Tutorial 1 (Week beginning 9 March 2020)

Introduction to ACC/ACF1100

HOMEWORK QUESTIONS

There are no assigned homework questions in Tutorial 1.

1
 Tutorial 2 (Week beginning 16 March 2020)
Topic 1: Introduction to accounting and conceptual framework

HOMEWORK QUESTIONS

1. Q13.9 (p.880)

2. BE13.10 (p. 884)

3. Messy Ltd is an oil company. The company is aware that it that is has caused severe
contamination to land during the process of oil extraction. While Messy Ltd operates in
countries where there is no environmental legislation, the company has a widely
published environmental policy specifying that it undertakes to clean up ALL
contamination that it causes. The company has had a record of honouring this
published policy for the last thirty years and has previously cleaned up after 4
contamination incidents.
Required:
With reference to the AASB Framework, discuss whether Messy Ltd should recognise
a “Liability for Environmental Clean Up”.

4. A well-known Australian airline has entered into a contract to order a new Airbus A480
plane. The price between the airline and the manufacturer is fixed and delivery is to
occur in 24 months with full payment to be made on delivery. The contract is for $300
million. The manufacturer has agreed that the contract is non-cancellable from their
point of view. The airline can cancel the contract but must pay a cancellation penalty
of $500 million to do so.
Required:
What should the airline recognise, if anything, at the time it enters the contract? Justify
in accordance with the relevant Conceptual Framework definitions and recognition
criteria.

5. Tickets Ltd is an organisation that sells concert tickets for upcoming events. The
company has a ‘no refund’ policy once the sale has been finalised. The company
accountant is considering how the ticket sales should be recorded. Of the ticket sales
during 2017, 70% of the events have occurred, while the remaining events are
scheduled to occur during 2018.
Required:
With reference to the AASB Framework, explain how Tickets Ltd should record the
ticket sales during 2017. (Please note that you are not required to prove that Cash at
Bank is an asset)

2
 Tutorial 3 (Week beginning 23 March 2020)
Topic 2: The recording process (Part 1): Double-entry accounting, general
journal, and ledgers

HOMEWORK QUESTIONS

1. Q2.3 (p.136)

2. E2.6 (p.140)

3. PSA2.2 (p.143) – journalise all transactions (ignore requirements (a), (b), and (c))

4. PSB2.5 (p.150) – only parts (a) and (b)

5. Bill opened The Champion Tennis Club for business on 1 July 2019. Bill will start giving
tennis classes in July. The following transactions occurred during the July operations:

July 1 Deposited $300,000 into a business bank account

2 Purchased new tennis equipment for a total of $4,500. An initial $2,400 is paid
in cash immediately, and the rest is to be paid in 2 months’ time, with interest
payable at 5% per annum.
10 Sent invoices to a number of clients for tennis classes for a total amount of
$9,000.
12 Paid $3,000 for a 1-year insurance policy on the tennis equipment, effective
from 1 July 2019.
16 Received $7,000 cash from clients billed on 10 July.
20 Received $10,000 cash from clients who paid immediately for tennis classes.
These clients were not invoiced previously.
25 Bill withdrew $6,000 cash from the business for his home cleaning service.
30 Received the remaining amount from clients billed on 10 July.
31 Paid rent for July, $500.

Required:
(a) Journalise the above transactions (narrations are not required).
(b) Open T accounts for the following accounts: Cash, Accounts receivable.

3
 Tutorial 4 (Week beginning 30 March 2020)
Topic 3: The recording process (Part 2): Trial balance and 10-column
worksheet; Balance day adjustments (Part 1)

HOMEWORK QUESTIONS

1. Q2.10 (p.137)

2. PSB2.5 (p.150) – only part (c)

3. BE3.2 (p. 202)

4. PSB3.2 (p.219) – only part (a), please ignore point (6) of the additional information as
we have not covered depreciation yet.

