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Financial Reporting 2nd Edition Janice Loftus ,Ken Leo ,Sorin Daniliuc ,Belinda Luke ,Hong Nee Ang ,Karyn Byrnes - Solutions
Agricultural activity — definitions LO2 State whether the following are (a) biological assets, (b) agricultural produce (c) products that result from processing after harvest or (d) bearer plants. 1. Living pigs 2. Living sheep 3. Pigs’ carcasses 4. Pork sausages 5. Trees growing in a
Agricultural activity — definitions LO2 State which of the following meets the definition of ‘agricultural activity’ in AASB 141/IAS 41. Give reasons for your answer. 1. Pig farming 2. Ocean fishing 3. Clearing forests to create farmland 4. Salmon farming 5. Managing vineyards
CONTROL The lessee of West Coast Wines Ltd manages the vineyards under a lease. It has included vineyards as an asset in its accounting records as it is responsible for the management and harvest. Required Discuss whether this approach is acceptable under AASB 141/IAS 41.
INTERACTION BETWEEN STANDARDS The accountant of Fingal Ltd has presented land and a pine tree plantation as a single asset on the basis that the two are interrelated, with one component being worth almost nothing without the other. Required Advise the accountant whether this position is acceptable.
CASE STUDY ACCOUNTING FOR IMMATURE CROPS The manager of Smithton Ltd does not believe that the company’s immature crops belong in the calculation of biological assets, as there is no active market for immature crops, and they are not yet at the point of harvest. Required Advise the manager
Discuss the three-level hierarchy for determining fair value under AASB 13/IFRS13 in the context of the ruling in respect of immature salmon.
Why is agricultural produce not remeasured to fair value during a reporting period?
How does a gain arise on initial recognition of a biological asset or agricultural produce?
How is the risk that future cash flows pertaining to biological assets may not eventuate as predicted taken into account when determining the fair value of a biological asset using the present value of net cash flows method?
Explain why the concept of ‘control’ is problematic when applying the recognition criteria of AASB 141/IAS 41.
Explain why IAS41 was a controversial standard when it was issued.
Measurement of E&E assets LO4, 5, 6 During the year ended 30 June 2020, Resources Ltd explored four different areas of interest and spent $100 000 in each. The results of E&E activities suggested that Areas A, B and C may contain mineral reserves so the company acquired leases over
Specifying the level at which E&E assets are assessed for impairment LO6 E&E activity in one of LNG Ltd’s areas of interest has not reached a stage that permits a reasonable assessment of the existence of economically recoverable reserves. The exploration licence for that area is
Recognition of E&E assets LO7 Mining Ltd has incurred the following costs during the period in relation to a specific area of interest. Its accounting policy is to capitalise all E&E costs on an area of interest basis. Cash paid to acquire seismic study from government that is selling
Change in accounting policy LO7 Oil Sands Ltd is a company involved in the search for, production of and sale of oil and gas resources. The company has been following an accounting policy of expensing all of its E&E costs as incurred since adoption of AASB 6/IFRS 6. However, it has noted
Application of the revaluation model LO6 Gold Ltd classifies its E&E assets as intangible assets. A new accountant has just been employed and has suggested that Gold Ltd should change its accounting policy for E&E assets from its existing cost model to the fair value model under AASB
Elements of cost of E&E assets LO7 Mining Ltd has acquired a licence to explore a new area of interest and its accounting policy is to fully capitalise all of its E&E expenditures on an area of interest basis. During the period, costs have been incurred in relation to: (a) the acquisition
Impairment of E&E assets LO7 During the year ended 30 June 2020, the management of LPG Ltd has been analysing its engineering reports for a specific area of interest, which indicate that sample drilling has not resulted in any findings that confirm the existence of oil and gas in that area. As
Obligations for removal and restoration LO5 The management of Oil Ltd is concerned that the E&E activities it has commenced in a specific area will cause significant damage to the surrounding environment, and the government of the country where the area of interest is located has attached
USEFUL LIFE OF AN ASSET Pearl Mining Limited has a number of depreciable assets which it uses in a particular area of interest. Required Discuss the factors you would need to consider in determining the depreciable period (useful life) of the asset.
