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business
intermediate accounting

Questions and Answers of Intermediate Accounting

‘Machinery is an asset. It may be disclosed as a tangible asset, an intangible asset, or as part of goodwill.’ Discuss.
In order to comply with IAS 38/AASB 138 Intangible Assets, how must an entity handle goodwill on the acquisition of the net assets or shares of another entity? Is this treatment consistent with the
Discuss whether internally generated intangible assets should be treated in the same way as acquired intangible assets.
The following statement was included in the annual report of a company: ‘All research, advertising and promotion costs are charged to expense in the year in which they are incurred. This enables
What is meant by ‘recoverable amount’? When are assets to be written down to recoverable amount? What must an entity do if it is unable to determine the recoverable amount of an individual asset?
Discuss whether and how a company should account for a revaluation increase and a revaluation decrease on property, plant and equipment. Discuss also the accounting treatment if such an increase or
Refer to the consolidated financial statements and their notes in the latest financial report of Wesfarmers Ltd on its website, www.wesfarmers.com.au, and answer the following questions.1.
Pringles Ltd is a large department store that has used the straight-line depreciation method since the company was first formed. For the year ended 30 June 2015, the company made a record profit and
In groups of four or five, consider the following information:On 1 July 2015, Stevenson Pty Ltd, a proprietary company with three shareholders, acquired some property by issuing 100 000 shares to the
Prestige Property Ltd has acquired a two-story office building on a large piece of land. The land also includes a fully established car park and landscaping. The offices have recently been fitted out
In early July 2015, Masterton Ltd is considering the acquisition of some machinery for $1 200 000 plus GST to be used in the manufacture of a new product. The machinery has a useful life of 10 years,
Your examination of the records of Wilson Ltd, which was established on 1 March 2015, reveals that the accountant debited the Land, Buildings and Equipment account with the following items (ignore
At the end of Sovereign Ltd’s financial year, 30 June 2016, the following items must be resolved before adjusting entries and financial statements are prepared. Ignore GST.1. On 1
Rawsons’ Recycling Ltd commenced business on 31 March 2015 in the recycling industry. The company balances its accounting records at month-end and the end of its reporting period is 31 December.
Selected transactions of Coromandel Ltd are given on the next page. The company uses straight-line depreciation and calculates depreciation expense to the nearest whole month.2015Jan.
Alexander Ltd completed the following transactions during 2016. The company uses sum-of-years’-digits depreciation and records depreciation to the nearest month.Jan. 5Mar.
Over a 5-year period, Downton Ltd completed the following transactions affecting non-current assets in financial years ending 31 December. The company uses straight-line depreciation on all
On 2 January 2015, Powerhouse Ltd purchased, by exchanging $300 000 cash and a $180 000, 12%, 18-month finance company loan, assets with the following independently determined appraised
Powerhouse Ltd purchased machinery on 2 January 2015, at a cost of $800 000 plus GST. The machinery is depreciated using the straight-line method over a useful life of 8 years with a residual value
Mason’s Manufacturing Ltd began operations during 2015. The company had a building constructed and acquired manufacturing equipment during the first 6 months of the year. Manufacturing operations
Brunswick Ltd operates four types of equipment. Because of their varied functions, management has decided that four different depreciation methods will be used to determine depreciation charges.
Branson Ltd owns two delivery vehicles (each with a residual value of $5000 and useful life of 4 years) and uses the straight-line method of depreciation. The business closes its accounting records
Prestige Printing Ltd commenced business on 1 July 2015. On 5 July 2015, a printing machine was purchased for $35 000 plus GST, payable in two equal instalments due on 1 August and 1 October 2015.
