You are a senior financial accountant at Wagga Ltd, a company that distributes imported furniture. One of the new graduate accountants has prepared the following income statement for the year ended 30 June 2019:

Income Statement for the year ended 30 June 2019

Revenue (NOTE 1) 1,380,000

Cost of sales (590,000)

Gross profit 790,000

Other income (NOTE 2) 18,500

Distribution expenses (NOTE 3) (55,000)

Administrative expenses (NOTE 4) (40,000)

Other expenses (NOTE5) (175,000)

Profit for the year 538,500

Other comprehensive income: Net profit on asset (NOTE6) 35,000

Loss on inventories (NOTE 7)(25,000)

Other comprehensive income for the year 10,000

Total comprehensive income for the year 548,500

Notes:

1. Revenue includes interest revenue and rent received of $180,000 and $20,000 respectively.

2. Other income of $18,500 (net of tax) relates to gains arising from the translation of transactions denominated in foreign currencies.

3. Distribution expenses includes sales returns of $15,000.

4. Included in the administrative expenses are interest expenseof $25,000.

5. Other expenses amount includes income tax expense of $128,000.

6. Net profit on asset relates to gains made on the disposal of an office building of Wagga Ltd.

7. Loss on inventories relates to the write-down of inventories to their net realisable values.

8. On 20 August 2019, a fire occurred and destroyed some of the furniture. The financial statements for the year ended 30 June 2019 were authorised on 12 September 2019. This loss, totaling $16,000, has not been recorded in the books. The amount involved is considered material.

Wagga Ltd uses the single statement format for the statement of profit or loss and other comprehensive income and classifies their expenses by function in the statement.

Required:

A. In relation to the classification of expenses as adopted by Wagga Ltd, state and explain the other classification style allowed by AASB101Presentation of Financial Statements. Which classification style is better? Do you think Wagga Ltd has chosen a method that is better for them? Why?

B. How should Wagga Ltd account for the fire occurred on 20 August 2019 in their financial statements for the period ending 30 June 2019? When should the adjustment for the loss be made in the accounts?Note:You should substantiate your answer by making references to AASB110Events after the Reporting Period.

C. Prepare a corrected statement of profit or loss and other comprehensive income for Wagga Ltd for the year ended 30 June 2019, to ensure that it complies with the requirements of AASB 101 and the Australian Conceptual Framework, where relevant.

Provide references to relevant authorities to support your answers. Note:You are not required to provide any notes to the accounts or disclosures relating to this statement.

Important tips:

Ignore the requirement for prior period comparative figures.

For requirement 3 above, you should provide separately all workings and explanations to support the figures presented in the statement and make references to AASB101 wherever possible to substantiate your answer. In preparing the statement, you should use the captions that are generally used by a listed entity.

Question 2 [15 marks]

Topic 4: Accounting for equity

Victoria Ltd was incorporated on 1 September 2018 and its constitution states that the company can issue the following shares:

3,000,000 ordinary shares; and 1,000,000 preference shares (non-voting)

The following events took place during the financial year ended 30 June 2019.

13 September

Issued a prospectus inviting the public to subscribe for 1,500,000 ordinary shares at an issue price of $3.50 each, with $2 due on application, $1 due within one month of allotment and the balance of $0.50 to be paid by 10 January 2019.

12 October Applications closed with the share issue being oversubscribed by 250,000 shares.

20 October Directors allotted the 1,500,000 shares on a pro rata basis and the amounts received in excess were credited against the amount due on allotment.

20 November All outstanding allotment money was received.

10 January

All monies were received for the final call except for the holders of 25,000 shares.

17 January The directors decided to forfeit the 25,000 shares of the defaulting shareholders.

22 January The forfeited shares were resold for $2.80 per share as fully paid. Share reissue costs amounted to $7,500. The defaulting shareholders incurred all costs of the reissue and any surplus was refunded to them.

Required:

Provide the journal entries necessary to account for the above transactions and events for the year ended 30 June 2019. Show all relevant dates and narrations.

Important tips:

Show all journal entries in chronological order, with dates stated clearly.

In preparing your journal entries, you should include brief narrations and relevant workings to support your figures.

