Questions and Answers of Managerial Accounting An Integrative Approach

The management team of Positive Perception Ltd was faced with a financial crisis. The entity was in breach of a loan agreement and had to repay a major loan at short notice. To raise the necessary
Presented below is a simplified statement of cash flows for Spectre Ltd. Additional information:1. Sales were $1 216 000.2. Current liabilities were $403 000 in 2016 and $406 500 in
Identify and briefly explain five limitations of financial analysis.
Xander Ltd experienced a fire on 30 June 2016 in which its financial records were partially destroyed. It has been able to salvage some of the records and has ascertained the following
On 2 March, Makayla Ltd invited the public to subscribe for 5000 shares at $1.50 each, $1.00 payable on application and $0.50 payable on allotment. By 31 March, applications were received for 5000
Spinning Ltd had 15 000 shares issued. On 30 June 2016, a cash dividend of $0.15 per share was declared. The dividend was paid on 31 July 2016. Prepare journal entries to record the declaration and
Prepare journal entries to record the following:(a) James Ltd scraps its delivery equipment, which cost $59 000. Accumulated depreciation is also $59 000 on this delivery equipment. No residual value
Glass Ltd is suffering declining sales of its principal product, biodegradable recycled cardboard cartons. The managing director, Angela Smith, instructs the accountant, Jonty Upright, to lengthen
Identify three groups that use equity information in decision making and distinguish between the nature and the sources of information each group requires.
On 1 June, Walrus Ltd issues 4800 shares by private invitation at a cash price of $2.50 per share. Journalise the issue of the shares.
During its first year of operations, SunLand Ltd had the following transactions pertaining to its capital.Jan. 10 Issued 60 000 shares for cash at $5 per share.July 1 Issued
The equity section of Domino’s statement of financial position is shown in the financial statements in the appendix at the back of this book. You will also find data relevant to this problem in
Jie Li, a student, asks your help in understanding some characteristics of a company. Explain each of these to Jie:(a) Separate legal existence.(b) Limited liability of shareholders.(c) Transferable
On 1 January 2016 Otter Ltd’s share capital comprised 95 000 issued ordinary shares ($950 000) and retained earnings of $350 000. During the year, the following transactions
Connor Ltd has 400 000 $3 shares issued. It declares a 10% share dividend on 1 December. The dividend shares are issued as $5 shares on 31 December. Prepare the entries for the declaration and
Information from the June 2013 financial statements of Fantastic Holdings Limited and Nick Scali Limited is presented below. Required(a) Calculate the dividend payout for each company for two
(a) Your friend Stuart cannot understand how the characteristic of company management is both an advantage and a disadvantage. Clarify this problem for Stuart.(b) Identify and explain other
What are the basic ownership rights of ordinary shareholders?
On 1 January 2016, Rake Ltd had equity accounts as follows. During the year, the following transactions occurred. Required(a) Journalise the transactions(b) Enter the beginning balances and
Speedy Deliveries Ltd had the following equity accounts at 1 January 2015: During the year ended 31 December 2015, the following occurred: 1. A profit of $20 000 was generated.2. $5000 was
What conditions in Australia and in New Zealand must be met before a cash dividend is paid?
Gold Ltd had the following equity accounts at 1 July 2014: During the year ended 30 June 2015, the following occurred:1. A profit of $40 000 was generated.2. $8000 was transferred to the general
At 1 July, TriTop Ltd had 1500 shares issued. An interim cash dividend of $0.25 per share was declared on 31 December and paid on 31 January. The shareholders agreed to a 3-for-1 share split, which
Bettie Ltd reported a current year’s profit of $2 500 000.Additional information:Prior period sales included in current sales revenues, $15 600. Gain on sale of a division of the entity, $45 200.