5. Pumpkin Patch Ltd retails children’s clothing. It’s Trial Balance as at 31 December
2019 was as follows:

Account DR CR
Cash 250,000
Accounts Receivable 4,000,000
Allowance for Doubtful Debts 100,000
Inventory 3,100,000
Prepaid Insurance 230,000
Term Deposit 100,000
Vehicles 1,500,000
Accumulated Depreciation – Vehicles 300,000
Buildings 15,000,000
Accumulated Depreciation – Building 750,000
Accounts Payable 750,000
Unearned Rent Revenue 600,000
Mortgage 3,500,000
Capital 15,100,000
Retained Profits 120,000
Sales Revenue 11,000,000
Cost of Goods Sold 4,750,000
Advertising Expense 900,000
Electricity Expense 250,000
Wages Expense 2,250,000
Total $31,220,000 $31,220,000

4
Additional Information:
1. Insurance was renewed on 1 October 2019 for $140,000.
2. Advertising was paid on 1 August 2019 for a 6 month television campaign. – ACF
students please ignore.
3. Rent was received by Pumpkin Patch on 1 Dec 2019 for 3 months.
4. Goods paid for but not delivered at 31 December 2019 totalled $25,000. – ACF
students please ignore.
5. Interest earned on the term deposit totalled $5,000. It will be paid on 31 Jan 2020.
6. Wages not yet paid at 31 Dec 2019 totalled $150,000.
Required:
Prepare any necessary balance day adjustment general journal entries as at 31 Dec 2019.

5
 Tutorial 5 (Week beginning 6 April 2020)
Topic 4: Balance day adjustments (Part 2)

HOMEWORK QUESTIONS

1. Q3.8 (p.201)

2. ALL Ltd purchased new machine on 1 January 2018, at a cost of $1,180,000. The
company estimated that the machine has a useful life of 5 years and a residual value
of $90,000.

Required:
Assuming a financial year ending 30 June, calculate the amount of depreciation
expense for financial year ending 30 June 2018 and 30 June 2019, with each of the
following methods:
(a) Straight-line
(b) Reducing balance (assume the reducing balance depreciation rate per annum is
40%)

3. BE7.7 (p.481)

4. PSA7.8 (p. 490)

5. A company uses the aging of accounts receivable method to estimate its bad debts
expense. On 30 June 2019 an aging analysis of accounts receivable revealed the
following:
Accounts receivable Account age Estimated uncollectible
$310,000 Not due yet 0.5%
$135,000 1-30 days overdue 2%
$72,500 31-60 days overdue 7%
$27,500 61-90 days overdue 25%
$16,000 91-120 days overdue 50%
$9,000 Over 120 days overdue 75%
$570,000

Required:
(a) Calculate the amount of the Allowance for Doubtful debts that should be reported
on 30 June 2019.
(b) Calculate the amount of the Bad Debts Expense that should be reported on the
current year's income statement, assuming that the balance of the Allowance for
Doubtful debts on 1 July 2018 was $22,000 Cr and that accounts receivable written
off during the current year totaled $24,600.
(c) Prepare the adjusting entry to record bad debts expense on 30 June 2019.

6
6. Refer to the following adjusting entries related to Property Developers Ltd:

(i) Depreciation on the motor vehicles is $3000 per annum;

(ii) $900 of insurance has been consumed during the month;
(iii) Wages of $900 are owed on 30 June 2019; and
(iv) Commission revenue owed to Property Developers Ltd but not recorded on
30 June 2019 was $1100.

Required:
(a) Journalise the balance day adjustments on 30 June 2019.
(b) Suppose the adjusting entries in requirement (a) were not made. Calculate the
overstatement or understatement of profit resulting from these omissions.
(c) Complete the worksheet on the next page (only for the ‘Adjustments’ and
‘Adjusted Trial Balance’ columns:

7
 Property Developers Ltd - Worksheet as at 30 June 2019
Unadjusted Trial Adjusted Trial
Account Adjustments Income Statement Balance Sheet
Balance Balance
Title
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash at bank 13,500
Prepaid insurance 1,200
Debtors 22,000
Vehicles 18,000
Acc dep of vehicle 4,000
Land and buildings 80,000
Creditors 12,000
Capital 67,700
Sales 126,000
Sales returns 1,000
Commission revenue 4,000
Supplies expense 45,000
Wages expense 19,000
Rates expense 500
Office stationary expense 3,700
Sales and dist. Expense 9,800
213,700 213,700

