset. B. depreciation costs of other assets used to generate the asset. C. salaries and wages of the Chief Executive Officer. D. any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

Question 3 A business had non-current assets with a carrying amount of $90,000 at the start of the financial year. During the year the business sold an item of machinery that had a cost of $12,000 and been depreciated to a carrying amount of $3,400. The carrying amount of non-current assets at the end of the year was $91,500. How much cash has been used to purchase noncurrent assets? A. $1,900. B. $4,900. C. $10,500. D. $13,500.
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MAA716 Financial Accounting Trimester Two 2012 Examination

Question 4 Palm Beach Ltd has elected to adopt the allowed alternative treatment (the revaluation model) to account for some of its property, plant and equipment. The information available for the classes of assets the entity wishes to convert to the revaluation model follows: Asset Class Machinery Motor Vehicles Office Equipment Cost Accumulated Depreciation $45,000 64,000 25,000 $35,000 8,000 5,000 Fair Value $7,500 40,000 30,000

Which of the following statements are correct if Palm Beach Ltd is to comply with AASB 116 Property, Plant and Equipment? A. When office equipment is revalued, net profit will increase $10,000. B. When machinery is revalued, net profit will increase by $2,500. C. When motor vehicles are revalued, net profit will decrease by $16,000. D. When all assets are revalued, net profit will increase by $8,500 Question 5 What is the amount of unrealised profit that needs to be eliminated at the end of the period, in the following situation, where Barker Limited is the parent of Corbett Limited? (Ignore the tax effect) Barker purchases 1000 units of inventory for $40 each. Barker sells this entire inventory to Corbett at a mark-up of 50 per cent. At the end of the period, 200 units are on hand. A.$4 000 B.$8 000 C.$6 000 D.$10 000 Question 6 Profit is not defined in the Australian Accounting Standards Board (AASB) Conceptual Framework: A. because it is simply the difference between income and expenses, both of which are defined. B. as it is an intangible item and therefore cannot be properly defined. C. because different measurement methods will give different profits, therefore there cannot be one definition. D. as it is clearly defined under AASB 101 Presentation of Financial Statements.
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MAA716 Financial Accounting Trimester Two 2012 Examination

Question 7 Goggle Ltd has 1 million shares issued. The directors have elected to make a 1 for 5 bonus issue. The current market price of the shares is $10 each. What is the journal entry to record the bonus issue? A. Dr Cash at bank Cr Share capital ordinary shares B. Dr Retained profits Cr Share capital ordinary shares C. Dr Share capital ordinary shares Cr Cash at bank D. Dr Forfeited shares reserve Cr Share capital ordinary shares Question 8 Bellarine Ltd is publisher of Mode magazine and its customers usually sign a three-year subscription with an advance payment of $500. Mode magazine has 12 issues in a year. According to AASB 118 Revenue, what is the appropriate accounting treatment on the date of signing? A. Recognise revenue in full as this is an immaterial amount. B. Recognise as a provision. C. Recognise as unearned revenue. D. Disclose in the notes as a contingent item. $10,000,000 $10,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $1,000,000 $1,000,000

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MAA716 Financial Accounting Trimester Two 2012 Examination

Question 9 On 1 July 2012, Goliath Ltd acquires all shares in David Ltd for $800,000. The fair value of net assets acquired is $920,000 comprised of $600,000 in share capital and $320,000 in retained earnings. What is the appropriate elimination entry for this investment that is in accordance with AASB 3 Business Combinations and AASB 127 Consolidated and Separate Financial Statements? A. Dr Dr Cr Cr B. Dr Dr Cr Cr C. Dr Dr Cr Cr D. Dr Dr Cr Cr Investment in subsidiary Goodwill Share capital Retained earnings Investment in subsidiary Gain on bargain purchase Share capital Retained earnings Share capital Retained earnings Gain on bargain purchase Investment in subsidiary Share capital Retained earnings Goodwill Investment in subsidiary $800,000 120,000 $600,000 320,000 $800,000 120,000 $600,000 320,000 $600,000 320,000 $120,000 800,000 $600,000 320,000 $120,000 800,000