CAPITALISING COSTS The accountant of California Oil Limited has recommended to management that the company capitalise its E&E costs, as this will increase the company’s assets and have no effect on profit or loss. Required Discuss whether you agree with the accountant’s advice. CASE STUDY
CASE STUDY AREA OF INTEREST Redwoods Mining Limited has exploration licences for two areas. The first is in north-western Australia and is at the prospecting stage. The second is several hundred kilometres east and is in the exploration stage. The company’s management wants to treat the projects
Discuss the contemporary issues related to accounting for extractive activities.
Explain how E&E assets that are subsequently developed into producing assets are most commonly depreciated.
Discuss the two specific modifications a company could make to the impairment testing of E&E assets compared to other assets under AASB 136/IAS 36.
Explain how E&E assets should be classified in the financial statements.
If an entity wants to change its accounting policies applicable to E&E expenditures, discuss the issues it should consider.
Explain the measurement options of E&E assets available to companies, subsequent to initial recognition.
Discuss the scope of expenditures to which AASB6 is limited.
Discuss the complexities and considerations an entity involved in the extractive industries may face in determining the accounting policies to apply to expenditures it incurs.
Receivership and liquidation LO9 On 31 March 2020, you were appointed receiver, at a remuneration of 5% of the gross proceeds on sale of assets, in respect of Cicada Ltd. Your appointment was made by the ACE Bank, which held an equitable mortgage over the assets of Cicada Ltd, in
Sale of assets, final distribution to shareholders LO7, 8, 9 As a result of a court order, Spider Ltd went into liquidation on 30 June 2020. A statement of financial position prepared on that date was as follows. SPIDER LTD Statement of financial position as at 30 June 2020 Equity Share
Report as to affairs and ledger accounts LO9 The statement of financial position of Snail Ltd below was prepared at 30 June 2020, before liquidation proceedings commenced. SNAIL LTD Statement of financial position as at 30 June 2020 Equity Share capital: 30 000 10% preference shares issued
Journal entries, given a report as to affairs LO9 At 31 July 2020, the liquidator of Ladybird Ltd, who had been appointed by the court, prepared the report as to affairs shown below. LADYBIRD LTD Report as to affairs as at 31 July 2020 Valuation Estimated realisable value (1) Assets not
Journal entries and ledger accounts for liquidation LO9 The trial balance of Locust Ltd on 1 September 2021, the date on which the court ordered that the company be wound up, is presented below. LOCUST LTD Trial balance as at 1 September 2021 Debit Credit Bank overdraft (secured over land
Ledger accounts, given a report as to affairs LO9 Wasp Ltd went into liquidation on 31 March 2020. The report as to affairs prepared at that date is shown below. WASP LTD Report as to affairs as at 31 March 2020 Valuation Estimated realisable value (1) Assets not specifically charged: Calls
Ledger accounts for liquidation LO9 Hornet Ltd went into voluntary liquidation on 1 January 2021, at which date the statement of financial position was as shown below. HORNET LTD Statement of financial position as at 1 January 2021 Liabilities and equity Assets Share capital: Land and
Order of payment of debts, journal entries for liquidation surplus LO7, 9 Glowworm Ltd went into voluntary liquidation on 30 June 2021. The statement of financial position prepared on that date is as follows. GLOWWORM LTD Statement of financial position as at 30 June 2021 Current assets
Ledger accounts for liquidation LO9 A court order for the winding up of Slater Ltd was made on 31 March 2020. A statement of financial position prepared on that date was as follows. SLATER LTD Statement of financial position as at 31 March 2020 Current assets Cash at bank $ 4 000 Cash
Summary of affairs LO9 The trial balance below is of Gnat Ltd’s accounts as at 30 June 2020. GNAT LTD Trial balance as at 30 June 2020 Debit Credit Share capital $315 000 Calls in arrears (on 8000 shares) $ 2 000 Calls in advance 1 500 Revaluation surplus 2 500 Retained earnings 72 500
Journal entries and ledger accounts for liquidation LO9 The trial balance of Grasshopper Ltd on 1 June 2020, the date on which the court ordered that the company be wound up, is presented below. GRASSHOPPER LTD Trial balance as at 1 June 2020 Debit Credit Cash $ 9 000 Inventories 188 800