Edwards Ltd recently paid $290 000 for manufacturing equipment, which is expected to have a useful life of 4 years and a residual value of $50 000. The manager of Edwards Ltd wants information about
On 1 July 2015, Chadstone Ltd purchased a motor vehicle which is estimated to have a $6000 residual value and a useful life of 4 years. On 1 July 2017, the company purchased plant and equipment which
At 30 June 2015, the financial statements of McMaster Ltd showed a building with a cost (net of GST) of $300 000 and accumulated depreciation of $152 000. The business uses the straight-line method
On 2 January 2015, McGrath Ltd purchased a machine for $36 000 plus GST with a useful life of 5 years and a residual value of $6000. In order to keep the machine running properly, the company has
Star Ltd purchased new equipment for $60 000 net of GST on 2 July 2015. The equipment was expected to have a $10 000 residual value at the end of its 8-year useful life. Straight-line depreciation
Nevertire Ltd purchased a delivery van costing $52 000 net of GST. It is expected to have a residual value of $12 000 at the end of its useful life of 4 years or 200 000 kilometres.RequiredA.
Hampstead Ltd purchased new equipment on 1 January 2015, at a cost of $590 000 net of GST. The company estimated that the equipment has a useful life of 5 years and a residual value of $45
On 2 January 2015, Johnston Ltd purchased a machine with a list price of $234 300 (including GST) and credit terms of 2/10, n/30. Payment was made within the discount period. Freight costs of $5400
Baxter Ltd acquired a parcel of land, buildings and machinery on 10 July for a cash price of $2 400 000. Fair values of the assets on the acquisition date were appraised
‘With proper maintenance, certain equipment will last almost indefinitely, in which case depreciation is not necessary.’ Discuss.
What is the distinction between an overhaul, replacement of a component, and day-to-day repairs and maintenance? Give an example of each and explain how the accounting treatment is different.
(This is based on an actual case): A ‘particularly aggressive’ DVD rental store chain amended its depreciation charges for DVDs by extending their useful lives from 12 months to 48 months. This
At a recent seminar, a managing director of a well-known company argued that the diminishing balance method of depreciation was the best method to use because it had the effect of producing a
Should depreciation be recorded on a building for a year in which the market value of the building has increased? Discuss.
Z Ltd depreciates its equipment using the straight-line method of depreciation. Y Ltd, which owns the same equipment, and has purchased the item on the same day from the same supplier as Z Ltd, uses
During your lunchtime, which you usually spend at the university canteen in the presence of other students, one particular accounting student who was having difficulty with the textbook complained
ABC acquired a piece of open land for speculation purposes. It is expected that the value of the land will increase so that it can be sold in the future at a profit. Where should this land be
‘According to IAS 16/AASB 116, an item of property, plant and equipment that qualifies for recognition must be recorded at cost, representing the fair value of any assets given up in order to
Discuss which of the following should be included in the cost of equipment: (a) installation charges, (b) freight charges, (c) cost of building foundations, (d) new parts needed to replace those
Refer to the consolidated financial statements in the latest financial report of JB Hi-Fi Limited on its website, www.jbhifi.com.au, and answer the following questions.1. What value is
The manager of Felicity’s Fashions Ltd, importer and wholesaler of fashion clothing for women, has been investigating the inventory levels of the business at the end of the previous year ended 30
During an audit of the inventory records of Winthrop Ltd for the year ended 30 June 2016, the auditor discovered that the ending inventory balance was overvalued by $36 000. On further investigation,
A. Record the information on a perpetual inventory record using each of the following methods: 1. FIFO 2. moving average
Below are the income statements for Campbell’s Camping Ltd for the year ended 31 December for 2 years.20152016Sales revenue$325000$400000Cost of sales:Beginning
Pet and Produce Ltd balances its books at month-end, uses special journals, and uses the perpetual inventory system with the moving average cost flow assumption. All purchases and sales of inventory
The purchases and sales of Big Flower Pty Ltd of one brand of lawn fertiliser for the year ended 31 December 2016 are contained in the schedule on the next page.The selling price up to 30 June was
