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ACC204 Advanced Financial Accounting

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Question:

You are required to finish each of these questions, total 40 marks. Please give the solutions in detail, show calculations and submit the solutions to Moodle using a single file, it can be Excel format, Word format or PDF format, no requirement on word limits. If any reference was used, please refer to Harvard style.

  1. Hines (1991) argues that conceptual frameworks ‘presume, legitimize and reproduce the assumption of an objective world and as such they play a part in constituting the social world … conceptual frameworks provide social legitimacy to the accounting profession’. Try to explain what she means.
  2. On 1 July 2011 Sprintfast Couriers, which has a year-end of 30 June, purchased a delivery truck for use in its courier operations at a cost of $65 000. At the end of the truck's useful life it is expected to have a residual value of $5000. During its six-year useful life, Sprintfast Couriers Limited expected the truck to be driven 246 000 kilometres

Calculate the annual depreciation charge for each of the six years of the truck’s life using the following methods:

(a) the straight-line method

(b) the sum-of-digits method

(c) the declining-balance method

(d) the units-of-production method using kilometres as the basis of use and assuming the following usage:

Year

Kilometres

2012

28 000

2013

34 000

2014

42 000

2015

55 000

2016

68 000

2017

19 000

  1. Star CityLimited commences construction of a multi-purpose water park on 1 July 2015 for Pretoria Limited. Star City Limited signs a fixed-price contract for total revenues of $50 million. The project is expected to be completed by the end of 2018 and Pretoria Limited controls the asset throughout the period of construction. The expected cost as at the commencement of construction is $38 million. The estimated costs of a construction project might change throughout the project—in this example, they do change. The following data relates to the project (the financial years end on 30 June):

 

2016 ($m)

2017 ($m)

2018($m)

Costs for the year

10

18

12

Costs incurred to date

10

28

40

Estimated costs to complete

28

12

Progress billings during the year

12

20

18

Cash collected during the year

11

19

20

Required

(a) Using the above data, compute the gross profit to be recognised for each of the three years, assuming that the outcome of the contract can be reliably estimated.  

(b) Prepare the journal entries for the 2016 financial year using the percentage-of-completion method. 

(c) Prepare the journal entries for the 2016 financial year, assuming the stage of completion cannot be reliably assessed. 

  1. Innovator Ltd incurred expenditure researching and developing a cure for a common disease found in turnips. At the end of 2013 management determined that the research and development project was unlikely to succeed because trials of the prototype had been unsuccessful. During 2014 a breakthrough in agricultural science improved chances of the product succeeding and development resumed. The project was completed in 2014. At the end of 2014 costs incurred on the project were expected to be recoverable. Innovator expects that 10 per cent of the project revenue will be received in 2015, 20 per cent in 2016, 30 per cent in 2017, 30 per cent in 2018 and 10 per cent in 2019. After five years the product will be at the end of its useful life because the disease found in turnips will have been eradicated. Costs incurred were as follows:

REQUIRED

(a) How much research expenditure and development expenditure should be recognized as an expense in 2013?

(b) How much research and development expenditure should be recognized as an expense in 2014?

(c) State how much expenditure should be carried forward (deferred) and reported in the statement of financial position at the end of 2013 and 2014.

(d) Prepare journal entries for the amortization of deferred costs in 2015 and 2016, assuming that actual revenues are as expected. State the amount of deferred expenditure carried forward in the statement of financial position in relation to the deferred costs.

(e) Assume that after charging amortization based on sales revenue at the end of 2014 the discounted net cash flows expected to be generated from the deferred expenditure were estimated as $15 000. Prepare any journal entries required to account for this information.

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