Order of payment of debt and shareholders’ distributions LO8, 9 Weevil Ltd went into liquidation on 31 March 2020, its equity being as follows. 75 000 ordinary shares issued and fully paid $175 000 Retained earnings (accumulated losses) (35 600) $139 400 Debts proved and admitted for
Receipts and payments with final distribution to shareholders LO8, 9 Butterfly Ltd went into liquidation on 30 June 2021, its equity being as follows. 20 000 10% preference shares each fully paid at $1 10 000 first issue ordinary shares each fully paid at $1 50 000 second issue ordinary
Three main ledger accounts for liquidation LO9 Insect Ltd went into voluntary liquidation on 30 June 2020. Its summarised statement of financial position at that date was as follows. INSECT LTD Statement of financial position as at 30 June 2020 Equity Current assets Share capital:
Distribution to different classes of shareholders LO8 On 30 April 2020, Moth Ltd went into voluntary liquidation. At that date, equity comprised the following. Share capital: 100 000 preference shares issued for $1 and fully paid $ 100 000 220 000 ordinary shares issued for $1 and fully
Distribution to different classes of shareholders LO8 On 1 December 2020, Rui Ltd went into liquidation. At that date, the equity of Rui Ltd comprised the following. 300 000 preference shares fully paid to $1, to be redeemed for $1.10 $ 300 000 200 000 ‘A’ ordinary shares issued for $1 and
Distribution to different classes of shareholders LO8 On 1 December 2020, Meng Ltd went into liquidation. At that date, the equity of Meng Ltd comprised the following. 300 000 preference shares fully paid to $1, to be redeemed for $1.10 $ 300 000 200 000 ‘A’ ordinary shares issued for $1
Distribution to different classes of shareholders LO8 On 1 December 2020, Yang Ltd went into liquidation. At that date, the equity of Yang Ltd comprised the following. 300 000 preference shares fully paid to $1, to be redeemed for $1.10 $ 300 000 200 000 ‘A’ ordinary shares issued for $1
Distribution to different classes of shareholders LO8 On 1 December 2020, Leo Ltd went into liquidation. At that date, the equity of Leo Ltd comprised the following. 200 000 ‘A’ ordinary shares issued for $2 and paid to $1 $200 000 300 000 ‘B’ ordinary shares issued for $1 and fully
Distribution to different classes of shareholders LO8 On 1 December 2020, Cat Ltd went into liquidation. At that date, the equity of Cat Ltd comprised the following. 200 000 ‘A’ ordinary shares issued for $2 and paid to $1.55 $ 310 000 300 000 ‘B’ ordinary shares issued for $1 and fully
Distribution to different classes of shareholders LO8 On 1 September 2020, Mouse Ltd went into liquidation. At that date, the equity of Mouse Ltd comprised the following. 200 000 ordinary shares issued for $2 and paid to $1.50 $ 300 000 300 000 ordinary shares issued for $1 and fully paid 300
Distribution to different classes of shareholders LO8 On 31 May 2020, Termite Ltd went into liquidation. At that date, the equity of Termite Ltd comprised the following. 400 000 preference shares issued for $1 paid to 50c $ 200 000 1 000 000 ordinary shares issued for $1 paid to 80c 800 000 $
Order of priority for paying creditors LO7 Mosquito Ltd, whose capital consisted of $50 000 in fully paid shares, was wound up as a result of a court order. Its liquidator realised $671 650 from the sale of the company’s assets. This amount included $170 000 from the proceeds on sale of the
CURRENT LIQUIDATIONS OF PREVIOUSLY LISTED COMPANIES Visit www.delisted.com.au or a similar website and present brief details of three companies that have been listed on the securities exchange, and that are currently going through the process of liquidation. Provide reasons (if possible) for such
CASE STUDY LIQUIDATION OF A FAMILY COMPANY Assume that you are the managing director of a small, family‐owned proprietary company operating in Australia. The members of the company have decided to wind up its operations for family reasons. The company has been trading profitably and has had no
Describe the accounts used in accounting for a liquidation.
Outline the powers of a liquidator in winding up a company (a) under a court order and (b) in a voluntary winding up.
What is the purpose of the report as to affairs (Form 507), the summary of affairs (Form 509) and the statement of receipts and payments (Form 524)?
Briefly discuss the ways in which a company may be wound up, indicating the likely circumstances in which each is applicable.
Outline the role of directors before and during voluntary administration.