8
 Tutorial 6 (Week beginning 20 April 2020)
Topic 5: Completing the accounting cycle

HOMEWORK QUESTIONS

1. BE3.6 (p.203)

2. Bill Smith’s Hire Cars’ adjusted trial balance as at 30 June 2019 appears as shown
below.

BILL SMITH’S HIRE CARS

Adjusted Trial Balance
as at 30 June 2019

Account Debit $ Credit $

Cash at bank 25 281
Accounts receivable 22 269
Prepaid insurance 6 480
Office supplies 2 025
Hire cars 354 150
Accumulated depreciation – hire cars 254 325
Accounts payable 30 600
Wages payable 2 385
Electricity payable 1 485
Unearned hire fees 28 440
B. Smith, Capital 84 195
B. Smith, Drawings 82 395
Hire fees revenue 330 210
Wages expense 118 635
Fuel and oil expense 22 170
Advertising expense 7 950
Maintenance expense 13 785
Depreciation expense 70 125
Insurance expense 6 375
$731 640 $731 640

Required:
(a) Identify which accounts should be closed on 30 June 2019. Journalise the closing

9
 entries.
(b) Prepare an income statement for the period ending 30 June 2019.
(c) Prepare a statement of changes in equity for the period ending 30 June 2019.
(d) Prepare a balance sheet as at 30 June 2019.

3. PSA3.7 (pp.214-215)

4. Complete the worksheet on page 8 of this document – the ‘Income Statement’ and
‘Balance Sheet’ parts.

10
 Tutorial 7 (Week beginning 27 April 2020)
Topic 6: Inventory (Part 1): Recording using both the periodic and perpetual
methods

HOMEWORK QUESTIONS

1. E4.4 (p. 267)

2. PSB4.2 (p.275)

3. Adele Ltd is a distributor of microphones used in the music industry. On 1 June, Adele
Ltd had 300 microphones on hand at a cost of $40 each. The selling price of a
microphone is $90.
Adele Ltd’s related transactions for the month of June are as follows:

Units
Purchase returns, 4 June 30
Sales, 7 June 200
Purchases, 12 June 400
Sales returns, 20 June 10
Sales, 28 June 50

All purchases and sales are for cash and all returns were not damaged and are
available for re-sale. A stocktake at period end revealed 415 microphones on hand.
Required:
(a) Record the above transactions for the month of June in the general journal using the
periodic inventory method, including any relevant balance day adjustments and/or
closing entries related to inventory. Narrations are NOT required.
(b) Record the above transactions for the month of June in the general journal using the
perpetual inventory method, including any relevant balance day adjustments and/or
closing entries related to inventory. Narrations are NOT required.

4. The following information relates to the business of Matt Charlton’s Mobile Phone Shop
for the month of October 2019. The business maintains a perpetual inventory system.

October 2 Purchased 560 phones on credit for $560 each from Robert Edwards Pty
Ltd, terms 2/10, n/30. Matt Charlton also made a cash payment of $300
for freight on this date.
Sold 120 phones on credit to Kingsford Phones for $1 240 each; terms
7 2/10, n/30. Each phone sold costs Matt Charlton $560.
8 Received $3 360 credit for 6 damaged phones returned to Robert Edwards
Pty Ltd.

11
 11 Paid Robert Edwards Pty Ltd in full.
14 Granted Kingsford Phones $8 680 credit for 7 phones returned.
17 Received payment in full from Kingsford Phones.
27 Purchased 200 phones for cash from Will Ferguson for $105 000.

Required:
Prepare journal entries for the above transactions for the month of October 2019 for
Matt Charlton’s Mobile Phone Shop. Narrations are NOT required.

12
 Tutorial 8 (Week beginning 4 May 2020)
Topic 7: Inventory (Part 2): AASB102 – cost of inventory, cost-flow
assumptions, lower of cost and NRV, inventory writedowns

HOMEWORK QUESTIONS

1. Q5.7 (p. 322)

2.
a) Explain the components of the cost of inventory according to AASB102
b) Briefly distinguish between the following costing methods: Specific identification,
weighted average, FIFO, LIFO
c) Explain net realizable value according to the accounting standard
d) Explain the lower of cost and net realizable value rule according to the accounting
standard
e) Briefly explain what factors may lead to the Net Realizable value falling below the
cost of inventory

3. PSB5.3 (pp. 334-335) – ignore LIFO.

4. Rihanna Ltd is a new business that sells perfume bottles. The business had started
operations with 100 bottles purchased for $40 each. During the first month of operation
the following purchases were made:

1 July 2019 Purchased 300 bottles (invoice price = $38.00). The freight and
insurance cost on the entire order was $1,800.

