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ACCT602: FINANCIAL ACCOUNTING
SEMESTER TWO, 2020
WEIGHTING: 50% of course
DUE DATE AND TIME: TUESDAY, 20 October 2020, 9 am
• Download and Save As “the Answer Template” file by your first name on your computer.
• Write your student name, ID number and Programme of study in the spaces provided on
the cover sheet of the answer template.
• Sign and date the academic integrity declaration. An electronic signature will be fine.
Please note that, in submitting this final assessment, you declare that this work has
been produced by yourself and it represents your own work.
• Answers must be typed in the space provided in your Answer Template. Show all your
workings in the “Workings” Section OR Show your workings straight after your answers.
You can do your workings elsewhere (Using Word / Excel or handwritten) and then
paste in the space provided in the Answer Template.
• All seven (7) questions are compulsory. Show all workings.
• Round all amounts to the nearest dollar.
• Narrations are not required for Journal entries (No marks are allocated). However, it is
recommended to write narrations for clarity purposes.
• You can insert rows in tables if you need more.
|Question 1||25 marks|
|Question 2||15 marks|
|Question 3||15 marks|
|Question 4||15 marks|
|Question 5||15 marks|
|Question 6||10 marks|
|Question 7||5 marks|
|TOTAL MARKS||100 MARKS|
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QUESTION 01 25 MARKS
On 1 November 2018, Auckland City Printers (ACP) imported a new multi-colour printing
machine (No-10) for $68,300 cash. In addition, ACP paid $6,500 of import duties and $1,200 of
transport costs for the machine on 3 November 2018. The useful life of the machine and the
residual value were estimated to be 8 years and $7,000 respectively. ACP decides to depreciate
the machine using straight-line basis. The company’s financial year-end is 30 June.
On 30 June 2019, Auckland City Printers revalued the machine to $73,000 following a review by
an independent valuer.
On 1 July 2019, due to the changes in technology caused the company to revise the estimated
useful life of the printing machine from 8 years to 6 years. On the same day, it was also
determined that the residual value of the machine is nil.
On 30 June 2020, the printing machine has been revalued at a fair value of $55,200.
On 30 September 2020, the accountant believes that the value of the printing machine has
declined substantially. The value in use is nil, but it is estimated that the company may be able
to sell the printing machine for $35,000 to a purchaser and the costs associated with making
the sale would be $2,000.
On 1 October 2020, Auckland City Printers sold the printing machine for $32,000 cash.
(a)Prepare relevant journal entries to record the depreciation expense for the year ended 30
June 2019 and revaluation entries on 30 June 2019.
(b)Prepare relevant journal entries to record the depreciation the year ended 30 June 2020
and revaluation entries on 30 June 2020.
(c) Explain the accounting treatment for the transaction on 30 September 2020 in respect of
the printing machine with reference to the relevant accounting standards. Prepare the
journal entry required. (4 marks)
(d) Prepare the journal entry required on 1 October 2020 to reflect the disposal of the printing
machine. Show all workings. (5 marks)
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QUESTION 02 15 MARKS
(a) The 2018 New Zealand Conceptual Framework states that “an asset is a present economic
resource controlled by the entity as a result of past events.”
Discuss this statement in relation to inventory items that are in transit between the buyer and
seller. (3 marks)
(b)Raymond Traders is a small business, and it undertakes periodical stock-takes to determine
its inventory value. On 30 June 2020, Raymond Traders completed a physical stock-take,
and inventory on hand as at 30 June 2020 had a cost of $39,600. However, some of the
inventory items were deemed to be obsolete and Net Realisable value was determined to
|(i) Based on the information above, what inventory management system is Raymond|
Traders currently using? Outline one advantage and one disadvantage of the
inventory management system.
|(ii) Advice Raymond Traders on the value of inventories to be shown in the Statement|
of Financial Position as at 30 June 2020, with reference to NZ IAS 2. Explain.
(iii) In light of your answer (ii) above, prepare a journal entry to record any required
adjustments on 30 June 2020.
(c) NZ IAS 2, paragraph 36 requires companies to make disclosures to present inventory
fairly in their financial statements. List six disclosures that companies must include in
the financial statements as additional disclosures. (3 marks)
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QUESTION 03 15 MARKS
(a) Outline three possible arguments for not recognising internally generated Goodwill as an
intangible asset in accordance with NZ IAS 38.
