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ACCT6003 Financial Accounting Processes

Part A
Question 1 Impairment of assets (9 Marks)
I. Aero Ltd has determined that its aviation division is a cash–generating unit (CGU).
Information as at 30th June 2020 is as follows:
Buildings – At cost 600,000
Equipment – At cost 500,000
Inventory 25,000
Land 250,000
Receivables 150,000
Goodwill 90,000
Total 1,615,000
Additional information:
Buildings - Accumulated depreciation as at 30 June 2020: $100,000
 Equipment - Accumulated depreciation as at 30 June 2020: $200,000
Aero Ltd calculated the value in use for the division to be $515,000
a) Calculate the impairment loss as at 30 June 2020: (2 Marks)
b) Prepare a table as provided below to allocate the above impairment loss: (2 Marks)
(c) Prepare a general journal (as per template below) to record the above impairment loss for the year ended 30 June 2020. Include a narration (5 Marks)
Question 2 Revaluation of Non-current assets (13 Marks)
The Balance sheet for Pluto Ltd disclosed the following information:
Non-current Assets:
Plant –At cost: $500,000
Accumulated depreciation-Plant $(150,000)
The company has adopted fair value for the valuation of non-current assets. This has resulted in the recognition in previous periods of an asset revaluation surplus/reserve for the plant of $60,000.
The plant has a useful life of 10 years and a zero residual value.
On 31st December 2019, it was decided to revalue this amount to its fair value of $200,000.
(i) Record the journal entries (as per template below) as at 31 December 2019, relating to the revaluation of this plant. Include narrations. (7 Marks)
(ii) Record the closing journal entries (as per template below)for any gain or loss on revaluation only, as at 30th June 2020. Include narrations. (6 Marks)
Question 3 Share issue (18 Marks)
Zorba Ltd was incorporated on 1 July 2019 and issued a prospectus inviting applications for 500,000 ordinary shares at an issue price of $10.
The shares are payable as follows:
•$5 payable on application
•$2 payable on allotment
•$3 payable on call to be made 30th September 2019
 Share issue costs were $1,500 and legal costs were $500
The transactions for the period were as follows:
31 August 2019: Applications were received for 560,000 shares.
3 September 2019: Applications for 60,000 were rejected by the directors and the application money was refunded to the shareholders concerned.
4 September 2019: The Company allotted 500,000 shares to the remaining applicants.
25 September 2019: All the allotment money was received. Share issue and legal costs were paid in cash.
30 September 2019: The call was made on the shares, payable by 31 October 2019.
31 October 2019: Call money was received from the shareholders of only 480,000 shares.
31 December 2019: The remaining 20,000 shares were forfeited. The forfeited shares were offered to an investment company at a price of $8 per share
paid to $10 and the transfer was completed on 31 March 2020. The costs of reissue amounted to $1,500.
The company’s constitution states that any forfeited shares must be refunded to the shareholders.
30 April 2020: These shareholders received a refund for the amount owed to them.
Prepare the general journal entries (as per template below) in the books of Zorba Ltd to record the above transactions. Provide narrations for all your entries. 
Part B Video Presentation (5 mins) (60 Marks)
Technical accuracy of your presentation = 40 marks
Presentation skills (Refer marking Rubric on Blackboard) = 20 marks
Prepare a video presentation to address each of the following questions. You will be assessed on your technical understanding of each question and also your presentation skills. Please refer to the marking rubric which details the assessment criteria for the communication and presentation skills.
You may use visual aids to support your presentation, however you must be seen at all times in front of the camera. Marks will not be awarded if you read directly from your notes.
Please introduce yourself and the purpose of your presentation. Speak slowly and clearly to address each of the following:
Issue 1:
You are the accountant for a small accounting firm, Zandy Pty Ltd. A client, Tom Jones has just emailed you with great confusion over accounting for his non-current assets. He does not understand the difference between a revaluation decrement and an impairment loss and has asked why we have different names for the same process.
Provide advice to Tom, with relevant references to the Australian Accounting standards in your answer. (12 Marks)
Issue 2:
Jasper Ltd is a medium sized public company which operates within the manufacturing sector. The assets include a large number of non-current assets such as Plant and Machinery items. The CFO currently prepares the annual financial statements using the Cost model however is considering changing to the Revaluation (fair value) method.
In order to assist with his decision, he needs to know the impact that this change will have on the financial statements and reports. The company is in it’s growth stage and wants to continue attracting new investors with its impressive financial results.
In your presentation, discuss the differences between the Cost model and the Revaluation model. In particular, highlight the different impact each model will have on the financial statements. Discuss the effect on each financial statement individually; Balance sheet, Statement of Changes in Equity and Income statement. Also consider any effects on financial analysis and the cost of implementing each model. Each point of discussion needs to address the differences and whether it will encourage new investors to Jasper Ltd.
Provide a recommendation in your conclusion as to which model you suggest Jasper Ltd to follow given the company’s current strategy of new investment. (28 Marks)

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