18 July 2019 Purchased 200 bottles from a different supplier whose normal retail
price was $40.00 per unit. However, the supplier granted Rihanna Ltd a trade
discount of 10% and offered free freight and insurance.

Sales of bottles for the month were as follows:

Units sold Selling price per unit
20 July 2016 100 $124
20 July 2016 100 $124
23 July 2016 100 $128
350
20 bottles from the purchase on the 18 July 2019 were found to have been left in the
sun and have become discoloured. These bottles can only be sold for $20 each. A
physical stocktake revealed 250 units on hand at the end of the period.
Rihanna Ltd uses the periodic inventory method and the first in first out (FIFO) cost-
flow method.
Required:
Calculate the cost of closing inventory, in accordance with the requirements of relevant
Australian accounting standards. Justify ALL elements of your calculations in

13
 accordance with Australian accounting standards.

5. Hardwick Artwork Pty Ltd is in business selling framed prints of classic paintings. The
prints are produced on high-quality paper and to the highest possible standards, so
they are expensive to purchase from the importer.

Pricing the prints is difficult because popularity of a print is difficult to predict.

Sometimes prints do not sell well at all and are then disposed of in bulk for use in hotels
and motels. The transaction data on two recent prints are as follows:

City scene print Rural scene print

Units Cost per Unit Units Cost per Unit
$ $
Inventory, 1 July 2013 4 340 11 500
Purchases during 2013 – 2014:
During July-December 2013 10 350 25 480
During January – June 2014 15 330 30 510
Sales during 2013 – 2014 13 38
Purchase of the city scene print requires payment of an import duty of $50 per print.
The latest selling price of city scene prints was $650 per print.
The rural scene print has not sold any copies since March 2014. In late June 2014, a
country motel chain offered $300 each for all the rural scene prints that Hardwick
Artwork has left, if Hardwick Artwork will pay the $30 per print freight cost. Hardwick
Artwork management realises this is the highest offer they are likely to receive.
Required:
Calculate the following:
(i) Ending inventory value for the city scene print as at 30 June 2014, using a FIFO
cost flow assumption.
(ii) Cost of goods sold for the year ended 30 June 2014 and ending inventory as at
30 June 2014 for the rural scene print, using the weighted-average cost flow
assumption.
Justify your answers and show all workings.

14
 Tutorial 9 (Week beginning 11 May 2020)
Topic 8: Special journals and control accounts as a lead-in to cash
management (bank reconciliation)

HOMEWORK QUESTIONS

1. BE6.5 (p. 397)

2. PSA6.1 (p. 404)

3. Q7.7 (p. 480)

4. The following information is provided for Southern Cross Cricketers Ltd:

Southern Cross Cricketers Ltd

Bank Reconciliation as at 31 May 2019

Cash balance per bank statement 4,817.00 Cr

Add Deposits not credited 284.00
5,101.00
Less Unpresented cheques:
506 161.00
509 220.00 (381.00)
Balance per cash at bank ledger account 4,720.00 Dr

CASH PAYMENTS JOURNAL

Date Name Chq. Bank

No.
2019 CR

Jun Car 510 1,000

4
4 D.H.A 511 26
9 D. Grace 512 87
19 C. Goode 513 260
10 Investments 514 1,908
15 Wages 515 150
18 Petrol 516 97
20 Drawings 517 20

15
 29 Oil 518 16
30 Wages 519 150
30 D. Grace 520 115

CASH RECEIPTS JOURNAL

Date Name Rec. No. Bank

2019 DR

Jun 1 Capital 16 500

5 V. Daly 17 39
5 Fees 18-56 1247
12 Fees 57-85 1537
16 G. 86 68
Press
30 Int. Rev. Voucher 29 52

SOUTHERN CROSS CRICKETERS LTD

BANK STATEMENT
DR CR BALANCE
June
1 4,817.00CR
1 C/C 284.00 5,101.00CR
2 State Duty 1.00 5,100.00CR
2 Federal Duty 3.00 5,097.00CR
2 C/C 500.00 5,597.00CR
3 506 161.00 5,436.00CR
6 C/c 1,286.00 6,722.00CR
7 Fee 5.00 6,717.00CR
8 510 1,000.00 5,717.00CR
13 C/C 1,537.00 7,254.00CR
14 512 87.00 7,167.00CR
14 513 260.00 6,907.00CR
17 C/C 68.00 6,975.00CR
17 514 1,908.00 5,067.00CR
18 515 150.00 4,917.00CR

