ASSESSMENT CONDITION: THIS IS AN INDIVIDUAL ASSESSMENT, NOT A GROUP TASK. YOU SHOULD ATTEMPT THIS TASK BY YOURSELF. You are required to complete ALL the following questions. A total of 60 marks is allocated to these questions, which will be converted to a final mark out of 20%. All workings, when appropriate, must be shown to substantiate your answers. Question 1 [17 marks] You are the senior financial accountant at Sturt Ltd. One of the new trainee accountants has prepared the following statement of profit or loss and other comprehensive income and statement financial position from the trial balance, after its first year of operations: Sturt Ltd Statement of profit or loss and other comprehensive income for the year ended 30 June 2021 $ Revenue 221,500 Advertising (15,000) Depreciation expense (5,650) Cost of sales (48,150) Annual leave expense (10,000) Insurance expense (21,000) Utilities expense (14,800) Prepaid rent (7,500) Other expenses (5,980) Salaries and wages (29,000) Office expense (13,450) Doubtful debts (8,650) Profit before tax 42,320 Finance costs (3,200) Income tax expense (11,890) Profit for the year 27,230 Other comprehensive income: Warranty expense (8,500) Total comprehensive income for the year 18,730 Sturt Ltd Statement of Financial Position for the year ended 30 June 2021 Assets Cash at bank 10,800 Trade receivables and inventory 51,200 Less: Trade payables -10,500 Goods displayed in stores 19,200 Goods stored in warehouses 12,680 Property, plant, equipment and intangible assets 56,500 Repairs - property, plant and equipment 5,400 Patents 25,000 Cash management account 18,500 Total assets 188,780 Liabilities Provision for warranty 10,000 Allowance for doubtful debts 8,650 Accumulated depreciation - property, plant and equipment 5,650 Loan - E Money 10,000 Loan - Eco Finance 15,000 Current and deferred tax liabilities 12,750 Provision for annual leave 8,000 Total liabilities 70,050 Net assets 258,830 Equity Retained earnings 18,730 Share capital - ordinary shares 100,000 Total equity 118,730 Additional information: Sturt Ltd uses the single statement format for the statement of profit or loss and other comprehensive income and the directors would like to present an analysis of expenses by function on the statement. In relation to the statement of financial position, where AASB 101 requires entities to disclose further sub-classifications of the minimum line items on the face of the statement or in the notes, the directors of Sturt Ltd want to report only the minimum line items on the face of the statement, and leave the sub-classifications to be disclosed in the notes. Required: Review the financial statements prepared by the trainee accountant. Discuss what corrections and changes need to be made to the financial statements, to ensure that they comply with the requirements of AASB 101. Provide references to relevant paragraphs in the accounting standards where appropriate to support your answers. Note: You are not required to: Prepare or discuss any note disclosures that are needed; and Prepare revised financial statements. Question 1 Max. marks allocated Discussion on corrections or changes required 15 References made to AASBs 2 Total 17 Question 2 [13 marks] You have recently been appointed as an accountant at Baratz Ltd, an Australian retail chain headquartered in Melbourne. Baratz Ltd has a financial year ends on 30 June and its stores mainly opened in regional Victoria. Part A It is time to finalise the financial statements for the year of 2021. In the process of finalising the financial statements, you have uncovered several material prior period errors, some going back a few years. Required: In your own words, explain to the directors how these errors need to be corrected, and whether any note disclosures are required in the current year financial statements in relation to these errors. Provide references to the relevant accounting standard in your response. Part B The financial statements for the year ended 30 June 2021 are now finalised. After the reporting date and prior to the date when the financial statements are authorised by the directors on 20 August 2021, the following events occurred: (i) Baratz Ltd announced that it has plans to expand its operations, and open new outlets in regional New South Wales. (ii) The Commonwealth government enacts legislation revising the company income tax rate from 30% to 28%, applicable for the financial year commencing 1 July 2021. (iii) The financial cost of inventory shipped from U.S. is determined. The inventory was received on 20 June 2021 and the cost was estimated for accounting purposes. The revised cost is $208,000 higher than the prior estimate. (iv) One of the retail outlets in Gippsland's region is destroyed by flood. The total carrying amount of the building and equipment, which was uninsured, is $2,160,000. All the above events are deemed material to Baratz Ltd. Required: Explain whether the above events will be classified as either adjusting or non-adjusting events after the end of the reporting period, providing reasons for your decision. In addition, state the appropriate accounting treatment for each event in Baratz Ltd's 2021 financial statements. Note: Adjusting entries or note disclosures are not required. Marking Guide Max. marks allocated Part A 3 Part B - 2.5 marks for each event 10 Total 13 Question 3 [16 marks] Sky Flakes Ltd was registered on 1 January 2021. The following transactions and events occurred for the months January to June 2021: 2021 15 January Sky Flakes Ltd issued a prospectus offering to the public to subscribe for 500,000 preference shares at $2.50 payable in full on application; and 1,000,000 ordinary shares at an issue price of $6.00 per share, with $3.00 payable on application, $2.00 being payable within one month of allotment, and $1.00 due on a call to be made by the directors at a later date. 15 February Applications closed, with applications received for 450,000 preference shares and 1,200,000 ordinary shares. 28 February Both the preference and ordinary shares were allotted. The ordinary shares were allotted in proportion to the number of shares for which applications had been made. The surplus application money was offset against the amount payable on allotment. 28 March All allotment money was received. 6 May The directors made the call on the ordinary shares, with money due within one month. 6 June All call money was received except for holders of 50,000 ordinary shares who failed to meet the call. 18 June The shares on which call money was not received were forfeited and sold as fully paid. An amount of $5.70 was received for each share sold. Costs of the forfeiture and reissue amount to $8,500 and were paid. 25 June The constitution allows for the refund of any balance in the forfeited shares account after reissue to former shareholders, so refunds were made on this date. Required: Prepare the journal entries to record the transactions of Sky Flakes Ltd up to and including that which took place on 25 June 2021. Show all relevant dates and narrations. Marking guide Max. marks allocated Journal entries 14 Date of transactions 1 Narrations 1 Total 16 Question 4 [14 marks] On 1 July 2019, Gogo Ltd acquired a machine for $156,000. On 1 July 2019, the machine was estimated to have useful life of 5 years and residual value was estimated to be $16,000. The machine is to be depreciated using the straight-line method. On 30 June 2020, Gogo Ltd's directors decided to adopt the revaluation model for the machine and revalued the machine on the same date to its estimated fair value of $116,000. On 1 July 2020, it was determined that the remaining useful life of the machine to be 4 years, and the residual value date was revised from $16,000 to $12,000. On 30 June 2021, the machine was to be valued at its fair value of $104,000. On 1 July 2021, the remaining useful life of the machine will still be 4 years with the estimated residual value remained unchanged at $12,000. On 31 December 2021, the machine was sold unexpectedly for $100,000. Required: Prepare journal entries to account for all transactions that took place during the period 1 July 2019 to 31 December 2021, including entries for the acquisition of the machine, depreciation, revaluations, and its disposal. Show all relevant dates, narrations, and workings. Note: you are not required to account for income tax associated with revaluations. Marking Guide Max. marks awarded Journal entries 11 Workings 3 Total 14 RATIONALE back to top SUBJECT LEARNING OUTCOMES This assessment task will assess the following learning outcome/s: be able to demonstrate an understanding of the form and content of published financial reports. be able to apply generally accepted accounting principles and specific financial reporting standards relating to concepts of recognition, measurement, disclosure, revaluation and impairment of financial statement elements