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MAA716 Financial Accounting Trimester Two 2012 Examination

Question 10 Arthur Ltd acquires all the issued capital of Martha Ltd for a cash payment of $3,000,000 on 30 June 2012 The statement of financial position of Martha Ltd at purchase date is: Assets Cash Accounts receivable Equipment Land Total assets Liabilities Accounts payable Loans Total liabilities Shareholders equity Share capital Retained earnings Total liabilities and shareholders funds $100,000 90,000 2,300,000 2,090,000 4,580,000 85,000 1,000,000 1,085,000 2,500,000 995,000 4,580,000

Assuming the assets are at fair value, what is the Goodwill or Gain on Bargain Purchase, on consolidation? A. Goodwill of $500,000. B. Goodwill of $510,000. C. Gain on Bargain Purchase of $495,000. D. Gain on Bargain Purchase of $1,580,000.

(10 x 1.5 = 15 marks)

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MAA716 Financial Accounting Trimester Two 2012 Examination

PART B. You are required to answer ALL questions. Question 1 (This question has three parts, I, II and III) Part I
A need for differential reporting is accepted by both government legislators and accounting standard setters in Australia. This is reflected by the retention of SAC 1 Definition of the Reporting Entity in the new Australian conceptual framework. Explain the concept of differential reporting, using the size test for proprietary companies as an example to illustrate the concept. (4 marks)

Part II
Give two examples of contingent asset and explain the reason why the item would be a contingent asset rather than an asset. Do you believe disclosing the contingent asset as a note to the financial statement will have an effect on users of financial information? (3 marks)

Part III
The Reach foundation is a youth not for profit organisation receives large donations from general public and businesses. Would this donation represent revenue to the organisation? Explain your answer with reference to the current conceptual framework. (3 marks)

(4+3+3)= 10 marks

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MAA716 Financial Accounting Trimester Two 2012 Examination

Question 2 (This question has two parts, I and II) Part I

Ryan Ltd made a call of $1 on 1st May 2012 on the remainder of shares issued (ie to make the shares fully paid). As a result of non-payment of the call, 100,000 shares were forfeited. These shares were paid to $2 on application and allotment. In June 2012, Ryan Ltd decided to sell these shares in an auction at which the shares sold for $2 each. The cost of the forfeiture and reissue was $1,000. Any balance after discounts and reissue costs for the forfeited shares was refunded to the former shareholders of the company as per the constitution of the company. Required: Prepare the journal entries to record the above events. (Narrations are not required). (6 marks)

Part II
Lions Ltd has provided the following information for the year ended 30 June 2012: Credit sales for the year $425,000 Discounts given during the year for early payment by customers 4,250 Doubtful debts expenses for the year 5,450 Debtors control balance as at 1 July 2011 94,540 Debtors control balance as at 30 June 2012 83,250 Provision for doubtful debt as at 1 July 2011 9,454 Provision for doubtful debt as at 30 June 2012 8,325 Sales return from the credit sales for the year 5,000 Required: Determine how much cash has been received from customers during the year ended 30 June 2012. (4 marks)

(6+4)= 10 marks

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MAA716 Financial Accounting Trimester Two 2012 Examination

Question 3
For the year ended 30 June 2012, Lions Ltd had recorded an accounting profit of $650,000 which included the following items: Government Grant (exempt from tax) Entertainment expense Depreciation expense - motor cars Depreciation expense - equipment Rental income Warranty expense $10,000 3,000 125,000 14,000 64,900 64,300

The following amounts are included under liabilities in the statement of financial position of Lions Ltd: Rental income in advance Provision for warranty Additional Information The motor cars have been owned for 1 years as at 30 June 2012 and had an original cost of $750, 000. The cars have an expected useful life of 6 years, however tax depreciation on the cars is calculated over a period of 5 years. The tax deduction for equipment depreciation was $20,250. 2012 $3,900 13,700 2011 $2,900 16,100

Required: (a) Calculate taxable income or tax loss for the current year (30 June 2012), and calculate the current tax due for the year. Assume a tax rate of 30%.