Question 3 [18 marks]

Topic 5: Revaluation of assets

On 1 July 2016, E-Vision Ltd acquired a machine for $120,000. On the acquisition date, the useful life of the machine was estimated to be five years and the residual value estimated to be $20,000. The directors of E-Vision Ltd adopted the revaluation model for machinery subsequent to acquisition and all machinery is to be depreciated on a straight-line basis.

The directors determined the fair values of the machine for the years ending 30 June 2017 and 30 June 2018 to be $110,000 and $62,000 respectively. On 1 July 2017, the remaining useful life of the machine was re-assessed and reduced to 3 years. No other changes were noted throughout the years.

On 31 December 2018, the machine was unexpectedly sold off for $52,000.

Ignore any tax effect.

Required:

Prepare the necessary journal entries for the period 1 July 2016 to 30 June 2019 to record the acquisition, depreciation, revaluations, and de-recognition of the machine in accordance with AASB 116Property, Plant and Equipment.Show all relevant dates, workings, and narrations.

Important tips:

Make sure you show all workings to support your answers.

Show all journal entries in chronological order, with dates stated clearly.

In preparing your journal entries, narrations are required.

Make sure all depreciation charges are up to date.

Question 4 [12 marks]

Topic 6: Impairment of assets

Mata Mata Ltd has a business operation that represents a separate cash-generating unit (CGU). At 30 June 2018, the carrying amounts of the assets of the CGU, valued pursuant to the cost model, are as follows:

Plant and equipment	600000
Less: accumulated depreciation	(150000)
Goodwill	20000
Land	150000
Total non-current assets 620	620000
Cash	21000
Inventories	12000
Trade receivables	10000
Total current assets	43000
Total assets	663000
Liabilities		(28000
Net assets		635000

The directors of Mata Mata Ltd estimate that, as at 30 June 2018, the fair value less costs to sell the CGU amounts to $530,000, while its value in use is $575,000. The receivables are regarded as collectible and inventory is recorded at the lower of cost and net realisable value. On the same date, the land has a fair value less costs to sell of $130,000.

During the year ended 30 June 2019, due to some changes in their marketing strategies, the directors of Mata Mata Ltd assessed that the recoverable amount of the CGU to be $15,000 greater than its carrying amount. As a result, Mata Mata Ltd recognised a reversal of the impairment loss.

Prior to the impairment exercise on 30 June 2018, the plant and equipment had a cost of $600,000 and depreciated using straight-line basis over a useful life of 4 years with no residual value. Subsequent to the impairment exercise, the asset is to be depreciated over the remaining useful life of 3 years with no residual value.

Required:

A. For the year ended 30June 2018, determine how Mata MataLtd should account for the results of the impairment test and prepare all necessary journal entries. Explain your answers where necessary. B. For the year ended 30June 2019, determine how Mata Mata Ltd should account for the reversal of the impairment loss and prepare all necessary journal entries. Explain your answers where necessary.

Important tips:

Make sure you show all workings to support your answers. Ensure you have substantiated all your figures with explanation, where relevant. In preparing your journal entries, narrations are not required

Question 3 [18 marks]

Topic 5: Revaluation of assets

On 1 July 2016, E-Vision Ltd acquired a machine for $120,000. On the acquisition date, the useful life of the machine was estimated to be five years and the residual value estimated to be $20,000. The directors of E-Vision Ltd adopted the revaluation model for machinery subsequent to acquisition and all machinery is to be depreciated on a straight-line basis.

The directors determined the fair values of the machine for the years ending 30 June 2017 and 30 June 2018 to be $110,000 and $62,000 respectively. On 1 July 2017, the remaining useful life of the machine was re-assessed and reduced to 3 years. No other changes were noted throughout the years.

On 31 December 2018, the machine was unexpectedly sold off for $52,000.

Ignore any tax effect.

Required:

Prepare the necessary journal entries for the period 1 July 2016 to 30 June 2019 to record the acquisition, depreciation, revaluations, and de-recognition of the machine in accordance with AASB 116Property, Plant and Equipment.Show all relevant dates, workings, and narrations.

Important tips:

Make sure you show all workings to support your answers.

Show all journal entries in chronological order, with dates stated clearly.

In preparing your journal entries, narrations are required.

Make sure all depreciation charges are up to date.