Outline the role of an administrator appointed to a company which is insolvent.
Who can appoint a voluntary administrator?
Outline the role and powers of a receiver appointed by a secured creditor.
Who can appoint a receiver for a company facing financial difficulties?
Briefly describe the procedures through which the Corporations Act attempts to avoid liquidation of companies if possible.
Describe the meaning of ‘insolvency’ with regards to companies.
Consolidated financial statements including investments in associates LO3, 4, 5, 7 Box Ltd acquired 90% of the ordinary shares of Jelly Ltd on 1 July 2015 at a cost of $150 750. At that date the equity of Jelly Ltd was as follows. Share capital (100 000 shares) $100 000 General reserve
Consolidation worksheet entries including investments in joint ventures LO3, 4 You are given the following details for the year ended 30 June 2020. Quokka Ltd Goanna Ltd Wallaroo Ltd Profit before tax $100 000 $30 000 $25 000 Income tax expense 31 000 10 000 6 000 Profit 69 000 20 000
Accounting for an associate within — and where there are no — consolidated financial statements LO3, 4, 5 On 1 July 2018, Flying Ltd purchased 40% of the shares of Fox Ltd for $63 200. At that date, equity of Fox Ltd consisted of: Share capital $125 000 Retained earnings 11 000 At 1
Adjustments where investor does and does not prepare consolidated financial statements LO4, 5, 6 On 1 July 2018, Saltwater Ltd acquired a 30% interest in one of its suppliers, Crocodile Ltd, at a cost of $13 650. The directors of Saltwater Ltd believe they exert ‘significant influence’
Investor prepares consolidated financial statements, multiple periods LO4, 5 On 1 July 2018, Fluffy Ltd purchased 30% of the shares of Glider Ltd for $60 000. At this date, the ledger balances of Glider Ltd were as follows. Capital $150 000 Assets $225 000 Other reserves 30 000 Less:
Inter‐entity transactions where investor does not prepare consolidated financial statements LO6 Dunnart Ltd owns 25% of the shares of its associate, Wallaroo Ltd. At the acquisition date, there were no differences between the fair values and the carrying amounts of the identifiable assets and
Inter‐entity transactions where investor has no subsidiaries LO6 Dibbler Ltd acquired 20% of the ordinary shares of Potoroo Ltd on 1 July 2019. At this date, all the identifiable assets and liabilities of Potoroo Ltd were recorded at fair value. An analysis of the acquisition showed that
Accounting for an associate/joint venture by an investor LO4 On 1 July 2019, Pygmy Ltd issued ordinary shares to acquire a 40% interest in Possum Ltd. On this date, these issued shares had a fair value of $170 000. The directors of Pygmy Ltd believe that they have significant influence over the
Adjustments where investor prepares and does not prepare consolidated financial statements LO3, 4, 5 Brown Ltd acquired a 30% interest in Bandicoot Ltd for $50 000 cash on 1 July 2018. The directors of Brown Ltd believe this investment represents significant influence over the investee. The
EQUITY ACCOUNTING Event Hospitality & Entertainment Limited provided the following information in its 2016 annual report. Required Some investors in Event Hospitality & Entertainment Ltd who have limited accounting knowledge, particularly about equity accounting, have asked you to provide a report
Talvez Ltd, a publicly listed company, has a 19.5% shareholding in another entity. The accountant is considering whether or not this investment satisfies the definition of an associate under AASB 128/ IAS 28 and the impacts the decision will have on the company’s financial statements. Required
NATURE OF A JOINT VENTURE On its website Cement Australia has a section titled ‘Associated companies’. Here it states that: To enable Cement Australia to offer a complete range of supplementary and associated products, we have a large number of specialised subsidiaries and associated companies
NATURE OF A JOINT VENTURE A shareholder of CSR Limited has come to you confused about something they have seen in Note 23 of the company’s 2016 annual report. Under the heading Equity Accounting Information CSR lists Viridian Glass, a New Zealand‐based glass products firm, as an investment in
CASE STUDY SIGNIFICANT INFLUENCE The accountant of Cornett Chocolates Ltd, Ms Fraulein, has been advised by her auditors that the entity’s investment in Concertina’s Milk Ltd should be accounted for using the equity method of accounting. Cornett Chocolates Ltd holds only 20.2% of the voting
Outline the accounting adjustments required in relation to transactions between the investor and an associate/joint venture. Critically evaluate the rationale for these adjustments.