An inexperienced accountant for Basil Ltd showed the following in Basil Ltd’s statement of profit or loss: profit before income tax, $600 000; income tax expense, $180 000; correction of prior
Brianna Ltd is considering these two alternatives to finance its construction of a new $3 million factory:(a) Issue 600 000 shares at the market price of $5 per share.(b) Issue $3 million, 6%
The average shareholders’ equity of Jonty James Ltd was $500 000 for the year ended 30 June 2016. During that year, Jonty James Ltd had a profit of $90 000 and declared cash dividends of $20 000.
South Island Skiwear Ltd was registered on 5 January 2016. The following private share issues were completed during the first year:Required(a) Journalise the transactions.(b) Post to the Share
The following section is taken from Silk Ltd’s statement of financial position at 31 December 2016. Additional information:1. Equity was $5 225 000 at 31 December 2015.2. Silk Ltd’s profit
During 2015, the accountant for Lu Ltd discovered an error in the 2014 statements. The effect of the error was to overstate an asset and understate expenses. How should the accountant correct the
Donkey Ltd’s equity is as follows: Donkey Ltd plans to expand its operations by establishing a branch in Thailand. The new branch will cost $3.5 million. Expected profit before tax and
Young Ltd was registered on 3 January 2016. The following private share issues were completed during the first year:Required(a) Journalise the transactions.(b) Post to the Share Capital account. (Use
Buck Ltd purchased a machine with an expected useful life of 4 years and nil residual value. After 2 years the estimated useful life was revised to 3 years. The manager of Buck Ltd suggested that the
Button Ltd has been in operation for 3 years. All of its manufacturing equipment, which has a useful life of 10 to 12 years, has been depreciated on a straight-line basis. During the fourth year,
The equity of Yang Pty Ltd was $210 000 at 30 June 2015. During the year ended 30 June 2016, Yang made a profit of $70 000 and declared dividends of $40 000. RequiredCalculate the dividend
Donald Ltd’s equity is as follows: Donald Ltd plans to expand its operations by acquiring substantial landholdings in Scotland. The expansion will cost $4 million. Expected profit before tax
Describe the interrelationship between the statement of profit or loss, the statement of profit or loss and other comprehensive income and the statement of changes in equity.
SpringTime Ltd is considering these two alternatives for financing extensions: 1. Issue 70 000 shares at $20 per share. (Cash dividends have not been paid; nor is the payment of any cash dividend
List the three components of equity and give examples of transactions or events that can increase each component.
Why do some companies have low dividend payout rates?
Amber is a shareholder of Southern Ferns Ltd. The company’s return on ordinary shareholders’ equity increased in 2016, but Amber received less dividends. Explain to Amber how this can occur.
Below are data from the 2013 annual reports of CSR Ltd and Boral Ltd. Required(a) Based on the above information, calculate:1. Average useful life of the PPE assets.2. Average age of the PPE
At 31 December 2015, King Ltd reported these PPE assets: During 2016, the following selected cash transactions occurred: Required(a) For the transactions complete the following.1.
Identify three key decisions involving non-current assets.
These expenditures were incurred by Knight Ltd in purchasing land: cash price $180 000; rates $10 000; solicitor’s fees $9500; real estate agent’s commission $8100; clearing and grading $7000,
The following expenditures relating to PPE assets were made by Sunny Ltd during the first 2 months of 2017: 1. Paid $6000 of accrued land taxes at time factory site was acquired.2. Paid $750
At 30 June 2015, Porter Ltd reported the following PPE assets. During the financial year ending 30 June 2016, the following selected cash transactions occurred: Required(a) For the
James Knight is uncertain about how the cost principle applies to PPE assets. Explain this to James.
