1. On 1 July 2020, Drake Ltd issues 4,000 convertible notes. The notes have a three-year term and are issued at par with a face value of $1,000 per note, giving total proceeds at the date of issue of $4 million. The notes pay interest at 5% p.a. annually in arrears. The holder of each note is entitled to convert the note into 300 ordinary shares of Drake Ltd at contract maturity. When the notes are issued, the prevailing market interest rate for similar debt (similar term, similar credit status of issuer and similar cash flows) without conversion options is 7% per annum. Required a) Prepare an effective interest schedule and distinguish between the allocation of interest payments and interest expense for each reporting period during the term of the note issue. (2 marks) b) Prepare the journal entries of Drake Ltd to account for the convertible notes for each year ending 30 June under the following circumstances. (7 marks) The holders do not exercise their option and the note is repaid at the end of its term. Present value of $1 annuity over 3 years at 7% per annum 2.6243160 Present value of $1 lump sum in 3 years at 7% per annum 0.81629788

2.

Franklin Ltd provides 4 weeks (20 days) of accumulating vested annual leave for each year of service. The company policy is that annual leave must be taken within 6 months of the end of the period in which it accrues. Annual leave is paid at the base salary rate (which excludes commissions, bonuses and overtime). A 17.5% loading is applied to annual leave payments. The following summary data is derived from Franklin Ltds payroll records for the year ended 30 June 2020. The amounts shown are applicable at 30 June 2020.

Employee category	Base pay/day $	Annual leave
		Balance 1 July 2019 (days)	Accumulated during year (days)	Taken during year (days)
Managers	800	190	210	230
Consultants	500	210	540	600
Drivers	350	160	310	360
Admin staff	320	150	230	280

Additional information

After leave taken during the year had been recorded, Franklin Ltd.s trial balance revealed that the provision for annual leave had a credit balance of $97,500 at 30 June 2020.

Required 1. Calculate the provision for annual leave at 30 June 2020 by completing the following table. (5 marks) 2. Prepare journal the entry to account for the liability for annual leave at 30 June 2020. (2 marks)

3.

On 1 July 2018, Wellington Ltd grants 95 share options to each of its 400 executive managers, conditional upon the employee working Wellington for the next two years. Using a generally accepted valuation model, the fair value of the share options is estimated at $12 per option at the grant date. Also, it is estimated that 15% of the executive managers will leave Wellington Ltd within the next two years, therefore forfeiting their rights to the share options. By 30 June 2019, 30 executive managers had left Wellington Ltd and it is still estimated that, overall, 15% of executives will leave over the two-year period. By 30 June 2020, another 50 executives have left before the options vest.

Required

Record theses events in the general journal of Wellington Ltd in accordance with the requirements of AASB 2 Share-based Payments. (2 marks)

4.

On 1 July 2020, Benson Ltd leased a processing plant from Sherlock Ltd. The plant was purchased by Sherlock Ltd on 30 June 2020 for its fair value of $378,683. The lease agreement contained the following provisions.

The lease term is for 3 years, starting on	1 July 2020
Annual lease payment, payable on 30 June each year	$130,000
Estimated useful life of plant	5 years
Estimated residual value of plant at end of lease term	55,000
Residual value guaranteed by lessee (Benson Ltd)	35,000
Interest rate implicit in the lease	8%
Present value of $1 annuity over 3 years at 8% per annum	2.577097
Present value of $1 lump sum in 3 years at 8% per annum	0.793832

Required

1. Prepare the lease receipts schedule for Sherlock Ltd. (4 marks)

2. Prepare the journal entries in the records of Sherlock Ltd at the inception of the lease and for the year ended 30 June 2021. (5 marks)