Prepare journal entries to record transactions of sweet ltd

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Reference no: EM13836770

Task

This assessment task consists of four questions.

Rationale

This assessment task is designed to assess your understanding of topics 3 to 6, and the following subject learning outcomes:

? be able to prepare basic financial statements for reporting entities;

? be able to discuss critically and comprehensively the statutory and professional requirements upon which published financial statements are based;

? be able to explain the form and content of financial statements;

? be able to interpret and apply generally accepted accounting principles and specific financial reporting standards relating to concepts of recognition, measurement, disclosure, revaluation and impairment of key financial statement elements.

Short answer questions

In the awarding of marks for short answer questions, consideration will be given to:

• Evidence of understanding of the key issues identified in the question;

• Active analysis of identified elements as appropriate;

• Clear indication of reading of the texts, readings and other relevant references as appropriate;

• Clear and logical written expression; and

• Appropriate referencing.

Practical questions

In the awarding of marks for practical questions, consideration will be given to:

• Correctness of answers;

• Appropriate formatting and headings;

• Relevant workings;

• Approach taken to solve the problem; and

• Completeness of answers.

A detailed marking rubric has been provided in the 'Requirements' section below for each question.

Presentation

Physical presentation of assignments

It is essential that presentation of assignments adheres to accepted standards in relation to neatness and layout, as you are practising to present material in a work situation. Correct formatting and referencing procedures of material should be strictly adhered to for essays. You should submit a proper reference list (using APA referencing style) for all essay type assignments. A reference list contains only those works cited or quoted from in your essay. A bibliography is acceptable for practical-type assignments.

For practical questions:

• all journal entries must include narrations unless otherwise specified;

• any ledger accounts should preferably be shown in 'T' account format and dates and descriptions be included;

• journal entries and ledger accounts must reflect the strict order of sequence of events;

• financial statements (including extracts) should include proper headings and accord with presentation standards.

Penalties will be incurred if material is not correctly referenced and if presentation is not of an acceptable standard.

Please also note the following:

• Journal entries, ledger accounts, worksheets and financial statements should always balance. If you have to submit a piece of work that does not balance because you cannot detect your error please include some comment about the source of your problem so the marker can provide appropriate feedback.

• Include workings where appropriate. Partial marks can be allocated for workings where the final answer is incorrect.

Requirements

All workings, when appropriate, must be shown to substantiate your answers.

Question 1:

PART A:

Financial statement disclosures

You have been employed as an accountant at Bracken Ltd. Your role includes leading a team of accountants as they prepare the company's financial reports in accordance with the accounting standards. One of the trainee accountants has come to you for some advice:

"If we have prepared the financial statements in accordance with the accounting standards, why do we need pages and pages of note disclosures, and why do we need notes that disclose: the accounting policies adopted, that the financial statements comply with accounting standards, the reporting framework adopted, measurement basis or bases used in preparing the financial statements, and whether the financial statements are general purpose financial statements or special purpose financial statements?"

Required:

Prepare a written response to the trainee accountant's questions. (Word limit: 400 words)

PART B:

Accounting policies

The directors of Bracken Ltd have resolved to change the accounting policy for marketing expenditure. In previous years, marketing expenditure had been expensed as incurred. Following extensive market research, the directors believe that benefits from marketing expenditure in the form of increased sales will be received over a 5-year period following the expenditure. Due to a recent fire and water damage to the company's accounting records, details of marketing expenditure in prior years have been destroyed.

Required:

i) The directors have approached you for advice regarding the disclosures, if any, which are required for this change in accounting policy.

ii) Assume that the change in accounting policy for Bracken Ltd's marketing expenditure was due to the issue of a new accounting standard which requires marketing expenditure to be capitalised and then written off over a period not exceeding 3 years. Advise the directors of the disclosures, if any, which are required by this change in accounting policy.

Question 2:

Accounting for share capital

Sweet Ltd indicated issued prospectuses, offering 2,000,000 preference shares at $1.00 payable in full on application by 31 January 2015, and 5,000,000 ordinary shares at $5.00 with 50% due on application by 31 January 2015, 30% due on allotment, and 20% due on a call to be made by the directors at a later date.

By 31 January 2015, the company had received amounts due on 1,000,000 of the preference shares and on applications for 6,000,000 ordinary shares. On 20 February 2015, the ordinary and preference shares were allotted. The ordinary shares were allotted to applicants on a first-in first-served basis, and application money was refunded to unsuccessful applicants.

The amount due on allotment of the ordinary shares was due by 8 March 2015, and this was received on all shares.

The directors made the call on the ordinary shares on 31 March 2015, with amounts due by 30 April 2015. By this date, amounts due on 4,500,000 ordinary shares had been received. On 20 May 2015, the shares on which call money was not received were forfeited and sold as fully paid. An amount of $3.50 was received for each share sold. Costs of the forfeiture and reissue amounted to $12,000, and were paid. The constitution provided for any surplus on resale, after satisfaction of unpaid calls and costs, to be returned to shareholders whose shares were forfeited.

Required:

Prepare the journal entries to record the transactions of Sweet Ltd up to and including that which took place on 20 May 2015. Show all relevant dates, narrations and workings.