16
 21 517 20.00 4,897.00CR
22 511 26.00 4,871.00CR
30 Citicorp Int 20.00 4,891.00CR
Direct Payment

Required:
(a) Prepare the Cash at Bank ledger account showing the final balance at 30 June 2019.
(b) Prepare the bank reconciliation as at 30 June 2019.

5. Brash Limited prepares a bank reconciliation twice a month. The following information
relates to the fortnight ending 15 June 2019.

Brash Ltd. Bank Reconciliation Statement as at 31 May 2019

Balance as per Bank Statement 2,918 CR
Add: deposit not credited 600
3, 518
Less: Unpresented cheques/debits
Chq No. 287 8,000
Chq No. 288 800 8,800
Balance as per Bank Ledger account (CR) 5,282

Stellar Bank: Bank Statement: Account: Brash Ltd. 15 June 2019

Date Particulars Debits Credits Balance DR/CR
1-Jun Balance 2,918 CR
Ch287 8,000 5,082 DR
Deposit 600 4,482 DR
6-Jun Deposit 1,602 2,880 DR
Bank fees 54 2,934 DR
14-Jun Ch290 180 3,114 DR
Deposit 846 2,268 DR
15-Jun Ch291 90 2,358 DR
Chq returned: Dishon’d 1,602 3,960 DR
Interest 360 3,600 DR

17
Cash Receipts Journal
Date Particulars Rec # Details Bank
6-Jun J Gerrand 82 1,602 1,602
14-Jun Sales 83 864 864
15-Jun J Webster 84 396
Sales 85 1,188 1,584
Progress Total 4,050

Cash Payments Journal

Date Particulars Chq # Bank
13-Jun Wages 290 180
Council Rates 291 90
15-Jun F Crowe 292 558
Progress Total 828

General Ledger

Date Details $ Date Details $

Note: Assume that all cash journal entries to 15 June are correct.
Required:
(a) Complete and post both cash receipt and cash payment journals above.
(b) Prepare the bank ledger account above to show how it would appear after cash
journals have been posted on 15 June.
(c) Prepare a Bank Reconciliation Statement at 15 June 2019.

18
 Tutorial 10 (Week beginning 18 May 2020)
Topic 9: Non-current assets: revaluation (increments or decrements),
impairment (straightforward impairment), sale of a non-current asset

HOMEWORK QUESTIONS

1. Q8.10 (p.547)

2. PSA8.6 (p. 553)

3. Willis Ltd purchased new machine on 1 July 2017 for $65,000 cash. Useful life is
estimated to be 5 years. Willis Ltd depreciates the machine using the straight-line
method and the residual value is expected to be zero.
On 30 June 2018, the company adopted the revaluation model to account for the
machine. An expert valuation was obtain showing that the machine had a fair value of
$40,000 at that date.
On 30 June 2019, the machine is revalued to its fair value of $36,000.
On 30 September 2019, the machine was sold for $35,000 cash.

Required:
Prepare general journal entries to record the transactions for the period 1 July 2017 to
30 September 2019 (Willis Ltd’s financial year ends on 30 June annually). Narrations
are NOT required.

