Question 1. You have been appointed the accountant of a new organisation that is preparing its first set of financial statements. In determining the depreciation for the first year, what sorts of information would you need? Please include knowledge from this subject with references.
Question 2. During the reporting period ending 30 June 2018, Midnight Boil Ltd constructed a nuclear power generator just outside of Melbourne. The cost of the power generator and associated technology amounted to $12,550,000. Other costs associated with the construction amounted to:
Costs incurred in obtaining access to the site - $2,500,500
Power Permits - 400,500
Engineers' Fees - 1,100,500
4,001,500
The plant was ready to start generating power on 1 July 2018, with actual generation starting on 1 October 2018. At the end of the power plant's useful life, which is expected to be 10 years, Midnight Boil Ltd is required by the government to dismantle the plant, remove it, and return the site to its original condition. After consulting its own engineers and environmentalists, Midnight Boil Ltd estimates these costs to be:
Dismantling the plant - $750,500
Environmental remediation costs - 1,249,500
Replacement of flora and fauna - 100,000
2,100,000
Midnight Boil Ltd uses a discount rate of 10 per cent.
Required - Prepare the journal entries necessary to account for the power plant for the years ended 30 June 2018, 30 June 2019 and 30 June 2024. Ignore depreciation.
Question 3. Sun City Limited commences construction of a multi-purpose water park on 1 July 2014 for Pretoria Limited. Sun City Limited signs a fixed-price contract for total revenues of $50 million. The project is expected to be completed by the end of 2017 and Pretoria Limited controls the asset throughout the period of construction. The expected cost as at the commencement of construction is $38 million. The estimated costs of a construction project might change throughout the project-in this example, they do change. The following data relates to the project (the financial years end on 30 June):
|
2015 ($m)
|
2016 ($in)
|
2017 ($ 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 2015 financial year using the percentage-of-completion method.
(c) Prepare the journal entries for the 2015 financial year, assuming the stage of completion cannot be reliably assessed.
Question 4. Mam Ltd acquired Bo Ltd on 1 July 2018 for cash of $7,000,000. At that date, Bo Ltd's net identifiable assets had a fair value of $5,800,000. The fair value of the net identifiable assets of Bo Ltd are determined as follows: (in $000)
Customer List 50
Machinery 1450
Buildings 1500
Land 3000
6000
Less: Bank Loan 200
Net assets 5800
At the end of the reporting period of 30 June 2019, the management of Mam Ltd determines that the recoverable amount of the cash-generating unit, which is considered to be Bo Ltd, totals $6,200,000. The carrying amount of the net identifiable assets of Bo Ltd, which excludes goodwill, has not changed since acquisition and is $5,800,000.
REQUIRED -
(a) Prepare the journal entry to account for any impairment of goodwill.
(b) Assume instead that at the end of the reporting period the management of Mam Ltd determines that the recoverable amount of the cash-generating unit, which is considered to be Mam Ltd, totals $4,800,000. Prepare the journal entry to account for the impairment.