Accounts Receivables and Notes Receivables

Please read ALL of these instructions carefully before you commence: Time to complete: 3 hours 40 minutes (220 minutes) During the assessment: • • • To add your answers to the assessment word document you will find a box under each questi on where it asks you to Click or tap here to enter text. Click on this box and begin typing your answers. You can leave Moodle at any time once you have downloaded your assessment, HOWEVER the clock will continue to count down (closing down your internet browser will save you bandwidth issues if yo ur internet is not always reliable). If you leave Moodle at any time, you MUST return to the assessment area on Moodle and click on Continue the last attempt before the time runs out to upload your completed assessment document. To complete & upload your assessment: • • • • Save the document to your desktop using Your Name_StudentID_CourseCode Return to the Moodle assessment area and click on Continue the last attempt button to return to the assessment. Scroll down to Question 1, and click on the paper icon to upload your completed assessment. Click Finish attempt and follow the final prompts to submit your assessment. If you experience technical issues during your assessment, please don’t panic. Email your lecturer explaining the issue. It would be good to provide a screenshot with your email. The lecturer will get in contact with you as soon as possible to discuss how to proceed. If you are unable to upload your completed assessment document before your time runs out, please email your lecturer with your assessment document attached and a clear explanation as to why you were late. Your lecturer will contact you to discuss. All Federation University Australia rules apply to the alternative digital assessment task: penalties can be applied for late submissions and for breaches of academic integrity inclusive of collusion and/or plagiarism. Please note for essay/theory type questions, exact words copied from a website, textbook or tutorial solutions will not be accepted. You must answer using your own words, including paraphrasing. The final assessment may be submitted to Turnitin for plagiarism and collusion. For journal entries student can prepare tables in a separate word document and copy-paste. Same can be done for other questions if needed. This is an open book assessment: students can use textbooks, notes, and the internet. There is no word limit in the text box, however, students should write brief responses, with the respective length based on allocated marks. There are five questions worth 80 marks. This final assessment contributes 55% marks for this course. 2 Question 1 5 x 5 = 25 marks a) Should preference shares be disclosed as ‘equity’ or as ‘debt’? Response Click or tap here to enter text. b) ‘Income tax shall be paid on taxable income times tax rate. It makes sense to pay income tax for current year, but we should not be asked to account for deferred tax assets and liabilities’. Do you agree with this statement? Discuss your arguments. Response Click or tap here to enter text. c) The financial reports must provide a true and fair view. Discuss this term ‘true and fair view’ and give examples how a company can meet this requirement. Response Click or tap here to enter text. d) Briefly discuss under what circumstances a company may be wound up. Response Click or tap here to enter text. e) If an event occurs ‘after the reporting period’, then from the perspective of accounting standards, it is considered that the event has occurred between the ‘end of the reporting period’ and the ‘date when the financial statements are authorised for issue’. What is the ‘date when the financial statements are authorised for issue’? Response Click or tap here to enter text. 2 Question 2 10 marks On 1 July 2020, PK Ltd issued a prospectus inviting applications for 300 000 ordinary shares, at an issue price of $7, payable $2.50 on application, $1.50 on allotment, and $3 on future call(s), dates to be determined by the directors. By 1 September, applications were received for 310 000 shares with $2.50 paid per share. On 6 September, the directors allotted 300 000 shares. Refunds were made to applicants for 10 000 shares. Share issue costs of $2 400 were also paid on the same date. All of the allotment money was received by 1 October. On 1 February 2021, a first and final call for $3 was made. All of the call money was received by 1 March 2021. Required Prepare journal entries to record the above transactions. Response Click or tap here to enter text. Question 3 4 x 5 = 20 marks Pine Ltd is reviewing its deferred tax for the year. In each of the following situations prepare the end-of-period adjustment journal entries to account for income tax on the initial appearance or reversal of any temporary differences. Explain in each case why particular accounts are affected. 1. The company purchased a depreciable asset at the beginning of the year for $200 000. For accounting purposes, an annual depreciation rate of 20% straight-line is used, whereas for taxation the rate is 30% straight-line. 2. The company’s provision for long-service leave at the beginning and end of the year are $80 000 and $77 500 respectively. In the current year, $10 000 in long-service leave was paid to a long-standing employee. 3. The company has interest receivable of $25 000 at the end of the year. No interest was receivable at the beginning of the year. Interest income is included in taxable profit only when received. 4. The company has revalued land at the end of the year. The land was revalued during the year from its original cost of $150 000 to a fair value of $250 000. Response Click or tap here to enter text. 2 Question 4 3 + 5 + 2 = 10 marks Trump Ltd acquired all the assets and liabilities of Bush Ltd on 30 June 2020. The purchase consideration was as follows: • $1,000,000 in cash paid on acquisition date • Two shares in Trump Ltd for every one share in Bush Ltd. Bush Ltd has 2,000,000 shares on issue at 30 June 2020. At 30 June 2013 Trump Ltd shares were quoted on the ASX at $2.50 per share. • A deferred payment of $500,000 to be paid on 30 June 2014.Trump Ltd’s cost of capital is 7% which represents a one period present value factor of 0.9346 • Should the price of Trump Ltd shares fall below $2.50 in the six months following the acquisition Trump Ltd is required to pay a cash contingent consideration. It is estimated that there is a 60% probability that the share price will fall to $2.45 in this period. Other information – Trump Ltd incurred legal and other costs associated with the acquisition of $10,000 – Trump Ltd incurred share issue costs of $4,000 The assets and liabilities acquired from Bush Ltd are as follows: Accounts Receivable Inventory Property Plant and Equipment Accounts Payable Provision for Employee Benefits Bush Ltd Carrying amount 760 000 1 300 000 8 680 000 (680 000) (170 000) Fair Value 720 000 1 440 000 9 560 000 (680 000) (220 000) In addition Bush Ltd has contingent liabilities of $40,000 at the acquisition date. Required: a) Prepare an acquisition analysis for Trump Ltd’s acquisition of the net assets of Bush Ltd b) Prepare the journal entries to record the acquisition in the books of Trump Ltd c) Prepare the journal entry in the books of Trump Ltd if Trump Ltd had purchased all the issued shares of Bush Ltd by issuing 5,000,000 shares in Trump Ltd at an issue price of $2.50 per share. Response Click or tap here to enter text. 2 Question 5 15 marks On 1 July 2020 S Ltd acquired 60% of the issued shares of P Ltd. During the year ended 30 June 2021 the following intra group transactions occurred: a) Sales of inventory: P Ltd to S Ltd $200,000 (Cost to P Ltd $150,000) b) Intragroup inventory on hand 30 June 2021: S Ltd held 40% of the inventory acquired from P Ltd c) Intragroup sale of equipment An item of equipment originally acquired by S Ltd on 1 July 2018 at a cost of $200,000 was sold to P Ltd on 1 July 2020 for $170,000. S Ltd had depreciated this asset at 10% per annum on a straight line basis with no scrap value. Subsequent to the sale the expected useful life of the asset is a further 4 years. d) During the year ended 30 June 2021 the following dividends were paid: – S Ltd $10,000 – P Ltd $2,000 e) On 31 December 2020 S Ltd lent P Ltd $100,000. Interest on this loan at 6% was paid up to 30 June 2021. f) During the year ended 30 June 2021 P Ltd paid S Ltd $4,000 for management services. Required. Prepare the consolidation journal entries required to eliminate the above intragroup transactions for the year ended 30 June 2021. Assume a tax rate of 30% Response Click or tap here to enter text. 2 END OF FINAL ASSESSMENT 2 …