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Define a CGU. Explain why impairment testing requires the use of CGUs, rather than being based on single assets.
Q1. Driver Ltd signs a five year lease agreement with Bakewell Ltd on 1st July 2019. The lease is for new equipment which has at the star of the lease a fair value of $341,755. The equipment is estimated to have a useful life of seven years with no residual value at the end of that time. Driver Ltd has a bargain purchase option which can be taken up at the end of the lease term for $68,000. The equipment originally cost Bakewell Ltd $272,000. There are five annual lease payments of $85,000 starting on 30th June 2020. Within the $85,000 is an executory payment for insurance, repairs and maintenance of $8,500. A straight-line basis of depreciation has been adopted for the equipment. The rate of interest implicit in the lease is 9 per cent.
Prepare the Journal entries for the years ending 30 June 2020 and 30 June 2021 in the books of:
(a) Bakewell Ltd and (b) Driver Ltd. (13 marks) Q2. Ewe Beudie Ltd is an Australian company. The functional currency of Ewe Beudie Ltd is the Australian dollar. It prepares financial reports half yearly and in the year ended 30 June 2017, Ewe Beudie Ltd had the following foreign currency transactions in Euros (€): (a) On 13th September 2016 Ewe Beudie Ltd ordered machinery €900,000 from a French company under a FOB destination contract. On 10th October 2016, the machinery was delivered. On 17th February 2017, the invoice for the purchase was paid. (b) On 2nd December 2016 Ewe Beudie Ltd sold inventory to an Italian customer for the agreed price of €650,000. The inventory had a cost of $420,000. On 24th February 2017, the invoice was paid by the customer. (c) On 1 July 2016, Ewe Beudie Ltd made an interest free loan to an Irish company, Ninety Craic Ltd, for €1,200,000. The term of the loan is 5 years.
Applicable exchange rates are as follows: 1 st July 2016 €1 = A$1.24 13th September 2016 €1 = A$1.12 10th October 2016 €1 = A$1.18 2 nd December 2016 €1 = A$1.27 31st December 2016 €1 = A$1.22 17th February 2017 €1 = A$1.20 24th February 2017 €1 = A$1.15 30 June 2017 €1 = A$1.26
Required In accordance with AASB 121, prepare the entries of Ewe Beudie Ltd for the half year to 31 December 2016 and the full year to 30 June 2017. . (11 marks)
CDU Business School Semester 2, 2016 Page 3 of 5 Faculty of Law, Education, Business and Arts
Q3. The Northern Plastic Extrusion Company Limited bought a 3D printer on 1 July 2016 for $49,750 for cash. The cost of transporting the machine from Melbourne to Darwin was $4,000. Once the machine was delivered it was installed and calibrated. This cost $1,250. The transport and calibration costs were paid on 2nd and the 6th July respectively.
The production manager estimated that the machine would have a useful life of 10 years and that at the end of that time it would be worth $2,250.
The company depreciates all of its equipment using the straight-line method. All depreciation calculations are measured to the nearest month. The financial year ends on the 30th June.
At the start of July 2017, in a review of the non-current assets, the chief financial officer was informed by the production manager that, because of recent technological advances, the company should revise the total useful life of the 3D printer from an original of 10 years to a remaining life of 5 years, and that the expected scrap value should be revised downwards to $1,505. These adjustments were implemented in the depreciation charge for the year to 30th June 2018.
The company decided to move from the cost model to the revaluation model for equipment on 30 June 2018. An external valuer was employed to conduct the valuation and the 3D printer was given a fair value of $43,000 at that date.
On 30 June 2019, depreciation for the year was charged and the 3D printer’s carrying amount was revalued to a fair value of $27,121.
The 3D printer was sold for $10,500 cash on 30th September 2019.
Required (Show all workings and round amounts to the nearest dollar.) Prepare general journal entries to record the transactions and events for the period 1 July 2016 to 30 September 2019. (ignore taxation) (13 marks)
Q4. During a review of the financial statements of Firebrand Ltd the following information has come to your notice for the year ended 30 June 2016:
1. The Northern Territory Environmental Protection Agency (NTEPA) has been investigating an alleged release of toxic chemicals into the Francis Bay Mooring Basin at the beginning of June 2016. An investigator visited the Duck Pond to establish whether the company was responsible for the leak. The NTEPA report was handed down on 12th August 2016 which deter…
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