Corporate Accounting (BBAC401)

Assignment (Group of Two)

(Total Marks 25)
Due Date: Session 5.2
Problem # 1
(Marks 17)

ABC Trading operates in a very competitive field. To maintain its market position,
it purchased two new machines for cash on 1 January 2012. It had previously
rented its machines. Machine A cost $40,000 and Machine B cost $100,000. Each
machine was expected to have a useful life of 10 years, and residual values were
estimated at $2000 for Machine A and $5000 for Machine B.
On 30 June 2013, ABC Trading adopted the revaluation model to account for the
class of machinery. The fair values of Machine A and Machine B were determined
to be $32 000 and $90 000 respectively on that date. The useful life and residual
value of Machine A were reassessed to 8 years and $1500. The useful life and
residual value of Machine B were reassessed to 8 years and $4000.
On 1st January 2014, extensive repairs were carried out on Machine B for $66,000
cash. ABC Trading expected these repairs to extend Machine Bs useful life by 3.5
years and it revised Machine Bs estimated residual value to $9,450.
Owing to technological advances, ABC Trading decided to replace Machine A. It
traded in Machine A on 31st March 2014 for new Machine C, which cost $64,000.
A $28,000 trade-in was allowed for Machine A, and the balance of Machine Cs
cost was paid in cash. Transport and installation cost of $950 were incurred in
respect to Machine C. Machine C was expected to have a useful life of 8 years
and a residual value of $8,000.
ABC Trading uses the straight-line depreciation method and recording
depreciation to the nearest dollar. The end of its reporting period is 30 June.
On 30 June, 2014 fair values were determined to be $140 000 and $65 000 for
Machine B and C respectively.

Required:
Prepare general journal entries to record the above transactions and
the depreciation journal entries required at the end of each reporting
period up to June 2014 (Narrations are not required but show all
workings)

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Problem # 2
(Marks 4+4=8)
a) ABC Ltd has incurred expenditure, the treatment of which is not prescribed by
any existing accounting standard. The board of directors has requested the
financial accountant to record the expenditure as an asset so as not to impact
the current years profit. The accountant is concerned with the request and
requires your assistance in determining an accounting policy for this expenditure.
Required:
Provide the accountant with two accounting policies or treatments that the
company could adopt to account for this expenditure. Also what assistance does
AASB provide to help the accountant choose between the policies provided in the
above case.
b) Black Boats builds ocean-going yachts which generally take up to 3 years to
construct and are worth $50 million each. The company normally takes out a
loan to finance the initial construction phase for each yacht. Interest on these
loans has been treated as an expense with $750 000 written off over the last 5
years. In the current year ended 30 June 2012, the company changed its
accounting policy with respect to interest and now capitalises the interest
against the cost of each yacht as allowed by AASB 123 Borrowing Costs.
Amounts of $40,000 and $22,000 were capitalised against two yachts on which
construction started this year but no adjustments have been made for yachts
under construction at the beginning of the year. The new accounting policy and
its impact have been disclosed in the notes to the financial statements for the
year ended 30 June 2012.
Required:
Critically evaluate the companys adoption of the new accounting policy with
respect to the requirements of AASB 108.

Source:

Leo, K., Hoggett, J., Sweeting, J. & Radford, J. (2008) Company Accounting in Australia, 8th
Edition, Wiley and Sons, Brisbane
Assignment Marking Criteria
The following assignment criteria are designed to give the student a guide
as to what markers are looking for in the assignment:
Question# 1:
Evidence of analytical skills of
identifying, calculating, presenting
and organizing data in the journal

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17 All data are presented &

calculated successfully in the
Journal as per required by GAAP.

15 Most data are presented &

calculated successfully in the
Journal as per required by GAAP.
13 Most data are presented &
calculated successfully in the
Journal as per required by GAAP.
10 Some data are presented &
calculated successfully in the
Journal as per required by GAAP.
8 Few data are presented &
calculated successfully in the
Journal as per required by GAAP
6 Very few data are presented &
calculated successfully in the
Journal as per required by GAAP
4 Very few data are presented &
calculated unsuccessfully in the
Journal as per required by GAAP.
0.0 No attempt was made to
present & calculated successfully in
the Journal as per required by GAAP.

Problem 2: Requirements I & II are worth 4 marks each

Requirements a & b
Apply analytical skills of initiating
and conducting research;
thinking; identifying and
managing information and
presentation.

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4.0 This assessment shows a good

understanding of the materials
researched and displays excellence in
writing style and presentation
3.0 This assessment shows some
evidence of understanding the
materials researched and adequately
presented
2.0 This assessment shows some
evidence of understanding the
materials researched and has some
problems with presentation style
1.0 Little evidence of understanding
and major problems in presentation
style
0.0 No evidence of any research of
understanding the concepts.

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