Parts 1-3 are a team requirement. Part 4 is an individual requirement.
Part 1 - 4 marks
From the trial balance and transaction data below, prepare an income statement and balance sheet for the year ended 30th June 2015. Notes to the financial statements are not required.
Part 2 - 4 marks
From the trial balance and transaction data below, prepare an income statement and balance sheet for the year ended 30th June 2020. Notes to the financial statements are not required.
Parts 1 and 2 will be assessed based on the accuracy of the financial statements. Working papers, journal entries and explanations of why you have recorded something the way you have are not required. However, you may include them for both parts 1 and 2 if you wish and they will be considered and used to award partial marks if a section of your answer is incorrect.
Part 3 - 22 Marks
Write an essay addressing one of the following two topics:
- The new requirements for leases in AASB 16 will make financial reports more useful for users of financial reports than would the old requirements for leases under AASB 117.
- The new requirements for leases in AASB 16 will make financial reports less useful for users of financial reports than would the old requirements for leases under AASB 117.
- You should use evidence from your answers to parts 1 and 2 to support your argument.
- The essay will be assessed on the quality of the argument in the essay (18 marks) which includes the
- evidence used to support the argument and on the effectiveness of the communication (4 marks).
Other information
Your essay is to be properly referenced use the University’s version of the Harvard referencing method. Students are encouraged to use referencing software such as Endnote or Refworks to 1 Students at the Chadstone (Holmsglen) campus in Melbourne have slightly different team rules. Students at Chadstone are to apply the rules specified in their unit outline. If in doubt, please ask Andrew Read or Paula DeLange.
manage their references. Details of the Harvard referencing method are available from the University Library’s website. Your argument is to be supported by appropriate theory and research.
Your essay is to be written for someone who has an undergraduate degree in accounting and you may assume that the reader has the background knowledge and comprehension level typical for that type of reader. The maximum length of the essay is 1,500 words.
Part 4
Each student is to submit 3 reflections on the assignment process. The topics of the reflections are:
1. What I have learned about cross-cultural communication during this assignment and why this is important to my studies and career (300 words – 4 marks).
2. What I have learned about working in teams during this assignment and why this is important to my studies and career (250 words – 3 marks).
3. What I have learned about research during this assignment and why this is important to my studies and career (250 words – 3 marks).
It is permitted to give a negative response in the reflections. That is you can state that you did not learn anything about cross-cultural communication, working in teams or research or that what you have learned is not important to your studies or career but you have to reflect on why this is the case.
Data for assignment
Williams Delivery Ltd is a transport business operating a local franchise for one of the large international transport companies. It is an Australian reporting entity and, hence, is required to follow all Australian accounting standards. For simplicity, you may ignore all taxes in this assignment.
Williams depreciates all depreciable assets using the straight-line method.
Williams has elected to separate non-lease components from lease components for all classes of assets (see AASB 16 para 15 & 16).
Williams’ incremental borrowing rate is 10%. Williams uses this rate for discounting all future obligations where there is insufficient data to determine a more accurate discount rate. Where there is sufficient data to enable the calculation of the interest rate implicit in a lease, the interest rate implicit is used for discounting the lease cash flows.
Williams has not elected to apply the revaluation model for the measurement of lease right-of-use assets.
The bookkeeper for Williams has not known how to account for leases and has recorded all payments associated with leases using the following pro-forma journal entry:
Dr Lease payment expense xxx
Cr Cash xxx
The bookkeeper has not recorded any other journal entries for things associated with the lease or leased assets. If this recording of lease payments has caused errors in prior period financial statements you do not need to amend those prior period statements but you do need to amend opening retained earnings.
The details of the leases are provided below.
Data relevant for part 1
Trucks
Williams leased a fleet of trucks of from a company that specialises in leasing trucks. The trucks have no special features and there are thousands of similar trucks sold each year in Australia. The lease is for 5 years and commenced on 1st July 2014. The annual rentals are $62,000 and are made on 1st July each year with the first rental being paid on 1st July 2014. The lessor is responsible for all maintenance, insurance, and registration for the trucks and Williams estimates that the value of those services is $16,000 per year. At the end of the lease term the trucks will be returned to the lessor.