Brianna Ltd acquires a delivery truck at a cost of $96 600 (GST exclusive) on 1 January 2016, the beginning of the company’s financial year. The truck is expected to have a residual value of $4000
Presented here are selected transactions for Cox Ltd for 2016. RequiredJournalise all entries required on the above dates, including entries to update depreciation on assets disposed of, where
Meds4U Ltd and Hope Ltd are two leading producers of pharmaceutical drugs. Each has considerable assets and expends considerable funds each year in developing new products. The development of a new
AJ Bus Ltd uses the units-of-production method in depreciating its buses. One bus was purchased on 1 January 2015 at a cost of $268 000. Over its 5-year useful life, the bus is expected to be driven
Presented here are selected transactions for CupCake Ltd for 2015.RequiredIgnore GST. Journalise all entries required on the above dates, including entries to update depreciation on assets disposed
What impact does GST have on accounting for noncurrent assets?
On 1 July 2015, Mars Ltd purchased land $1 200 000 and buildings $500 000. The estimated useful life of the buildings was 40 years, with a residual value of nil. On 1 October 2015, machinery was
What are the main advantages of leasing?
Red Ltd has the following land and buildings in its accounts as at 30 June 2016: An independent valuation carried out on 30 June 2016 determined the following fair values: land in Darwin $600
Lion Ltd purchased equipment on 1 January 2016 at a cost of $180 000. It had an estimated useful life of 8 years and an estimated residual value of $20 000. Each year $1000 is spent on the
On 1 July 2015, Shark Ltd purchased three machines, each used in a different production process in the factory. On 30 June 2016, there was an indication that the machines could be impaired due to a
On 1 July 2015, Jupiter Ltd purchased land for $400 000 and buildings for $250 000. The estimated useful life of the buildings was 20 years, with a residual value of nil. On 1 October 2015, machinery
Toy Ltd has the following land and buildings in its accounts as at 30 June 2015: At 30 June 2015, the balance of the Revaluation Surplus is $800 000, of which $700 000 relates to the land in
On 1 July 2015, Fox Ltd purchased equipment for $85 000 to manufacture a new product for sale overseas. The estimated useful life was 8 years, with a residual value of $5000. Fox Ltd uses
This chapter has presented the current rule relating to the reporting of intangible assets. This rule prohibits internally generated brands, mastheads, publishing titles, customer lists and items
Able Ltd purchased machinery on 1 November 2016 for $160 000. The estimated useful life of the machinery is 8 years, with an estimated residual of $10 000. The entity’s reporting period ends on 30
Distinguish between expenses and capital expenditures during an asset’s useful life.
In its 2016 annual report, Fish Ltd reports beginning total assets of $37.42 billion; ending total assets of $35.58 billion; beginning property, plant and equipment (at cost) of $40.8 billion; ending
On 1 January 2015, Wall Ltd purchased equipment for a total cost of $55 000. The estimated useful life of the equipment was 8 years, with an estimated residual value of $5000. The entity’s
In recent years Button Ltd has purchased three machines. Because of frequent employee turnover in the accounting department, a different accountant was in charge of selecting the depreciation method
Auckland Ltd and Wellington Ltd are two entities that are similar in many respects except that Auckland Ltd uses the straight-line method and Wellington Ltd uses the diminishing-balance method at
In recent years Winter Ltd has purchased three machines. Because of frequent employee turnover in the accounting department, a different accountant was in charge of selecting the depreciation method
Presented here are selected transactions for Zhou Ltd for the year ended 31 December 2016: RequiredJournalise all entries required on the listed dates, including entries to update depreciation,
How is a gain or a loss on the sale of a PPE asset calculated?
Irish Ltd reported the following property, plant and equipment and intangibles for the year ended 31 March 2017 (in thousands): land and buildings $782.4; plant and equipment $3294.6; goodwill
On 1 July 2014, Capers Ltd purchased equipment for a total cost of $220 000 including 10% GST. The estimated useful life of the equipment was 10 years, with an estimated residual value of $15 000.
Ross Ltd and Yang Ltd, two entities of roughly the same size, are both involved in the manufacture of dancing shoes. Each entity depreciates its PPE assets using the straight-line approach. An
Carpet Ltd purchased machinery on 1 January 2015, at a cost of $400 000. The estimated useful life of the machinery is 4 years, with an estimated residual value at the end of that period of $40 000.