During the year ended 30 June 2016, Laing Ltd sold each unit of its goods at $9. Purchases and sales of the goods are shown below. Ignore GST.2015July 1
Part ABeyer Ltd is registered for GST, balances its accounts at month-end, uses special journals, and uses the perpetual inventory system with the FIFO cost flow assumption. All purchases and sales
Thomas Turnbull, who operates a business as a toy retailer, was concerned about the end-of-year physical stocktake and ‘cut-off’ procedures.The Inventory Control account balance at 30 June 2015,
The following information relates to the inventory of Harry’s Hardware during the month of December:UnitsUnit costTotal costDec. 1 10
The following information has been extracted from the records of Steven’s Stationery about one of its popular products. Steven’s Stationery uses the perpetual inventory system. Its annual
Tamworth Trading Ltd is a company operating in the retail sector. The beginning inventory of Product EF5089 and information about purchases and sales made during June are shown below:June1
The information below relates to barrels of oil held in the inventory of Olsen’s Ltd during 2015.BarrelsUnit cost1 January15 April13 May9 August28 OctoberBeginning inventoryPurchasesSales ($52 per
The following information applies to the inventory of Carson’s Camera Store as at 30 June 2016:Unit price (excluding GST)Model numberQuantityActual costNet realisable valueCameras:A-4C-7G-1Z-8Video
An explosion at Fenshaw’s Pharmaceuticals on the night of 15 May destroyed the entire inventory. The accounting records, which survived the explosion, contained the following account balances for
Redfern Retailers provided the following information for the month of June 2016. The entity uses the retail inventory method for interim reporting purposes. Normal mark-up on cost is 60%. Ignore
Weston’s Washers Ltd buys and sells brand-name washing machines, which are identified by the manufacturer’s initials and model number.The inventory on 1 July 2015 is as follows:Identification
The following information relates to the inventory of Margaret’s Megamart Ltd during December.UnitsUnit costTotal cost1/12 Beginning inventory10/12 Purchase (excluding GST)15/12 Purchase (excluding
A. Explain the effect of each of the following errors in the ending inventory of a retail business. a. Incorrectly included 100 units of Commodity A, valued at
Felton Ltd’s inventory transactions for November 2016 were as shown below:DateTransactionNo.Unit costTotal costNov. 1Nov. 6Nov. 10Nov. 14Nov. 18Nov. 23Nov.
Biancardi Ltd, a retail business, took a physical stocktake of inventory at retail price at the end of the current year and determined that the total retail value of the ending inventory was $190000.
Part ABranxton Ltd’s inventory on 1 April 2015 had a cost of $100000 and a retail value of $170000. During April, the company’s net purchases cost $216000 and had a net retail value of $324000.
Brown Brothers’s income statements for the past 3 years are as shown:201520162017Net sales$68000$78000$70000Beginning inventoryNet purchases160003000014000360002000022000Goods available for
Toowoomba Irrigation Ltd began operations in the south-east Queensland region in July 2012. During the annual audit for the year ended 30 June 2017, it was discovered that errors had been made in the
Soakwell Supplies Ltd manufactures and sells soakwells for use in suburban and light industrial areas of Perth. Over the past year, the cost of manufacturing the soakwells has gradually risen and the
Bristols Bicycles maintains inventory records under the perpetual inventory system. At 30 June 2015, the inventory balance determined by the system showed a value of $300000. However, on conducting a
Chelsea’s Cameras Ltd records its inventory of digital cameras by using a perpetual inventory system on a FIFO basis. The following details are supplied for one particular popular make and model
The following information relates to the inventory of a bookseller in the records of Bayside Books Ltd, a company registered for GST. All unit prices below exclude GST.July
The following information relates to the inventory of Gadgets Ltd during May:May 1 3 10 12
Value Vehicles is a car dealership. One of its models was used as a demonstrator during the year. Presented below is information relating to the demonstrator as of 30 June 2016, the end of the
The inventory of Gordon Ltd contains the following items at 30 June 2015.Unit priceItem typeQuantityCostNet realisable value30112507 601450028257530205040$ 3.00
Inventories and purchases for the month of June for Glow Light Ltd are as follows:DateDetailUnitsCost per
Sapphire Ltd’s ending inventory was assigned a cost of $55 200 by way of a physical inventory count on 31 December 2015. An audit of the company’s records revealed the following information.1.