4. Batman Ltd. is preparing its end of year financial statements at 30 June 2018. The
balance sheet shows only two non-current assets, buildings and office furniture. After
depreciation entries were completed for the year ending 30 June 2018, the
accumulated depreciation of its non-current assets were as follows:

Buildings 242,000
Accumulated Depreciation (50,000)

Office Furniture 70,000

Accumulated Depreciation (38,000)

The company applies the revaluation model to buildings and the cost model to office
furniture. At 30 June 2018, the following values relating to the assets have been
determined:

Fair value Value in use Costs to sell

Buildings $155,000 $156,000 $6,000
Office Furniture $17,000 $13,000 $3,000

Required:

19
(a) Prepare the necessary general journal entries in relation to the buildings for the year
ended 30 June 2018 and justify in accordance with appropriate accounting standards.
Show all workings (narrations are not required).
(b) Prepare the necessary general journal entries in relation to the office furniture for the
year ended 30 June 2018 and justify in accordance with appropriate accounting
standards. Show all workings (narrations are not required).
(c) For the year ended 30 June 2019, prepare the necessary general journal entries in
relation to the Buildings (assuming depreciation for the year is $10,000 and the fair
value of the buildings at 30 June 2019 was $250,000). Show all workings (narrations
are not required).

5. On 1 July 2016, Dunlop Ltd purchased new equipment on credit from Serry Ltd (terms
2,30/n,60). The equipment was advertised for sale at $40 000 but after careful
negotiation was invoiced at a reduced price of $36 000.
The cost of installation of the equipment, paid in cash on 1 July 2016, was $4 000 and
the equipment was expected to be sold for $10 000 at the end of its 4 years life in the
business.
Serry Ltd was paid in full settlement on 25 July 2016.
It was decided to adopt the cost model of asset valuation and to use the straight-line
method of depreciation.
On 30 June 2017 the value in use of the asset was estimated to be $20 000, the assets
fair value $15 000 and its replacement cost $40 000.
On 31 December 2017 the equipment was sold for $18 000 cash.
Required:
(a) Show the general journal entries for the 1 July 2016 transactions.
(b) Show the general journal entry for the 25 July 2016 transaction.
(c) Show the general journal entry for depreciation on 30 June 2017.
(d) Show the general journal entry (if applicable) for the impairment of the equipment on
30 June 2017.
(e) Show the general journal entry for the depreciation of the equipment for the 6 months
ending 31 December 2017.
(f) Show the general journal entry to record the disposal (and gain or loss on sale) of the
equipment on 31 December 2017.

6. The accountant of Houli Pty Ltd is confused. She is not sure of how to treat the firm’s
two brand names. Brand name A was purchased from a competitor. Brand name B
was internally generated.
The accountant needs guidance on how to account for the two brand names in
accordance with relevant AASB Accounting Standards.
Required:
(a) Explain to the accountant how they should initially treat each brand name.
(b) Explain to the accountant how they should treat each brand name in subsequent years.

20
 Tutorial 11 (Week beginning 25 May 2020)
Topic 10: Liabilities (leases, provisions, contingent liabilities)

HOMEWORK QUESTIONS

1. Q9.5 (p. 604)

2. Stapleton and Sons is a business that employs five full-time staff. Under their
employment contract, each staff is entitled to ten days of sick leave each year, provided
sufficient medical certificates or similar documents are produced to confirm their ill
health. Past experience and records indicate that staff use 70% of their sick leave each
year. Staff work a five day week (Monday to Friday), and are paid a salary of $104,000
each per year. The business records wages and relevant leave entitlements on a
weekly basis.

Required:
(a) Should Stapleton and Sons record any provision for their employees’ sick leave?
Explain and justify your answer with reference to the AASB Framework and Accounting
Standards where relevant.
(b) Calculate the annual sick leave obligation for Stapleton and Sons, and provide the
general journal entries necessary to record the wages paid and leave provision for one
week.

3. PSB9.8 (p. 615)

4. Comptex Ltd sells computers. It provides a one-year warranty on the computer by way
of parts and labour. During the year ended 30 June 2019, the company sold 1,000
computers for $1250 each. Previous experience indicates that the warranty claims
amount to 2 per cent of sales revenue. For the year ended 30 June 2019, Comptex
repaired 50 computers. The cost of repair was $10 000 in parts and $7000 in labour.

Required:
Having regard to the Framework and relevant accounting standards:
(a) Explain whether the warranty should be treated as a liability in Comptex’s financial
statements for the year ended 30 June 2019. In your answer refer to the AASB
Framework.
(b) Prepare general journal entries in relation to the warranty for the year ended 30 June
2019.

