You are required to do the following questions. A total of 60 marks is allocated to these questions, which will be converted to a final mark out of 15%. Please note:

1) All workings, where appropriate, must be shown to substantiate your answers. 2) Solutions should be rounded to the nearest dollar. 3) To assist with the marking, narrations should be provided along with your journal entries.

Question 1 [25 marks]

North Ltd is a manufacturing company. The following asset information is extracted from its property, plant, and equipment schedule on 1 July 2022:

	$
Plant - North Rye	1,450,000
Less Accumulated depreciation - North Rye plant	(116,000)
Plant - West St	850,000
Less Accumulated depreciation - West St plant	(42,500)

The plant in North Rye and West St were acquired on 1 July 2020 and 1 July 2021 respectively. All plant is to be depreciated on a straight-line basis and the useful life for the North Rye and West St plants were assessed to be 25 years and 20 years respectively, with no residual value.

Due to the location, the plant in North Rye has more prospects than the one on West St. To take advantage of the situation, the directors suggested you adopt the revaluation model for the North Rye plant while continue to value the West St plant using the cost model. Unsure of the accounting implications, the directors have approached you, the accountant, for advice.

Upon review of both the plant on 1 July 2022, you have gathered the following information on that date:

	Remaining useful life	Residual value
North Rye plant	25 years	Nil
West St plant	17 years	Nil

Required:

1. Advise the directors if their suggestions can be adopted. Support your answers with references made to AASB 116. (3 marks)
2. Assume now the directors have decided to adopt the revaluation model for all plant from 30 June 2023. On that date, the fair value was $1,350,000 and $738,000 respectively for the North Rye and West St plant. Given this information, determine if there is any gain or loss on revaluation for the plant on 30 June 2023. (4 marks)
3. Advise the directors if any gain on revaluation from one plant can be used to offset any loss on revaluation for the other? Why? Provide reference made to AASB 116. (3 marks)
4. Show all relevant journal entries required to record the depreciation and revaluation for the plant in North Ltd's financial statements for the year ended 30 June 2023. Ignore any tax effect. (13 marks)
5. Explain how professional judgement would have been applied in the above revaluation transactions. (2 marks)

Question 2 [20 marks]

South Ltd has invested in several intangible assets and the following information is provided by the company:

Copyright

South Ltd acquired the copyright for the publication of an educational book series for gifted and talented kids. The copyright was acquired on 1 July 2021 for $350,000. The copyright lasts for 30 years. However, the research department estimates that the book series will generate cash inflows for only the next 25 years, based on the assessment of competitiveness and typical life cycle of similar books in the market.

Computer software

South Ltd has a strong pool of programming expertise in its computer department. The company started to develop new software that will detect cyber crime using anomaly detectors in its operating system. Once this is successful, the company intends to market this software as one of its products. The company has since incurred the following expenditure in relation to this project:

Date	Expenditure	$
30 July 2021	Research on initial software ideation and planning	135,000
28 August 2021	Legal and professional fees for initial patent	20,000
15 March 2022	Further refining on system design & coding	142,000
9 May 2022	Design, construction and testing of pre-use prototype	185,000
1 August 2022	Further improvement on system design	65,000
9 October 2022	Legal and professional fees to register for final patent	38,000
20 November 2022	Staff training and development to use the new system	40,000
5 December 2022	Marketing costs to promote the new system	160,000

The research department reports that after the system has been improved on 1 August 2022, the technical feasibility of the software has been very positive. As a result, the new software will be commercially viable and likely to take up 20% of the market share in the cyber security market in the next few years. The software will bring in net cash flow for the company for at least the next 10 years.

Required:

You should answer all the following questions by making references to AASB 138, whenever relevant.

In relation to the copyright:

1. Will the costs of $350,000 be recognised as intangible assets in South Ltd's books on 1 July 2021? Why? (5 marks)
2. Assuming the copyright is recognised as an intangible asset on 1 July 2021, determine the carrying amount of the asset in the financial statements for the year ended 30 June 2022. Explain your answers. (6 marks)

In relation to the computer software

c. Explain with reasons, which expenditure can be capitalised in South Ltd's financial statements for the years ended 30 June 2022 and 2023. (7 marks)

d. Determine any carrying amount of the asset in the financial statements for the years ended 30 June 2022 and 2023. Explain your answers. (2 marks)

Question 3 [15 marks]

Sonia is the Junior Accountant at East Ltd and she has recently completed the first draft of the year-end financial reports. The following financial information is extracted from the financial statements for the year ended 30 June 2022:

	Notes	$
Non-current assets
Contingent assets	1	5,000,000
Non-current liabilities
Provision for staff training	2	1,000,000
Contingent liabilities	3	250,000

All the items recognised above are considered material in East Ltd's context.

Notes:

1. The contingent asset is in relation to a legal case which East Ltd has taken against Middle Ltd, one of its major suppliers. The materials supplied by Middle Ltd were faulty and have caused major disruptions in the production lines. These have then caused low production output, customer grievances, loss of customer loyalty and decrease in staff morale. The directors are confident that they will win over the case and demanded compensation of that amount. The directors initiated the case in May 2022 and are still waiting for the court order to hear the case. Sonia thinks that once the company wins the case, it will bring in huge cash flow that should be reflected in the current reports.
2. The company has recently added a new production line to one of its factories. However, as the production process is new and there is no internal expertise, the company has had to hire external specialists to train all of its production workers which has been planned to happen during August 2022. Given the materiality of this expenditure, Sonia thinks it is best to set aside a provision to account for it now.
3. The contingent liabilities are related to warranties on products offered to customers. East Ltd has a business practice to return, refund or replace products at fault within 3 months of purchase. Sonia comments that since this business practice has not been published anywhere, and that 95% of its customers are happy with their products anyway, it will only be recognised as contingent liabilities.

Sonia has presented her draft financial statements to you, the Senior Accountant, for review and comments.

Required:

You should answer all the following questions by making references to AASB 137, whenever relevant.

In relation to the contingent assets:

1. Should the legal case be recognised as contingent asset? Why or why not? (3 marks)
2. How should the legal case be treated in the financial statements for the year ended 30 June 2022 in East Ltd's books? Justify your answers. (2 marks)

In relation to the provision for staff training:

1. Explain if the estimated staff training costs can be recognised as a provision. Why or why not? (3 marks)
2. How should the future staff training be treated in the financial statements for the year ended 30 June 2022 or 2023? Justify your answers. (2 marks)

In relation to the contingent liabilities:

1. Should the warranties provided to customers be recognised as contingent liabilities? Why or why not? (3 marks)
2. How should the warranties be recognised in the financial statements for the year ended 30 June 2022? Justify your answers. (2 marks)

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