ADVANCED FINANCIAL ACCOUNTING
FINAL ASSESSMENT
Assessment Weight: 50 total marks
Instructions:
• All questions must be answered by using the answer boxes provided in this paper.
• Completed answers must be submitted to Blackboard by the published due date and time.
Please ensure you follow the submission instructions at the end of this paper.
Purpose:
This assessment consists of six (6) questions and is designed to assess your level of knowledge of the key topics covered in this unit.
Question 1 (7 marks)
a) Discuss two (2) motivations that managers may have for attempting to influence or bias reported financial results? (2 marks)
ANSWER a): ** Answer box will enlarge as you type
b) Suggest one (1) way this behaviour can be minimised (1 mark)
ANSWER b:
c) Assume that a drilling machine is acquired for the following consideration:
• cash: $200,000
• shares: 20,000 shares with a market value of $4.50 each
• Machine: Cost $100,000, accumulated depreciation, $75,000, fair value $37,000
The buying company also agrees to assume the liability of the selling company’s accounts payable of $25 000 as part of the drilling machine acquisition.
Required: Calculate the acquisition cost of the drilling machine (4 marks)
(SHOW YOUR WORKINGS)
ANSWER c):
Question 2 (11 marks)
a) Explain what effect will an upward asset revaluation have on subsequent periods’ profits?
(2 marks)
ANSWER a):
b) Credit Corp Ltd. purchases a building on July 1, 2019, for $500,000. The building is expected to have a useful life of twenty years with no residual value (straight line). The company uses the revaluation model for this class of asset and will obtain current valuations every two years. On 30 June, 2021, an appraisal on the building is conducted and its fair value is determined to be $490,000. On 30 June 2023, the building is again appraised, and this time the fair value is determined to be $390,000.
Required:
Provide journal entries to account for the two revaluations (9 marks)
SHOW YOUR WORKINGS
ANSWER b):
Question 3 (7 marks)
Consider the following independent situations. For each of the situations described, suggest the appropriate accounting treatment for recording the liability. Back-up your answer with reference to the appropriate recognition criteria and disclosure requirements for liabilities, as per AASB 137.
a) A manufacturing company is being sued by a customer group for losses sustained due to a faulty product design. The company’s lawyers feel the suit will likely succeed, but they cannot estimate the potential amount of damages that will be awarded. (2 marks)
ANSWER a):
b) A resource company is obligated by municipal regulations to clean up the site of an active drilling operation in 10 years’ time when the resource has been fully extracted. The company is in its first year of operations and has no previous experience in cleaning up drilling sites. (2.5 marks)
ANSWER b):
c) A mining company has determined that it will cost approximately $10 million to restore a site that it previously mined. (2.5 marks)
ANSWER c):
Question 4 (7 marks)
As a supplier of heavy-duty machineries, Pine Ltd leased a machine to Bulla Ltd on an 8-year non-cancellable lease. The following information is available:
Lease term 8 years
i) Residual value at the end of the term $10 000
Ii) Bargain purchase option at the end of the term $20 000
iii) Minimum lease payments (at the end of each year) $120 000
iv) Service costs included in minimum lease payments $20 000
Rate implicit in the contract 12%
Cumulative present value factor at 12% for 8 years 4.9676
Present value factor at 12% for 8th year 0.4039
Required:
a) Which of the items from i) – iv) above will not be included in determining the leased asset and leased liability at the inception of the lease, and explain why not? (3 marks)
ANSWER a):
b) What is the amount to be recorded as an asset and a liability in the books of the lessee that is in accordance with AASB 16 Leases? (4 marks)
SHOW YOUR WORKINGS
ANSWER:
Question 5 (11 marks)
a) Provide two examples of expenditures that are typically not allowable for tax deductions but are recognised as an expense for accounting purposes. (3 marks)
ANSWER a):
b) Tafty Ltd purchased an equipment on 1 July 2019 for $500 000, and its useful life to be five years, with no residual value. Assume that the only temporary difference for tax-effect accounting purposes relates to the depreciation of the newly acquired equipment. For tax purposes it can be fully depreciated over two years. The tax rate is assumed to be 30 per cent.
Required: SHOW YOUR WORKINGS
i. Determine whether the depreciation of the equipment will lead to a deferred tax asset, or a deferred tax liability? (4 marks)
ANSWER i):
ii. What would be the balance of the deferred tax asset or deferred tax liability as at 30 June 2022? (4 marks)
ANSWER ii):
Question 6 (7 marks)
On 1 March 2025, Quality Furniture Importers acquires furniture from a supplier in New Zealand.
• The furniture is shipped f.o.b. from New Zealand on 1 September 2025.
• The cost of the furniture is NZD $800 000.
• The amount has not been paid at 30 September 2025 and exchange rates are as follows:
o 1 September 2025 A$1.00 = NZD $1.08
o 30 September 2025 A$1.00 = NZD $1.06
Required:
a) What is the amount payable at 1 September and 30 September 2025 in Australian dollars? (Rounded to the nearest whole A$.) (2 marks)
ANSWER a):
b) Did the Australian dollar strengthen or weaken? (1 mark)
ANSWER b):
c) Prepare the journal entries for the above dates showing the amount of exchange gain or loss. (4 marks) SHOW YOUR WORKINGS
ANSWER c):
END OF FINAL ASSESSMENT
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