HA3011 Accounting:Machine Acquisition.

Question

Purpose:
This assessment consists of six (6) questions and is designed to assess your level of knowledge of the key topics covered in this unit

Question 1

Fabric Ltd acquired a Machine from Box Ltd for the following consideration:

Cash $110 000, Land in the books of Fabric Ltd the land is recorded at its cost of $950 000. It has a fair value of $1000 000.

Fabric Ltd also agreed to assume the liability of Box Ltd bank loan of $85 000 as part of the Machine acquisition.

Required:  

  • Calculate the acquisition cost of the Machine and provide the journal entries that would appear in Fabric ltd.’s books to account for the acquisition of the Machine. 
  • In your own words, explain when should an impairment loss be recognised

Question 2:

ABC Ltd acquired some machinery at a cost of $200 000 on 1 July 2017. On 30 June 2018, the machinery, which has an accumulated depreciation balance of $30 000, is assessed as having a fair value equal to $150 000.

Required:

Provide the journal entries to reflect the revaluation decrement  

Question

On 1 July 2018 Foreign Security Incorporation(FSI) Ltd issues $3 million in 10-year debentures that pay interest each six months at a coupon rate of 10 per cent. At the time of issuing the securities, the market requires a rate of return of 14 per cent. Interest expense is determined using the effective-interest method.

Formula for PV of $1 in n periods =1/(1+k)n 

Formula for present value of annuity of $1 per period for n periods =

where, k is the discount rate expressed in decimal

Required:

Determine the issue price of the debenture. 

  • Provide the journal entries at 1 July 2018 and 30 June 2019

Question 4

FABS Ltd acquired an item of equipment and entered into a non-cancellable lease agreement with MBC Equipment Ltd on 1 January 2019. The lease consists of the following:

  • Date of inception: 1/1/19
  • Duration of lease: 5 years
  • Life of leased asset: 6 years
  • Lease payments (annual): $250,000 (annual) which includes $30,000 for                                                                                              maintenance and insurance costs per annum.
  • Guaranteed residual value
  • Required:
  1. Determine the present value of minimum lease rental payment. 
  2. Prepare the journal entries for FABS (the Lessee) usingthe Net Method for the following 

Question 5    

Phoenix Arrumax (PAX) Ltd has the following deferred tax balances as at 30 June 2019:

Deferred tax asset:     $1 500 000

Deferred tax liability:   $1 000 000

Required:

  1. a)Provide the journal entries to adjust the carry-forward balances of the deferred tax asset and deferred tax liability
  2. b) In your own words, explain the rationale and the argument for recognizing a deferred tax asset and a deferred tax liability

Question 6   

On 1 July 2019 Bassy Ltd enters into an agreement to borrow £3 million from London plc (UK). London plc sends the loan money to Bassy Ltd’s Australian bank account. The loan is for four years and requires the payment of interest at the rate of 9 per cent on 30 June each year. Bassy Ltd’s reporting date is 30 June. The relevant exchange rates are:

1 July  2019 A$1.00 = UK£0.50

30 June 2020 A$1.00 = UK£0.54

Required:

Provide the necessary journal entries that would be made in the books of Bassy Ltd to account for the above transaction for the year ending 30 June 2020.

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