The trucks would have cost $279,000 if Williams had purchased the trucks. Williams estimates that the fair value of the trucks at the end of the lease term will be $160,000. Trucks similar to the ones that Williams has leased have a useful of 20 years. Williams incurred direct initial costs of $1,000 in arranging the lease contract which it paid on 1st July 2014. Either party can cancel the lease at any time by providing 3 months written notice but Williams is reasonably certain that it will not cancel the lease.
Cars
Williams Ltd leased a fleet of cars from a finance company. The lease is for 4 years, is noncancellable and commenced on 1st January 2015. The annual rentals are $21,000 and are made on 1st January each year with the first rental being paid on 1st January 2015. The lessor is responsible for all maintenance, insurance, and registration for the cars and Williams estimates that the value of those services is $6,000 per year. Williams expects to purchase the fleet of cars at the end of the lease as it has an option to do so at $10,000 which is substantially below its expected fair value of $30,000 at that date. Williams plans to use the fleet for 5 years and the current market price of a similar 5-year-old fleet is $20,000. The fleet would have cost Williams $70,000 if it had purchased the fleet on 1st January 2015.
Tablet computer
Williams Ltd leased an iPad from a finance company. The lease is for 3 years, is non-cancellable and commenced on 1st July 2014. The annual rentals are $380 and are made on 1st July each year with the first rental being paid on 1st July 2014. Williams is responsible for maintaining and insuring the iPad. Williams expects to return the iPad to the leasing company at the end of the lease which is also the end of the iPad’s useful life. The current market price of 3-year-old iPad’s is $0. The iPad would have cost Williams $1,000 if it had purchased it on 1st July 2014.
Warehouse
Williams Ltd has leased a warehouse in an industrial section of the city. The lease is for 5 years and can only be cancelled by Williams if Williams reimburses the landlord for the costs of re-letting the warehouse including any costs of finding a new tenant, any lost rent and any difference between the rent paid by the new tenant and the rent which would have been paid by Williams if the new tenant pays a lower rent than Williams did. The landlord maintains responsibility for rates and other taxes, maintenance of the building and carries the risk if the building is damaged. Williams is responsible for all utilities. The lease commenced on 1st January 2014 and requires quarterly rental payments of $15,000 to be paid on the 1st of January, April, July and October each year with the first payment on 1st January 2014. Williams fitted out the warehouse for its needs at the start of the lease and paid $10,000 for the fitout on 1st January 2014. Williams is required under the lease to pay to remove all its fittings from the warehouse at the end of the lease. Williams expects that will cost $5,000.
Shop
Williams Ltd has leased a shop in a major retail district. The lease commenced on 1st July 2014 and is for 12 months. The lease payments are quarterly payments of $3,000 paid on 1st July, October, January and April with the first payment on 1st July 2014. The landlord maintains responsibility for rates and other taxes, maintenance of the building and carries the risk if the building is damaged.
Williams is responsible for all utilities. Williams expects to renew the lease for another 12 months when the lease expires at the market rental applicable at renewal date.
Trial balance
Williams Delivery Ltd’s trial balance at 30th June 2015 is:
Dr Cr
Cash at bank $21,000
Accounts receivable $83,333.33
Allowance for doubtful
debts
$1,250
Computers $60,000
Accumulated depreciation
$12,000
Equipment $20,000
Accumulated depreciation
$4,000
Fittings $6,000
Accumulated depreciation
$1,200
Accounts payable
$10,000
Leave liability
$55,000
Bank loan
$40,000
Capital
$30,000
Opening retained earnings
$23,263
Sales revenue
$1,000,000
Lease payment expense $156,380
Wages expense $550,000
Fuel expense $120,000
Interest expense $4,000
Insurance expense $10,000
Franchise fee expense $100,000
Bad debt expense $5,000
Depreciation expense $6,000
Other expenses $10,000
Dividends $25,000
Total $1,176,713 $1,176,713
Data relevant for part 2
Trucks
Williams leased a fleet of trucks of from a company that specialises in leasing trucks. The trucks have no special features and there are thousands of similar trucks sold each year in Australia. The lease is for 5 years and commenced on 1st July 2019. The annual rentals are $62,000 and are made on 1st July each year with the first rental being paid on 1st July 2019. The lessor is responsible for all maintenance, insurance, and registration for the trucks and Williams estimates that the value of those services is $16,000 per year. At the end of the lease term the trucks will be returned to the lessor.