Why must decision makers consider various inventory costing methods when interpreting ratios used in retail operations?
If the ending inventory is understated because of an error, what is the effect on profit in that reporting year and in the next reporting year? What is the effect on the value of assets as reported
Why is the lower of cost and net realisable value rule required by accounting standards? Is it permissible to revalue inventories upwards? If so, when? Are there any limits to revaluation?
‘Now that we have adopted the perpetual inventory system, we no longer need to conduct a costly and time-consuming stocktake’. Discuss.
‘Estimating the value of inventory is not sufficiently accurate to justify using such an approach. Only a full physical stocktake can give full accuracy.’ Discuss.
Cottesloe Ltd has been using the FIFO costing method to account for inventories for several years. The company also has a policy of paying out all of its profits in cash dividends. What are the
Critically examine the following statement: ‘During times of high inflation, the LIFO cost assumption should be permitted in financial statements because it allows the entity to show a more
Must a company use the inventory costing method that best conforms to the actual physical movement of the goods? Explain.
‘With sophisticated computer equipment available these days, the controversy over cost flow assumptions is no longer an issue.’ Discuss.
What costs should be included in the cost of an item of inventory?
Refer to the latest financial report of Wesfarmers Ltd on its web site: www.wesfarmers.com.au and answer the following questions using the consolidated balance sheet and notes to the consolidated
Jenny Pike, assistant accountant for Blenheim Instruments Ltd, was finalising the balance sheet of the company as at 30 June 2015 with the accountant of the business, Russell Bayer. Although both
Divide into groups and, under the guidance of a group leader, compare and contrast the credit policies and methods of monitoring cash collections appropriate for the following types of businesses:1.
Two members of the management staff of Practical Products Ltd were debating the merits of the percentage of net credit sales method and the ageing of debtors method for determining the allowance for
A. Prepare a table setting out the average credit/collection costs both in total dollars and as a percentage of net credit sales.B. Prepare a table to show the cost of
The information on the next page has been extracted from the financial statements of Crystal Craft Ltd.201520162017Cash at bankMarketable securitiesAccounts receivableSales revenue (all sales on
The following information has been extracted from the annual reports of Lilydale Ltd and Monbulk Ltd.Lilydale LtdMonbulk LtdSales (net credit) revenue for yearAllowance for Doubtful Debts,
Barrett’s Boots Ltd has traditionally made sales for cash and on credit only. Management has resisted accepting credit cards on the basis that the business would lose on average a credit card fee
Norwood Ltd received the following bills during the last 3 months of the financial year ended 30 June.Date of billAmount of debtTerm of billInterest rateDate of discountDiscount rate1. April
The accountant for Debbie’s Dance Ltd prepared an ageing analysis of accounts receivable balances at 30 June 2015 as set out below. The percentages of each age group are based on past experience
All transactions below relate to Biancardi Construction Ltd’s uncollectable accounts for the financial year ended 30 June 2015. The company is registered for GST.July 18Wrote off the
Cathy Smythe, who trades as Cathy’s Corner, uses the following journals in her business: general, cash receipts, cash payments, sales and purchases. The control account for the accounts receivable
Great Outdoors Ltd sells outdoor furniture settings on credit. The accounting records at 30 June 2015 reveal the following. Ignore GST.Credit sales (for year)Credit sales returns and allowances (for
On 1 June, McLean, Roberts and Associates had Accounts Receivable and Allowance for Doubtful Debts accounts as set out below. The firm is registered for the GST.Accounts Receivable1/6Balance847

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