MURDOCH BUSINESS SCHOOL

MBS544 ACCOUNTING PROCESSES

ASSIGNMENT
INSTRUCTIONS
1. The assignment is due for submission in Session 11 of the semester. Internal students will
submit their assignment at the start of their class in Session 11. Online and external students
will submit their assignment by Wednesday of Session 11 by 5pm via the online LMS portal
set-up in Session 11. Late submission will not be accepted.

2. There are 2 questions in this assignment and all questions are to be completed. It is important
that each work on this assignment is on your own. The assignment will be marked on effort
and not only on the correct answer. You may get different answers because of assumptions
made. Make sure the work you submit is your own work and not copied or taken from other.
Any evidence of collusion or copying will be treated seriously and reported as academic
misconduct. The written parts of Questions 1 and 2 requires you to do some research. As
such, it is expected that you will provide references to support your written answers.

3. The assignment has a word limit of 1,000 – 1,500 words (in total for part the written parts of
Questions 1 and 2). The assignment is to be word processed using Times New Roman and
12” font.

4. This handout contains the information required to complete the assignment.

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Question 1
The inventories control account balance of St George Fashions at 30 June 2023 was $110 510
using the perpetual method. A physical count conducted on that day found inventories on hand
worth $110 100. Net realisable value for each inventories item held for sale exceeded cost. An
investigation of the discrepancy revealed the following.
 Goods worth $3300 held on consignment for Rockhampton Accessories had been included in
the physical count.
 Goods costing $600 were purchased on credit from Springbrook Ltd on 27 June 2023 on
FOB shipping terms. The goods were shipped on 28 June 2023 but, as they had not arrived
by 30 June 2023, were not included in the physical count. The purchase invoice was received
and processed on 30 June 2023.
 Goods costing $1200 were sold on credit to Noosa Pty Ltd for $1950 on 28 June 2023 on
FOB destination terms. The goods were still in transit on 30 June 2023. The sales invoice
was raised and processed on 29 June 2023.
 Goods costing $1365 were purchased on credit (FOB destination) from Launceston
Handbags on 28 June 2023. The goods were received on 29 June 2023 and included in the
physical count. The purchase invoice was received on 2 July 2023.
 On 30 June 2023, St George Fashions sold goods costing $3150 on credit (FOB shipping)
terms to Kurnell’s Boutique for $4800. The goods were dispatched from the warehouse on
30 June 2023 but the sales invoice had not been raised at that date.
 Damaged inventories valued at $1325 were discovered during the physical count. These
items were still recorded on 30 June 2023 but were omitted from the physical count records
pending their write-off.

Required

1. Prepare a schedule with two columns one for ‘Control account balance’ and another for
‘Physical count’. Add or subtract the relevant inventory items to arrive at a closing
balance for inventory in each column (Hint: the final balance in each column should
agree).
2. Prepare any journal entries necessary on 30 June 2023 to correct any errors and to
adjust inventories.
2.i) What does the term ‘net realisable value’ mean? What sources of evidence could a
company use to determine net realisable value?
2. ii) Identify three reasons why net realisable value may fall below cost. What action should
a company take at year end if some of its inventory items have declined in value while
other inventory items have increased in value? Why?

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Question 2

Swift Ltd owned the following items of property, plant and equipment as at 30 June 2023.

Additional information (at 30 June 2023)

 The straight-line method of depreciation is used for all depreciable items of PPE.
Depreciation is charged to the nearest month and all figures are rounded to the nearest dollar.
 The office building was constructed on 1 April 2019. Its estimated useful life is 20 years and
it has an estimated residual value of $40 000.
 The turf cutter was purchased on 21 January 2020, at which date it had an estimated useful
life of 5 years and an estimated residual value of $3200.
 The water desalinator was purchased and installed on 2 July 2022 at a cost of $200 000. On
30 June 2023, the plant was revalued upwards by $7000 to its fair value on that day.
Additionally, its useful life and residual value were re-estimated to 9 years and $18 000
respectively.

The following transactions occurred during the year ended 30 June 2024. (Note: All payments
are made in cash.)

(i) On 10 August 2023 new irrigation equipment was purchased from Pond Supplies for
$37000. On 16 August 2023, the business paid $500 to have the equipment delivered to
the turf farm. William Wagtail was contracted to install and test the new system. In the
course of installation, pipes worth $800 were damaged and subsequently replaced on 3
September. The irrigation system was fully operational by 19 September and William
Wagtail was paid $9600 for his services. The system has an estimated useful life of 4
years and a residual value of $0.
(ii) On 1 December 2023, the turf cutter was traded in on a new model worth $80 000. A trade-
in allowance of $19 000 was received and the balance paid in cash. The new machine’s
useful life and residual value were estimated at 6 years and $5000 respectively.
(iii) On 1 January 2024, the turf farm’s owner decided to extend the office building by adding
three new offices and a meeting room. The extension work started on 2 February and was
completed by 28 March at a cost of $49 000. The extension is expected to increase the
useful life of the building by 4 years and increase its residual value by $5000.
(iv) On 30 June 2024, depreciation expense for the year was recorded. The fair value of the
water desalination plant was $165 000.

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Required

1. Prepare general journal entries to record the transactions and events for the reporting period
ended 30 June 2024 in relation to the following assets:
(a) Office building
(b) Turf cutters
(c) Water desalinator
(d) Irrigation equipment
2. What choices of measurement model exist subsequent to assets being initially recognised?
3. Why should an entity consider changing to an alternative measurement model?