ACCT7102 FINANCIAL ACCOUNTING Final Assessment (Take home)
ACCT7102 Financial Accounting
Final Assessment – Semester 2, 2021
Take home, online, non-invigilated
You have a 12-hour window in which you must complete your exam. You can access and submit your exam at any time within the 12-hour window.
This assessment is weighted at 50% of your total mark for this course.
Answer ALL five (5) questions.
The exam is to be submitted through Turnitin on the ACCT7102 Blackboard site (located under “Assessment”, “Take Home Final Assessment Paper”). Save the assessment as a pdf file named as “First name Family name _ Student number (e.g. Peter Do _ 5567891). You only need to submit back your answers in the Assessment Answer Sheet, there is no need to submit the Assessment Questions.
QUESTION 1 (Total: 10 marks)
This question has two parts, and you are required to answer both parts (i.e. A & B).
Part A – 6 marks
Chris and John are a recently married couple in Australia. They want to make use of the First Home Builders Grant (an incentive payment of $15,000 for first home owners from the government) and hence have decided to contract SXCA Ltd to design and construct a house on a piece of land they bought a few years ago. They contacted SXCA in early 2020 to start designing the house as they were introduced by a close friend. Chris and John worked with SXCA to design a 2-storey house, with 3 bedrooms, 1 study and 3 bathrooms. The contract was signed on May 2020, with the contract price of $475,000 and construction started in November 2020.
In March 2020, while construction was still underway, Chris and John adopted a Rottweiler dog as the family pet. They loved their pet dog so much that they decided to make some modifications to their existing design to give their pet more playing area. Specifically, they wanted another barn for their dog. The barn will be built 5 meters away from the main house, and will feature 2 separate rooms. One room is the sun lounge where their dog can roam around while exposing to the sun. The other room is to store all the toys for their pet dog. As such, the contract price was adjusted to be $550,000, as agreed upon by two parties. SXCA regularly designs and builds pet barns for other customers and usually charge other customers $80,000 for similar-sized barns.
REQUIRED:
Does the modification represent a new contract for SXCA and how should it account for the modification? Please explain your answers clearly, with direct reference to AASB 15 Revenue.
Part B – 4 marks
SXCA also currently has an important contract with the government. They have engaged to design and construct a memorial monument, to be erected in the Brisbane CBD area, to immortalise Australian soldiers who have lost their lives while on duty. The exact design is yet to be finalised, but the mayor has given SXCA a verbal agreement for a contract of 10 million dollars.
SXCA has a long-standing business relationship with the government (as they have built various monuments around Brisbane for the government) and often gives the government a discount as they want to preserve the relationship. Although the contract is yet to be finalised, an extensive history of similar transactions between SXCA and the government suggests the following outcomes are possible:
Discount offered (as a percentage of contract price)
Probability
2%
75%
3%
20%
5%
5%
REQUIRED:
Explain in detail what is the transaction price for the contract between SXCA and the government. Please ignore the effects of GST. Your answers must make reference to AASB 15 Revenue.
ACCT7102 Final Assessment – Semester 2, 2021
Page 4 of 10
QUESTION 2 (Total: 10 marks)
Employees of Phalliste Ltd are entitled to 12 weeks of long service leave after 10 years of employment. The company recognises the provision for long service leave using the projected unit credit method approach. At 30 June 2020, the provision for long service leave for staff was $100,000. During the financial year ended 30 June 2021, there was no long service leave taken. The following information is based on payroll and advice from actuarial consultants at 30 June 2021:
Years in service
Number of employees
% expected to be entitled
Aggregate projected annual salaries when leave is due
5
10
0.38
$450,000
7
4
0.60
$320,000
14
5
1.00
$280,000
The following government and corporate bond rates are as follows:
Period to maturity
Government bond rate
Corporate bond rate
3
5%
5.5%
5
7%
8.5%
7
8.5%
9.5%
14
9.5%
11%
REQUIRED:
In accordance with AASB 119 ‘Employee Benefits’, prepare the general journal entry to record the long service leave expense for the period ended 30 June 2021.
Show all calculations and round them to the nearest dollar amount.
ACCT7102 Final Assessment – Semester 2, 2021
Page 5 of 10
QUESTION 3 (Total: 10 marks)
On 1 July 2017, Sarcochilus Ltd issued 10,000 convertible notes. The notes had a five-year term and were issued at a face value of $500 per note. Interest was payable annually on 30 June each year at 5% per annum in arrears. Each note was convertible at the option of the holder into 10 ordinary shares on or before maturity. On 1 July 2017, the market interest rate for similar notes, without a conversion option, was 8% per annum.
REQUIRED:
Your answers must comply with AASB 132 ‘Financial Instruments: Disclosure and Presentation’ and AASB 9 ‘Financial Instruments’.
a) Prepare a journal entry to record the issue of the convertible notes by Sarcochilus Ltd on 1 July 2017.
b) Prepare journal entries to record the payments of interest to note holders by Sarcochilus Ltd on 30 June 2018.
c) Assume that half of the notes are converted into ordinary shares at the end of the fifth year ending 30 June 2022 (following the interest payment). Prepare a journal entry to record the redemption of notes not converted into ordinary shares in the books of Sarcochilus Ltd.