(6 marks)
(b) Calculate the temporary difference for the current year, 30 June 2012 (stating clearly whether the temporary difference is taxable or deductible) and the resulting deferred tax liability or deferred tax assets for the following items: (i) Motor cars (ii) Rental income in advance (iii) Provision for warranty

(4 marks)
Show all workings.

(6+4)=10 marks

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MAA716 Financial Accounting Trimester Two 2012 Examination

Question 4
On 1 July 2006, Peas Ltd acquired 80% of the share capital and reserves of Snap Ltd for $102,600. On the date of control, all assets were recorded at fair values. The abridged Statement of Financial Position data for Snap Ltd on 1 July 2006 were as follows: Assets Cash at bank Accounts receivable Inventory Office furniture & equipment Motor vehicles Land Buildings Liabilities $102,500 Accounts payable 5,500 Other liabilities 22,500 9,500 Shareholders Equity 8,000 Share Capital 17,500 General Reserve 15,000 Retained Earnings Capital Profits Reserve 180,500 $22,500 15,500

50,000 9,000 78,000 5,500 180,500

The financial data for Peas Ltd and Snap Ltd at consolidation date, 30 June 2012, is below and continued over the page. PEAS SNAP INCOME STATEMENT Sales $205,000 $75,000 Cost of goods sold 102,500 26,250 Gross profit 102,500 48,750 Total expenses 33,484 11,250 Trading profit 69,016 37,500 Other revenue 10,390 750 Operating profit before tax 79,406 38,250 Income tax expense 31,760 15,300 Operating profit after tax 47,646 22,950 Retained Earnings (opening) 165,500 156,000 Available for appropriation 213,146 178,950 - Interim dividends 4,600 - Proposed final dividends 14,200 Total appropriations 18,800 Retained Earnings 194,346 178,950

Question 4 continues over the page

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MAA716 Financial Accounting Trimester Two 2012 Examination

Credit balance Share capital General reserve Capital profits reserve Retained earnings Accounts payable Provision for final dividend Accumulated depreciation motor vehicle Accumulated depreciation other assets Other liabilities Debit balance Cash at bank Accounts Receivable Inventory Shares in Snap Ltd Land Office furniture & equipment Motor vehicles Other assets

$145,000 72,500 116,000 194,346 7,550 14,200 1,875 8,250 66,043 625,764 42,000 17,350 246,000 102,600 40,000 27,500 7,500 142,814 625,764

$50,000 9,000 5,500 178,950 17,975 2,400 3,420 24,456 291,701 31,500 8,850 82,500 18,375 11,400 9,600 129,476 291,701

Additional information: i. Total intra group sales of merchandise for the year: Peas to Snap $ 24,600 and Snap to Peas $9,000 ii. At consolidation date, Snap held stock on hand that had been purchased from Peas at a profit to Snap of $500. 30% of these goods had been on hand at the start of the year. The closing stock of Peas contained $900 merchandise purchased from Snap. Cost of this merchandise had been $800 and 40% of these goods had been on hand at the start of the year. iii. On 1 July 2010, Peas sold equipment for $5,000 to Snap. This equipment cost Peas $7,000 and had accumulated depreciation of $3,000 at the date of sale. The remaining useful life time of the equipment is assessed as five years iv. No dividend had been declared or paid by Snap Ltd during the year. v. The company tax rate is 30%. Required: You are required to prepare the consolidation journal entries for consolidating the accounts of Peas and Snap Ltd for the year ended 30 June 2012 (Journal entries related to Non-Controlling Interest are not required).

(15 marks)


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