5. Hawke Ltd leased an item of machinery to Banda Ltd on 1 July 2018. The agreement
contained the following details:
Lease term 3 years
Initial lease payment $22,000 (at commencement of lease)
Annual lease payment $22,000 (due at 30 June each year)
Guaranteed residual payment $10,000 (due on 30 June 2021)

21
 Interest rate implicit in the lease 10%
Useful life of machinery 6 years
Residual value of machinery $20,000
The lease is non-cancellable and the machinery is to be retained by Banda Ltd at the
end of the lease term
The fair value of the machinery at 1 July 2018 was $85,000 and the present value of
minimum lease payments is $84,224.

Required:
(a) Prepare a schedule of lease payments for Banda Ltd.
(b) Prepare the general journal entries required for the first year of the lease (the year
ending 30 June 2019) assuming a finance lease.
(c) Prepare an extract from the statement of financial position as at 30 June 2020
providing the figures for the leased asset.

6. On 1 July 2019, Busby Ltd leased an equipment from York Ltd. The fair value of the
equipment at 1 July 2019 is $300,000, and the present value of minimum lease
payment is $286,168. The agreement contained the following details:
Lease term 4 years
Initial lease payment $80,000 (at commencement of lease)
Annual lease payment $80,000 (in advance on 1 July each year)
Guaranteed residual payment Nil
Interest rate implicit in the lease 8%
Useful life of machinery 6 years
Residual value of machinery $30,000
Busby Ltd intends to return the equipment to York Ltd at the end of the lease term.

Required:
(a) Prepare a schedule of lease payments for Busby Ltd.
(b) Prepare the general journal entries required from 1 July 2019 to 30 June 2021.

22
 Tutorial 12 (Week beginning 1 June 2020)
Topic 11: Equity, income and expenses
Topic 12: Critical analysis of the Conceptual Framework versus
Accounting Standards

HOMEWORK QUESTIONS

1. E10.2 (p. 662)

2. E13.12 (p. 888)

3. Dietright Ltd is a business which provides 2 year programs to individuals who are trying
to lose weight. It charges a compulsory upfront fee of $100 which is payable before
commencing the weight loss program. This fee is non-refundable. This fee includes a
recipe book and meals planner which has a market value of $76. In addition there is
an upfront fee of $240. The fee is payable in advance at the start of the contract or can
be paid each month. This fee is charged for private consultations with instructors, group
support meetings and menu plans.

Required:
In the light of the new accounting standard on income, how should Dietright recognise
the two types of fees as income? Justify your answer.

4. PSA10.2 (pp. 664-665)

5. Tigers Ltd has presented the following information regarding its equity at 1 July 2018:

Shareholder’s Equity
Issued Share Capital (5,000,000 shares) 5,000,000
Reserves 575,000
Retained Earnings 2,830,000
$ 8,405,000

On 15 July 2018, Tiger purchased a block of land, the consideration being 200,000
shares. The fair value of the land was $480,000.
On 4 January 2019, Tiger declared an interim dividend of 10 cents per share. The
dividend was paid on 1 February.
On 10 February 2019, Tiger issued a further 500,000 ordinary shares for cash at an
issue price of $2.50 each.
On 30 June 2019, the company reported a profit before tax of $2,342,000. Tax expense
was estimated at $371,000. Directors transferred $300,000 to reserves, and declared
a final dividend of $0.12 per share. The final dividend and tax was paid on 22 July
2019.

23
 Required:
(a) Prepare general journal entries for the transactions and events above.
(b) Prepare Statement of Changes in Equity for year ended 30 June 2019.

6. Hilltop Hoods Ltd is considering diversifying its operations and is evaluating

opportunities in the areas of Exploration of Mineral Resources, or Research and
Development. They have asked your advice on the following issues:

Required:
(a) Briefly explain the accounting treatment required under appropriate Australian
Accounting Standards if they spent money exploring for minerals.
(b) Briefly explain the accounting treatment required under appropriate Australian
Accounting Standards if they spent money on research and development.
(c) Briefly explain how the rules in i) and ii) are consistent or inconsistent with the
definitions and recognition criteria of the elements as detailed in the Conceptual
Framework.

7.
a) Explain the distinctions between the Conceptual Framework and the Australian
Accounting Standards.
b) Why are some Accounting Standards inconsistent with the Conceptual Framework?
c) Provide two examples of accounting standards that are inconsistent with the
Conceptual Framework in the area of valuation of assets and explain the
inconsistencies.

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