Answer all parts to questions 1

question 2

question 3

to AASB

Australian Accounting Standards

I'm having particular trouble on question 2

Assessment Task 2 Assignment Part A Due date: Thursday of Week 6 (23:45 AEST) Weighting: 20% ASSESSMENT 2A Objectives This assessment item relates to the following unit learning outcomes: Interpret and apply the AASB's Framework for the Preparation and Presentation of Financial Statements. Interpret the technical requirements and conceptual aspects of selected accounting standards that address key issues in financial reporting. Apply relevant accounting pronouncements and professional judgement to solve routine accounting problems. 1 Question 1 Total 8 marks Blue Light Security Ltd was established in early January 2015 to provide security patrol services for businesses in Sydney. During January and February 2015, Blue Light Security Ltd: Hired thirty licensed and fully trained security patrol officers as follows: Ten full-time employees who are each paid a salary of $57,000 per year, and Twenty casual employees who are paid at the award rate of $22.00 per hour. Paid $20,000 to K9 Kennels Ltd to purchase fifteen guard dogs (comprising ten German Shepherds and five Dobermans) to accompany the officers on security patrols. Paid $15,000 to the NSW Police to obtain a Master Licence. The Master Licence, which is required by the Security Industry Act 1997, specifies the number of persons and types of security activities that the licence holder (Blue Light Security Ltd) is authorised to provide. The Master Licence is valid for five years at which time it can be renewed. Entered into a lease agreement with Thornton Motors Ltd for ten vehicles (eight specialised security vehicles for the patrol officers and dogs to travel in and two sedans for administrative purposes). The lease agreement gives Blue Light Security Ltd the right to use the vehicles over the lease term of five years in exchange for an annual payment of $60,000. The lease agreement requires Blue Light Security Ltd to return the vehicles to Thornton Motors Ltd at the end of the lease term. Required (a) How is an asset defined in the AASB's Framework for the Preparation and Presentation of Financial Statements? What is your understanding of this definition: how would you explain an asset to someone who has no accounting knowledge? (1 mark) (b) What, according to the AASB's Framework for the Preparation and Presentation of Financial Statements, are the criteria that must be satisfied before an asset can be recognised in the Statement of Financial Position? What is your understanding of these criteria: how would you explain them to someone who has no accounting knowledge? (1 mark) (c) Apply the definition and recognition criteria from (a) and (b) and discuss why or why not Blue Light Security Ltd would recognise (1) the security patrol officers (2) the guard dogs (3) the Master Licence and (4) the vehicles as assets in its Statement of Financial Position. (6 marks) 2 Question 2 Total 6 marks Gemini Holdings Ltd is an Australian public company. The accounting staff of Gemini Holdings Ltd have asked for your assistance in preparing the company's financial statements for the year ended 30 June 2016 and have provided you with the following information: Gemini Holdings Ltd Trial Balance As at 30 June 2016 Item Sales revenue Gain on sale of financial assets Gain on revaluation of property, plant and equipment Other income Unrealised gains on cash flow hedges Loss for the year from discontinued operations Remeasurements of defined benefit superannuation plans Occupancy expenses Income tax expense Finance costs Distribution expenses Exchange differences on translation of foreign operations Administrative expenses Cost of goods sold Other operating expenses Income tax related to items of other comprehensive income: Remeasurements of defined benefit superannuation plans Exchange differences on translation of foreign operations Cash flow hedges Revaluation of property, plant and equipment Debit Credit 540,000 4,000 20,000 16,000 13,000 5,000 7,500 45,000 15,000 27,500 55,000 6,500 50,000 310,000 22,500 2,000 2,000 4,000 6,000 Notes 1. 2. In relation to items of other comprehensive income: Items that will not be reclassified subsequently to profit or loss: revaluation of property, plant and equipment; and remeasurements of defined benefit superannuation plans. Items that may be reclassified subsequently to profit or loss: cash flow hedges; and exchange differences on translation of foreign operations. On 1 July 2014, Gemini Holdings Ltd paid $2,000 to purchase a portfolio of financial assets comprising shares in twenty companies listed on the Australian Securities Exchange. In accordance with AASB 9 Financial Instruments, Gemini Holdings Ltd made an irrevocable decision to measure the portfolio of financial assets at fair value through other comprehensive income. As at 30 June 2015, the fair value of the portfolio of financial assets had increased to $6,000 and Gemini Holdings Ltd recognised a gain of $4,000 (and related income tax expense of $1,000) in other comprehensive income for the year ended 30 June 2015. Due to concerns about the volatility of the Australian share market, Gemini Holdings Ltd sold the portfolio of financial assets on 1 July 2015 for $6,000. Gemini Holdings Ltd recognised a gain of $4,000 3 in profit or loss for the year ended 30 June 2016 and this is included in the Trial Balance above. The income tax expense ($1,000) on this gain has already been included in the income tax expense amount in the trial balance. 3. Comparative figures for the preceding year (ending 30 June 2015) have been omitted. 4. All amounts in the trial balance and in the notes are in thousands ($'000). Required (a) Prepare the Statement of profit or loss and other comprehensive income for Gemini Holdings Ltd for the year ended 30 June 2016 in accordance with the requirements of AASB 101 Presentation of Financial Statements. (5 marks) (b) Explain the adjustment that must be made in the Statement of profit or loss and other comprehensive income as a consequence the gain on the sale of the financial assets being recognised in profit or loss. Why is an adjustment necessary? (1 mark) 4 Question 3 Total 6 marks (a) How is fair value defined in AASB 13 Fair Value Measurement? ( mark) (b) Briefly explain the steps involved in measuring the fair value of a non-financial asset. How does this differ from the measurement of financial assets, liabilities and an entity's own equity instruments? (1 mark) (c) Explain the difference between 'unit of account' and 'valuation premise'. (d) What is meant by a non-financial asset's 'highest and best use'? What is the role of 'highest and best use' in measuring fair value? (1 mark) (e) What is the difference between 'principal market' and most advantageous market'? What is the role of these two types of markets in measuring fair value? (1 mark) (f) Describe three common valuation methods used to measure fair value. (1 mark) (g) What is the 'fair value hierarchy' and what is its role in the measurement of fair value? (1 mark) ( mark) 5 ACCT19062 Intermediate Financial Accounting Assignment: Part A Question 1 2 3 Criteria The relevant requirements of the AASB's Framework for the Preparation and Presentation of Financial Statements relating to the definition of, and recognition criteria for, assets have been identified, explained and appropriately applied. Written answers are correct (accurate), clearly expressed (the meaning is evident) and succinct (concise/brief). Where applicable, professional judgement has been exercised appropriately. The relevant requirements of AASB 101 Presentation of Financial Statements have appropriately and consistently applied. All amounts (line item amounts, subtotals and totals) are correct. Where applicable, professional judgement has been exercised appropriately. The presentation (for example, column alignment, bolding, italics, line spacing) is of a professional standard. Marks Awarded /8 /6 The relevant requirements of AASB 13 Fair Value Measurement have been appropriately explained. Written answers are correct (accurate), clearly expressed (the meaning is evident) and succinct (concise/brief). /6 Total /20 6