How does joint control differ from control as applied on consolidation?
What is meant by ‘joint control’?
What factors could be used to indicate the existence of significant influence?
What is meant by ‘significant influence’?
Discuss the similarities and differences between the criteria used to identify subsidiaries and those used to identify associates.
Why are associates distinguished from other investments held by the investor?
What is an associate entity?
Undervalued assets, full and partial goodwill method, intragroup transactions LO3, 4, 5, 6 On 1 July 2015, Fin Ltd acquired 75% of the issued shares (cum div.) of Whale Ltd for $67 500. At this date the equity of Whale Ltd consisted of: Share capital $30 000 General reserve 3 000 Retained
Undervalued assets, full goodwill method, intragroup transactions LO3, 4, 5, 6 Western Ltd acquired 75% of the issued shares of Quoll Ltd on 1 July 2015. In exchange for these shares, Western Ltd gave a consideration of $26 000 cash and 10 000 shares in Western Ltd, these having a fair
Undervalued assets, partial goodwill method, intragroup transactions LO3, 4, 5, 6 On 1 July 2018, Mallee Ltd acquired 80% of the issued shares (cum div.) of Fowl Ltd for $166 400. At this date, the equity of Fowl Ltd consisted of: Share capital $120 000 General reserve 24 000 Retained
Undervalued assets, full and partial goodwill method, intragroup transactions LO3, 4, 6 On 1 July 2015, Jake Ltd acquired 75% of the issued shares of Aiden Ltd for $40 000. The following balances appeared in the records of Aiden Ltd at this date. Share capital $20 000 General reserve 2 000
Undervalued assets, partial goodwill method, intragroup transactions LO4, 6 On 1 July 2018, Water Ltd paid $236 400 for 75% of the issued shares of Rat Ltd. At this date, the equity of Rat Ltd consisted of: Share capital (200 000 shares) $200 000 General reserve 80 000 Retained earnings 40
Full goodwill method, intragroup transactions LO4, 6 On 1 July 2014, Nate Ltd acquired 75% of the issued shares of Finn Ltd at a cost of $27 600. At this date, the equity of Finn Ltd consisted of: Ordinary shares — ($1 each fully paid) $30 000 Retained earnings 6 000 At 1 July 2014, Finn
Undervalued assets, partial goodwill method, intragroup transactions LO3, 4, 5, 6 On 1 July 2019, Marcus Ltd acquired 80% of the issued shares of Jett Ltd for $264 800. On that date, the statement of financial position of Jett Ltd consisted of: Share capital $ 250 000 General reserve 10 000
Undervalued and unrecorded assets, full goodwill method LO3, 4, 5, 6, 7 On 1 July 2016, Riley Ltd acquired 70% of the issued shares (cum div.) of Tyler Ltd for $141 950. At this date, the equity of Tyler Ltd consisted of: Share capital $100 000 General reserve 31 000 Retained earnings 25
Undervalued and unrecorded assets, partial and full goodwill method LO3, 4, 5 On 1 July 2017, Ben Ltd acquired 80% of the issued shares (cum div.) of Alex Ltd for $202 000 when the equity of Alex Ltd consisted of: Share capital — 100 000 shares $100 000 General reserve 40 000 Retained
Undervalued assets, partial goodwill method LO3, 4, 5 Noah Ltd purchased 75% of the issued shares of Cooper Ltd for $250 000 on 1 July 2013 when the equity of Cooper Ltd was as follows. Share capital $100 000 General reserve 60 000 Retained earnings 40 000 At this date, Cooper Ltd had not
Undervalued assets, full goodwill method LO3, 4, 5, 6 On 1 July 2019, Fur Ltd acquired 75% of the issued shares of Seal Ltd for $191 000 when the equity of Seal Ltd consisted of share capital of $120 000 and retained earnings of $90 000. At this date, all the identifiable assets and liabilities
Undervalued assets, full goodwill method LO3, 4, 5, 6 On 1 July 2019, Huntsman Ltd acquired 90% the issued shares of Spider Ltd for $140 300. At this date the equity of Spider Ltd consisted of share capital of $100 000 and retained earnings of $50 000. All the identifiable assets and
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