Question 3:

Accounting for income tax

The accounting profit before tax for the year ended 30 June 2014 for Queen Ltd amounted to $225,900. It included the following income and expense items:

$

Royalties (non-taxable exempt income) 8,500

Interest revenue 9,000

Annual leave expense 5,000

Doubtful debts expense 2,200

Depreciation - plant (15% per year, straight-line) 33,000

Depreciation - motor vehicles (25% per year, straight-line) 25,000

Insurance expense 5,000

Rent expense 22,500

Warranty expense 6,000

Entertainment expense (non-deductible) 1,300

The draft statement of financial position at 30 June 2014 contained the following assets and liabilities:

2014 2013

$ $

Assets

Cash 29,000 17,500

Accounts receivable 52,000 50,800

Allowance for doubtful debts (4,000) (2,200)

Inventory 35,100 32,300

Interest receivable 1,500 500

Prepaid insurance 2,000 -

Prepaid rent 2,100 2,600

Plant - cost 220,000 220,000

Less: accumulated depreciation (99,000) (66,000)

Motor vehicles - cost 100,000 100,000

Less: accumulated depreciation (75,000) (50,000)

Deferred tax asset ? 23,160

Liabilities

Accounts payable 71,200 73,600

Provision for annual leave 14,000 12,000

Provision for warranties 5,000 3,000

Bank loan 200,000 220,000

Deferred tax liability ? 7,530

Additional information:

? The tax depreciation rate for both plant and motor vehicles is 20% per year using the straight-line method.

? Tax deductions for annual leave, warranties, insurance and rent are available when the amounts are paid, and not as amounts are accrued.

? Tax deductions are not available for doubtful debts. Tax deductions are only available when bad debts are written off.

? Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.

? Interest revenue is only taxable when amounts are actually received, and not as amounts are accrued.

? The deferred tax asset (DTA) balance at 30 June 2013 comprised:

- DTA's relating to temporary differences: $8,160

- DTA's relating to carried forward tax losses: $15,000

? Taxation legislation allows tax losses to be offset against future taxable profit.

? The tax rate is 30%.

Required:

i) Determine the balance of any current and deferred tax assets and liabilities as at 30 June 2014, in accordance with AASB 112. Show all necessary workings.

ii) Prepare the journal entries to record the current tax liability and movements in deferred tax assets and liabilities.

Question 4:

Property, plant and equipment

Quirky Ltd acquired an item of equipment on 1 July 2011 at a cost of $500,000. At 30 June 2012, Quirky's directors decided to continue with the cost model for equipment. They elected to depreciate the equipment on a straight-line basis over its useful life of five (5) years. The estimated residual value is nil.

The directors then decided to adopt the revaluation model for equipment on 1 July 2012. They determined that the fair value of the item of equipment at this date amounted to $420,000. The useful life and estimated residual value remain unchanged.

At 30 June 2014, Quirky's directors estimated that the fair value of the item of equipment was $160,000.

The item of equipment was sold on 30 September 2014 for $150,000.

Assume a tax rate of 30%.

Required:

Prepare journal entries to account for all transactions occurred for the period 1 July 2011 to 30 September 2014. Show all relevant dates and workings.

Criteria Exceeds expectation

Meets expectation (CR/PS) Fails to meet expectation (FL)

Question 1:

Explain the importance of note disclosures, and describe the note disclosures required for changes to accounting policies.

- correctly explain why there is a need for note disclosures;

- correctly describe the note disclosures required for changes to accounting policies;

- explanations shown are exemplary and clear. - correctly explain why there is a need for note disclosures;

- correctly describe the note disclosures required for changes to accounting policies;

- explanations shown are adequate. - fails to accurately explain why there is a need for note disclosures;

- fails to describe the note disclosures required for changes to accounting policies;

- explanations shown are inadequate.

Question 2:

Prepare journal entries to account for share issue transactions.

- all entries made are accurate/with minor flaws;

- dates shown are correct for the transactions;

- narrations are shown.

- workings shown are logical and well presented. - most of the entries made are correct with some errors;

- dates shown are mostly correct for the transactions;

- narrations are shown.

- workings shown are logical and well presented. - most of the entries made are incorrect;

- most of the dates shown are incorrect for the transactions;

- narrations are not shown.

- workings shown are illogical and ill presented.

Question 3:

Apply relevant accounting principles in recognising and measuring income tax.

- determine current and deferred tax balances without flaw/with minor flaws;

- workings shown are logical and well presented;

- all journal entries made are accurate/with minor flaws. - determine current and deferred tax balances with some errors;

- workings shown are logical and well presented;

- journal entries made are accurate with some errors. - fails to determine current and deferred tax balances;

- workings shown are inadequate;

- most of the journal entries made are incorrect.

Question 4:

Apply relevant accounting principles in the asset revaluation model. - all entries made are accurate/with minor flaws;

- workings shown are logical and well presented.

- all entries made are mostly correct with some errors;

- workings shown are logical and well presented.

- most of the entries made are incorrect;

- workings are not prepared or are inadequate.

Reference no: EM13836770

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