Show all calculations and round them to the nearest dollar amount. Use the present value tables provided at the end of the paper for calculation.
ACCT7102 Final Assessment – Semester 2, 2021
Page 6 of 10
QUESTION 4 (Total: 10 marks)
This question has two parts, and you are required to answer both parts (i.e. A & B).
PART A (4 marks):
On 1 August 2020, Calanthe Ltd entered into a purchase commitment with a US supplier to buy US $50 000 worth of raw materials and the full amount is due on 1 November 2020. On 30 September 2020, the control of the goods will be transferred to Calanthe Ltd upon shipping.
Concerned about adverse exchange rate fluctuations, on 1 August 2020 Calanthe Ltd also entered into a forward rate agreement with the Greedy Bank for delivery of US $50 000 on 1 November 2020.
The following exchange rate information is available:
Spot rate: Forward rate for delivery of
USD 50 000 on 1 November:
1 August 2020 A$1.00 = US$0.52 A$1.00 = US$0.50
30 September 2020 A$1.00 = US$0.56 A$1.00 = US$0.55
1 November 2020 A$1.00 = US$0.61 A$1.00 = US$0.61
Calanthe Ltd has designated the hedging arrangement as a cash flow hedge, which qualifies for hedge accounting in accordance with AASB 9 ‘Financial Instruments’. It is 100% effective.
The end of the reporting period for Calanthe Ltd is 30 September.
REQUIRED:
Explain in details whether Calanthe Ltd benefits financially from these transactions.
Show all calculations on measuring fair values and changes in fair values of the hedging instrument and the hedged item at various dates. Provide any necessary explanation to support your answer. Round answers to the nearest Australian dollar.
ACCT7102 Final Assessment – Semester 2, 2021
Page 7 of 10
PART B (6 marks):
Dianthus Ltd is a multinational company with headquarters in Queensland, Australia. It is, however, listed on both ASX (Australian Securities Exchange) and TWSE (Taiwan Stock Exchange). It manufactures and sells cardboard boxes worldwide. Most of its products are manufactured in Taiwan, where it obtains local materials and labour. Its sales are invoiced in Australian dollars. Some other information about the company is displayed below.
Sales breakdown by geographical segments
2020
2019
Sales in Australia
2.1 billion AUD
2.2 billion AUD
Sales in Taiwan
2.51 billion TWD
2.04 billion TWD
Sales to the rest of the world
0.5 billion AUD
0.4 billion AUD
Value of listings on securities / stock exchanges
ASX
TWSE
Number of shares
1,000,000
2,000,000,000
Price per share
510 AUD
2.4 TWD
The company issues all of its bonds to both retail and institutional investors in Australia, currently worth AUD 215 million in the market.
In the tables above, AUD refers to Australian dollars, whereas TWD refers to New Taiwan Dollar, and the approximate exchange rate is 1 AUD = 20 TWD.
REQUIRED:
What do you think is the functional currency of Dianthus Ltd? Discuss your answers in detail, with references to the information given above, and in accordance with AASB 121 ‘The Effects of Changes in Foreign Exchange Rates’.
ACCT7102 Final Assessment – Semester 2, 2021
Page 8 of 10
QUESTION 5 (Total: 10 marks)
Maxine Ltd acquired a mining property in Victoria, called Clarity for $13 million on 1 July 2018 and treated it as an area of interest. Maxine Ltd incurred the costs as below:
Year
Details
$ Amount
August 2018
Right to explore
450,000
2018 – 2019
Exploratory study and drilling
3,200,000
At the beginning of calendar year 2019, the technical feasibility and commercial viability of mining the diamond deposit were confirmed. The company’s experts estimated that there were 10 million carats of diamonds could be commercially exploited. From March 2019 to June 2019, the company undertook the following capital investments:
Costs
Estimated Life (as at 30 June 2019)
Mine buildings
$4,600,000
20 years
Processing plant
$2,700,000
5 years
Other equipment
$3,010,000
14 years
Mine buildings cannot be economically removed from the mine location, but the processing plant and other equipment can be economically removed and have alternative uses.
On 30 June 2019, Maxine Ltd estimated that the costs of restoration to be incurred at the end of the mine life, as a result of development and construction activities would be $750,000 because the company wished to portray itself as a responsible corporate citizen. A discount rate of 8% was identified as relevant for its diamond operation.
Production commenced on 1 July 2019. It will take 9 years to exhaust this economically recoverable reserves, after which time the mining property is expected to have no residual value. Activities for the year ended on 30 June 2020 were as follows:
Carats of diamonds mined ..................................................................... ….1,500,000
Carats of diamonds sold ............................................................................. 1,200,000
Selling price of diamond ........................................................................ $52 per carat
Production costs (excluding depreciation and amortisation) .................... $25,100,000
Administration expenses ...........................................................................$3,800,000
Selling expenses .......................................................................................$1,600,000
REQUIRED:
Assume all costs incurred during the exploration and evaluation phases were capitalised, prepare a detailed statement of profit and loss for the year ended 30 June 2020. Show all workings and full explanations for all intermediate steps. Round your answers to the nearest dollars and use the present value tables provided at the end for your calculation.
END OF EXAMINATION