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Question 1

Question 2

Question 3

Question 4

ASSESSMENT BRIEF Subject Code and Title ACCT6003 Financial Accounting Processes Assessment Major Assignment - Part 2 Individual/Group Individual Length Not applicable Learning Outcomes 1. Explain the regulatory framework that governs financial reporting in Australia with emphasis on the Conceptual Framework for financial reporting 3. Apply accounting principles and standards when accounting for non-current assets, revenue and liabilities and recognise the judgements required in a range of diverse business contexts 5. Differentiate between shares and debentures and apply appropriate accounting procedures Submission End of Module 4, i.e. by 11:55pm AEST/AEDT Sunday 30th July of Week 8 Weighting Part 2: 25% (Full assignment: 30%) Total Marks 100 marks Context: This assignment forms Part 2 (final part) of the major assignment. Students are provided with a business case in which an entrepreneur, Xiaojing Wu, from China immigrated to Australia and considered setting up a small business in South Australia. Xiaojing decided to start her business as a partnership but decided to dissolve the partnership after one of the partners was dismissed for conducting an unauthorised transaction. Subsequently, Xiaojing formed a public company named ChiHerbal Ltd. In Part 1 of the assignment, students are required to discuss the accounting regulation and reporting requirements for companies. In Part 2, students are required to prepare journal entries to account for a range of transactions undertaken by ChiHerbal Ltd. Business Case Refer to the transcripts for Modules 2, 3, and 4 (except Impairment of Assets) ACCT6003 FAP_Assessment Brief_Assignment Part 2.docx Page 1 of 5 Instructions: Students are expected to review the content of Modules 2, 3, and 4 (except Impairment of Assets in Module 4). Students are required to account for the formation and operations of ChiHerbal Ltd, i.e. transactions regarding the company's financing activities, fixed assets, and intangible assets. Assignment Part 2 Questions Assume you were the accountant of ChiHerbal Ltd, address the requirements of the following independent scenarios for the company. Scenario 1 Financing Company Operations (20 marks) ChiHerbal Ltd had IPO on 1 October 2014 and offered 500 000 ordinary shares to the public at an issue price of $5 per share. The issue price was payable on the following dates. 15 October: $2 on application 15 November: $2 on allotment 15 December: $1 on final call Applications were received for 600 000 shares by 15 October, of which the full issue price of $5 was paid for by 100 000 prospective investors. On 16 October, the surplus application money, i.e. $2 per share, was returned to 100 000 unsuccessful applicants who only paid the application money as stated in the company's constitution. Shares were allotted in full to those applicants who paid the full amount and on a usual basis to the other applicants. The underwriting fee and other share issue costs of $8 000 were paid on 30 October. All outstanding allotment money was received by the due date. On 1 December, the final call was made payable on 15 December. All money was received by the due date except for 20 000 applicants who fail to pay. The Directors decided to forfeit these shares on 22 December with the balance of Forfeited Share Liability account being returned to the original applications on 22 December. Required: a) Prepare the journal entries to record the above transactions of ChiHerbal Ltd. (17 marks) b) Prepare the equity section of ChiHerbal's statement of financial position once the above transactions have been recorded. (3 marks) ACCT6003 FAP_Assessment Brief_Assignment Part 2.docx Page 2 of 5 Scenario 2 Property, Plant and Equipment (20 marks) ChiHerbal Ltd had the following information regarding its equipment as at 30 June 2015: Equipment (at cost) Accumulated depreciation $520 000 150 000 370 000 The equipment consisted of two machines, Machine A and Machine B. Machine A had cost $310 000 and had a carrying amount of $190 000 at 30 June 2015, and Machine B had cost $210 000 and was carried at $180 000. Both machines are measured using the cost model, and depreciated on a straight-line basis over a 10-year period. On 31 December 2015, the company's directors decided to change the basis of measuring the equipment from the cost model to the revaluation model. Machine A was revalued to $190 000 with an expected useful life of 6 years, and Machine B was revalued to $165 000 with an expected useful life of 5 years. At 30 June 2016, Machine A was assessed to have a fair value of $173 000 with an expected useful life of 5 years, and Machine B's fair value was $146 500 with an expected useful life of 4 years. Required: Prepare general journal entries to record the above transactions. ACCT6003 FAP_Assessment Brief_Assignment Part 2.docx (20 marks) Page 3 of 5 Scenario 3 Leases (40 marks) On the 1 July 2015, ChiHerbal Ltd entered into a lease agreement with Darlington Ltd to lease a specialised machine for four years. The machine was used in filtering water. The lease was classified as a finance lease. Darlington Ltd incurred costs of $3 643 to draw up the lease contract. The machine had a fair value of $210 000 at the inception of the lease. The machine was expected to have a residual value of $15 000 at the end of the lease term when it was returned to Darlington Ltd, at which time it was sold for $10 000. ChiHerbal agreed to pay 50% of any shortfall in the residual value. Four annual payments would be made on the 1 July each year, each of which was $66 000 per annum. This amount included $6 000 that ChiHerbal Ltd was required to pay Darlington Ltd to cover the annual insurance and maintenance costs of the machine. Darlington Ltd requires a return of 12% on the investment in the leased asset. Balance date for both companies is 30 June. Required: a) Show calculations to prove that the interest rate implicit in the lease is 12%. (5 marks) b) Prepare the schedule of lease payment and the general journal entries in the books of ChiHerbal Ltd, i.e. the lessee, to account for the lease from the inception of the lease until the leased asset was returned to the lessor. (20 marks) c) Prepare the schedule of lease receipt and the general journal entries in the books of Darlington Ltd, i.e. the lessor, to account for the lease from the inception of the lease until the leased asset was returned to the lessor. (15 marks) ACCT6003 FAP_Assessment Brief_Assignment Part 2.docx Page 4 of 5 Scenario 4 Intangible Assets (20 marks) ChiHerbal Ltd planed to develop a product that protects its lavender farms from weeds, pests and fungal diseases. The product could also be manufactured and sold by the company should there be market demand. In 2012, the company conducted preliminary search and anticipated a potential product that may require synthesising a combination of specific chemicals. During 2013, ChiHerbal undertook activities to gather information about various chemicals that could be used to synthesise the potential product. The company tested a wide range of chemicals in three stages, aiming to select 500 chemicals for specialised experiments in 2014. In the first stage, 15 000 chemicals were tested, among which 7 500 chemicals were selected for the second stage testing. After the third stage, 500 chemicals were selected for specialised experiments. Although there was no sign of finding any specific chemical that could be synthesised into a product, the company strongly believed in successful outcomes and set aside sufficient funding for further experiments. ChiHerbal incurred $1 million in 2013. During 2014, specialised experiments of 500 chemicals selected in 2013 identified three specific chemicals required to make the new product. However, a large quantity of these chemicals was needed and thus a market for the new product was uncertain. Also, the company was unable to use the product comprising the chemicals in this original form. ChiHerbal planned to search for a more concentrated form of the chemicals. The company incurred $2 million in 2014. During 2015, ChiHerbal developed a formula to synthesise three chemicals in a concentrated form, which would make the new product both suitable for use on its lavender farms and commercially viable for an external market. The sales department also confirmed the existence of a market for the new product. ChiHerbal planned to start production in 2016. The costs incurred in 2015 totalled $3 million. Required: Explain how ChiHerbal should account for the costs in 2013, 2014, and 2015. Journal entries are required. (20 marks) Note: You are expected to refer to the relevant sections and paragraphs in AASB 138 Intangible Assets in your responses to Scenario 4, where applicable. ACCT6003 FAP_Assessment Brief_Assignment Part 2.docx Page 5 of 5