Reference no: EM132382328
ACC204 Advanced Financial Accounting
Elite Education Institute,
Part one - case study
Answering the following questions in essay format, word limit: 500-1000 words.
ACCOUNTING FOR LEASES BY LESSEE
Alan Tan is the CEO for an airline company. The company has a large proportion of its aircraft leased from manufacturers under lease agreements that can be cancelled at any time with minimal penalties. At the end of the period starting on 1 January 2019, looking at the statement of financial position prepared by the company accountant, Joyce Maine, Alan noticed a large increase in the total assets and liabilities.
Not being aware of any major restructuring activities or investments during the period but having heard about a change in the accounting rules governing leases, Alan asks Joyce to prepare a report describing how the changes in those accounting rules affect the company.
Required
Joyce approaches you, a junior accountant, to summarise the changes in the treatment of some leases that caused the large increase in the total assets and liabilities. Provide a short description of those changes to Joyce.
Part Two - case study
Answering the following questions in essay format, word limit: 500-1000 words
IDENTIFYING THE ACQUIRER
White Ltd has been negotiating with Cloud Ltd for several months, and agreements have finally been reached for the two companies to combine. In considering the accounting for the combined entities, management realises that, in applying AASB 3/IFRS 3, an acquirer must be identified. However, there is debate among the accounting staff as to which entity is the acquirer.
Required
1. What factors/indicators should management consider in determining which entity is the acquirer?
2. Why is it necessary to identify an acquirer? In particular, what differences in accounting would arise if White Ltd or Cloud Ltd were identified as the acquirer?
Part 3 -analysis and calculation
Flaxton Ltd made an accounting profit before tax of $40 000 for the year ended 30 June 2021. Included in the accounting profit were the following items of revenue and expense.
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Donations to political parties (non-deductible)
Depreciation expense - machinery (20% p.a.. straight-line)
Annual leave expense
Rent revenue
For tax purposes the following applied.
Depreciation rate - machinery
Annual leave paid
Rent received
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$5 000
15 000
5 600
12 000
25%
$ 6 500
$10 000
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Income tax rate
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30%
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Required
Calculate the current tax liability for the year ended 30 June 2021, and prepare the adjusting journal entry.
Explain your treatment of rent items in your answer to requirement 1.
Part 4-analysis and calculation
The equity of Sea Horse Ltd at 1 January 2020 was as follows.
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Share capital
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600 000 shares fully paid
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$600
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000
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400 000 shares issued for $1 and paid to 50c
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200
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000
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$ 800
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000
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General reserve
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200
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000
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Plant maintenance reserve
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50
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000
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Retained earnings
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80
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000
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Total equity
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$1 130
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000
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The following events occurred during the year.
Required:
1. Prepare the journal entries to give effect to the above events.
2. Prepare the equity section of the statement of financial position at 31 December 2020.