The intangible assets information of Wang Ltd as at 30 June 2015 is presented here: The patent was acquired in July 2014 and has a useful life of 8 years. The copyright was acquired in July 2011
Buttercup Ltd purchased machinery on 1 January 2015, at a cost of $310 000. The estimated useful life of the machinery is 5 years, with an estimated residual value at the end of that period of $40
Zhou Ltd and Wang Ltd, two entities of roughly the same size, are both involved in the manufacture of canoes and kayaks. Each entity depreciates its PPE assets using the straight-line approach. An
Explain the accounting treatment for revaluation of assets.
What are agricultural assets?
Selected information from the 2013 financial statements of Fantastic Holdings and Nick Scali are presented below. Required(a) Calculate the working capital, current ratio, quick ratio, debt to
MouseTrap Ltd in Canada noted in its 2016 annual report that, beginning that year, it changed the estimated life of its computer software for amortisation purposes from a 3-year life to a 12-year
For the year ended 31 January 2015, Beta Ltd reported the following information (in thousands): net sales $1 663 970, profit $21 935, depreciation expense $6399. The statement of financial position
Simon Harris believes a current liability is a debt that can be expected to be paid in 1 year. Is Simon correct? Explain.
The liabilities section of Domino’s statement of financial position is shown in the financial statements in the appendix at the back of this book. You will also find data relevant to this problem
During the month of June, Transfield Pty Ltd’s employees earned wages of $105 000. Payroll deductions related to these wages were $6750 for General Health Fund, $11 250 for PAYG withheld tax, $9450
Sandra Leung and Nikki Young are discussing how the market price of an unsecured note is determined. Nikki believes that the market price of a note is solely a function of the amount of the principal
On 1 January Fairy Wren Ltd issued $100 000, 10%, 10-year unsecured notes at face value. Interest is payable half-yearly on 1 July and 1 January. Interest is not accrued on 30 June. Fairy Wren
Northumbria Ltd issued a $50 000, 8%, 3-month note on 1 October. Interest is payable on 1 January. How much interest should be accrued as at 31 December in relation to the note?
The situations presented below are independent. RequiredFor each situation prepare the appropriate journal entry for the redemption of the debentures.(a) Whitewater Rafting Ltd redeemed $130 000
Thompson Ltd issued $4 000 000, 9%, 20-year debentures at par (face) value on 1 July 2015. The debentures were dated 1 July 2015, and pay interest on 30 June and 31 December. Thompson’s year-end is
Explain the difference between a provision and other types of liabilities recognised on the statement of financial position.
On 1 January 2016, Mall Ltd issued $1 200 000 of 5-year, 10% debentures at 93; the debentures pay interest half-yearly on 1 July and 1 January. By 1 January 2018, the market rate of interest for
On 15 June 2015, Dundee Pty Ltd signed a contract to provide market research services to a client for $1 million. The research would be undertaken during the years ended 30 June 2016 and 30 June
Ms Dwyer, the manager of Dwyer’s Dryers, thinks that warranty liabilities should be recognised only when the customer makes a warranty claim. Is this consistent with generally accepted accounting
Liabilities can be provisions, contingent liabilities or other liabilities. RequiredCategorise each of the following liabilities as (1) provisions, (2) contingent liabilities, or (3) other
Quinton Mechanics Ltd offers a 12-month guarantee with all car repairs and service. On 1 July 2015, the balance of the Warranty Provision account was $2400. During the year ended 30 June, warranty
Candy Bars Ltd produces several varieties of candy and chocolate bars. An action has been brought against the entity by a customer who broke a tooth while eating one of the entity’s chewy chocolate
What are the main features of a mortgage loan? How should a mortgage liability be reported on the statement of financial position?

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