Financial Accounting
Task
At your first meeting, decide within your team which student will complete which question. It is a
good idea that before your first meeting that each team member reads the task so that they are able
to present their point of view about the task. It is recommended that each group member is allocated
a question(s), you should then allocate a different group member to provide feedback on the answer
given for each question. This is a suggestion only and you can allocate the work differently but keep
in mind that every student in your team must participate and answer questions as well as provide
feedback to others. Students should be allocated a question based on their strengths. Please record
details of your first meeting using the document titled ‘Action Plan Template.’ You should also
document who is answering which question and who is providing feedback on that question. Set
deadlines that group members agree to have their questions and feedback finished and record these
details. Provide a copy to each team member to ensure they all agree on what was said.
Group Task 1,500 words (10 marks)
The case data (Dragon’s Fire Pty Ltd) is given in a separate file.
You and your team have recently been employed as graduate accountants for a new company who
is yet to start trading. The company, Dragon’s Fire Pty Ltd will begin operation on 1 July 2019. The
owners of the company are young and wanted to employ accountants straight out of University, as a
result there is no other experienced accountants working for the company. As this is a new business
they have asked your team to help determine suitable accounting policies in relation to recording,
expensing and reporting of non-current assets and to provide advice regarding the company’s noncurrent asset treatment and revenue recognition.
The owners of the company Spike and Kate would like you to work with the other three graduates to
get the financial records of the business ready in preparation forDragon’s Fire Pty Ltd to start trading.
Spike and Kate has provided you with some background information regarding the company’s noncurrent assets and revenue from customers. The group is required to prepare a brief report outlining
to the owners which accounting policies have been selected and how certain elements will be
treated. Your group is encouraged to refer to AASB 116 Property, Plant and Equipment, AASB 136
Impairment of Assets and AASB 15 Revenue from Contracts with Customers to justify your answer.
When referring to the accounting standards to justify your answer, you may reference the
paragraph number within the text. See the following example below:
In this scenario, the revaluation increase should be recognised in other comprehensive income and
accumulated in equity under the heading of revaluation surplus (para 39, AASB 116).
Required
Your job is to refer to questions from the owners Dragon’s Fire Pty Ltd, and produce a report. The
report should address the following:
1. Determine the amounts to be recorded in the balance sheet for the newly acquired land, building
and machinery. Consider any additional amounts that need to be included in the cost of the land,
building and machinery and justify why or why not they should be included. Include in your answer
journal entry required to record the lump-sum acquisition and any other journal entries required.
Show your calculations.
2. Select the most appropriate depreciation method for the buildings and machinery using the
information in the case data and justify why for each item the method of depreciation selected.
Calculate the annual depreciation expense to be charged in the accounts of Dragon’s Fire Pty Ltd,
with respect to the building and machinery for the life of each asset. Please display your results in
a table. Students should display results for all methods of depreciation not just the for the method
selected.
3. Discuss the advantages and disadvantages of both the cost model and the revaluation model in
relation to revaluing the land and building. In your answer also briefly explain whether the method
of revaluation can be altered if the owners are not happy with the original model chosen. Using
the revaluation model calculate the revised amount that the building and land should be recorded
at in the balance sheet for 30 June 2021. Include in your answer the general journal entries that
need to be recorded to recognise the revised value of the building and land. Show your
calculations.
4. Prepared journal entries to account for additional costs incurred on 30 June 2022 and the disposal
of old parts. What will be the updated annual depreciation expense after the overhaul of the
machinery? Please show your calculations.
5. The owners of Dragon’s Fire, Spike and Kate approach the team about changing the method of
depreciation for the building as at 30 June 2021. Briefly explain why and whether the method of
depreciation for the building can be changed. Identify and discuss which qualitative characteristics
of financial reporting would be violated if method of depreciation is altered.
6. With reference to AASB 15 Revenue from Contracts with Customers, apply the five-step process
for revenue recognition in regards to the contract with Red Hot Equipment Pty Ltd. Discuss how
Dragon’s Fire shall recongise the revenue from the contract. Please list each of the five steps and
show any calculations.
The answers are to be