The trucks would have cost $279,000 if Williams had purchased the trucks. Williams estimates that the fair value of the trucks at the end of the lease term will be $160,000. Trucks similar to the ones that Williams has leased have a useful of 20 years. Williams incurred direct initial costs of $1,000 in arranging the lease contract which it paid on 1st July 2019. Either party can cancel the lease at any time by providing 3 months written notice but Williams is reasonably certain that it will not cancel the lease.
Cars
Williams Ltd leased a fleet of cars from a finance company. The lease is for 4 years, is noncancellable
and commenced on 1st January 2020. The annual rentals are $21,000 and are made on
1st January each year with the first rental being paid on 1st January 2020. The lessor is responsible
for all maintenance, insurance, and registration for the cars and Williams estimates that the value of
those services is $6,000 per year. Williams expects to purchase the fleet of cars at the end of the
lease as it has an option to do so at $10,000 which is substantially below its expected fair value of
$30,000 at that date. Williams plans to use the fleet for 5 years and the current market price of a
similar 5-year-old fleet is $20,000. The fleet would have cost Williams $70,000 if it had purchased the
fleet on 1st January 2020.
Tablet computer
Williams Ltd leased an iPad from a finance company. The lease is for 3 years, is non-cancellable and
commenced on 1st July 2019. The annual rentals are $380 and are made on 1st July each year with
the first rental being paid on 1st July 2019. Williams is responsible for maintaining and insuring the
iPad. Williams expects to return the iPad to the leasing company at the end of the lease which is also
the end of the iPad’s useful life. The current market price of 3-year-old iPad’s is $0. The iPad would
have cost Williams $1,000 if it had purchased it on 1st July 2019.
Warehouse
Williams Ltd has leased a warehouse in an industrial section of the city. The lease is for 5 years and
can only be cancelled by Williams if Williams reimburses the landlord for the costs of re-letting the
warehouse including any costs of finding a new tenant, any lost rent and any difference between the
rent paid by the new tenant and the rent which would have been paid by Williams if the new tenant
pays a lower rent than Williams did. The landlord maintains responsibility for rates and other taxes,
maintenance of the building and carries the risk if the building is damaged. Williams is responsible for
all utilities. The lease commenced on 1st January 2019 and requires quarterly rental payments of
$15,000 to be paid on the 1st of January, April, July and October each year with the first payment on
1st January 2019. Williams fitted out the warehouse for its needs at the start of the lease and paid
$10,000 for the fitout on 1st January 2019. Williams is required under the lease to pay to remove all
its fittings from the warehouse at the end of the lease. Williams expects that will cost $5,000.
Shop
Williams Ltd has leased a shop in a major retail district. The lease commenced on 1st July 2019 and
is for 12 months. The lease payments are quarterly payments of $3,000 paid on 1st July, October,
Company Accounting 6391 Semester 2 2016 Assignment
Page 10 of 10 pages
January and April with the first payment on 1st July 2019. The landlord maintains responsibility for
rates and other taxes, maintenance of the building and carries the risk if the building is damaged.
Williams is responsible for all utilities. Williams expects to renew the lease for another 12 months
when the lease expires at the market rental applicable at renewal date.
Trial balance
Williams Delivery Ltd’s trial balance at 30th June 2020 is:
Account Dr Cr
Cash at bank $21,000
Accounts receivable $83,333.33
Allowance for doubtful
debts
$1,250
Computers $60,000
Accumulated depreciation
$12,000
Equipment $20,000
Accumulated depreciation
$4,000
Fittings $6,000
Accumulated depreciation
$1,200
Accounts payable
$10,000
Leave liability
$55,000
Bank loan
$40,000
Capital
$30,000
Opening retained earnings
$23,263
Sales revenue
$1,000,000
Lease payment expense $156,380
Wages expense $550,000
Fuel expense $120,000
Interest expense $4,000
Insurance expense $10,000
Franchise fee expense $100,000
Bad debt expense $5,000
Depreciation expense $6,000
Other expenses $10,000
Dividends $25,000
Total $1,176,713 $1,176,713