(b) As of 30 June 2020, Rezar Ltd has the following intangible assets to report in the financial
(i) The company has acquired patents on 1 July 2016 for $45,000. This patent allows the
production of 300,000 units. During the year ended 30 June 2020, the company
produced 36,000 units. (4 marks)
(ii) Externally acquired Goodwill as at 1 July 2019 was $85,000. Goodwill has been
impaired by $10,000 during the current year. (3 marks)
(iii) On 1 October 2019, the company acquired a franchise for $27,000 for 5 years. There is
great demand for this franchise in the current market, and it has a fair value of
$23,000 as of 30 June 2020. (5 marks)
Explain how each of the above intangible assets should be measured in accordance with NZ
IAS 38 as of 30 June 2020. Your answer should include the most appropriate model or models
available to Rezar Ltd to measure above intangible assets, amortisation (if any), impairments (if
any) and the closing balances as at 30 June 2020. Show all calculations. No journal entries
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QUESTION 04 15 MARKS
Gym Equipment Manufacturers Ltd (GEM) manufactures and sells gym equipment. It also
installs the gym equipment for their customers.
On 1 January 2020, Keeping Fit Gym in Auckland signed a contract to purchase a piece of
personalised gym equipment from GEM Ltd. The purchase price in the signed contract is
$39,000. GEM Ltd also offers a free installation service of the equipment to Keeping Fit.
The selling price of the same type of gym equipment, excluding the free installation, is
$36,450. The installation of the equipment can also be done by registered manufacturers at
On 10 January 2020, Keeping Fit paid the full amount, and on the same day, the equipment
was delivered. The installation of the equipment was performed on the 20 January 2020.
(a) Advise GEM Ltd on how to recognise the revenues in accordance with the 5-step model in
NZ IFRS 15. (You are required to explain each step in the model with calculations).
(b) Prepare relevant journal entries to recognise revenue for the above sale in terms of the 5-
step model in GEM Ltd’s books.
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QUESTION 05 15 MARKS
(a) The directors of Camel Ltd have contacted you to seek your help with the following two
issues that they have encountered when finalising the financial statements for the year
ended 30 June 2020. The financial statements will be authorised for issue on 30 October
2020. Assume all events are material.
(i) On 30 June 2020, a fire destroyed part of the building of the warehouse in Rotorua, and
it was notified to the directors of the head office in Auckland after 2 days. Due to an
oversight by the management, the insurance cover for the building has not been
renewed after 2019. As a result of this, the building damage has been estimated at
$265,000. (4 marks)
(ii) On 30 June 2020, Horse Ltd owed Camel Ltd $250,000. On 30 July 2020, Camel Ltd
received a notice that Horse Ltd had become insolvent. (3 marks)
Classify the above events as either adjusting or non-adjusting events using NZ IAS 10
principles. Justify your classification and prepare necessary journal entries (if any) or note
disclosures (if any) to comply with the requirements of NZ IAS 10.
(b) The annual audit of the accounting records of Fat Cat Ltd as at 30 June 2020 revealed the
following errors and omissions. Assume all errors and omissions are material.
(i) On 1 August 2020, the store’s manager found that a batch of invoices amounting to
$60,000 relating to June 2020 purchases on credit had been entirely omitted. The
company uses the perpetual inventory method. (2 marks)
(ii)A new equipment amounting to $171,200 purchased on 1 July 2018 for cash was
erroneously debited to the Machinery account. The company uses a straight-line
method to depreciate all of its non-current assets. While equipment is depreciated at
25% p.a., machinery is depreciated at 30%. (6 marks)
Prepare the necessary journal entries to correct above errors and omissions in its financial
statements for the year ended 30 June 2020.
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QUESTION 06 10 MARKS
Go Party Ltd (GPL) is a successful New Zealand catering company, operating in South Island. It
has a balance date of 30 June. During the preparation of the 30 June 2020 financial statements,
the following two issues have come into the light. The details of these issues are as follows:
(a) After a wedding party held by a customer in January 2020, 60 people became seriously ill,
possibly as a result of food poisoning from food served by GPL. Legal proceedings were
commenced seeking damages from GPL. The company lawyers advised that owing to
developments in the case, and it was probable that the company would be found liable
and the estimated damages were $85,000 that would be material to the company’s
(b) On 15 February 2020, the Department of Occupational Health and Safety undertook an
audit against the complaints regards to the company’s unsafe storage practices. If found
to be negligent by the court, the company will have to pay a fine and incur cleaning costs.
At the end of the financial year, the outcome of the audit is unknown. The company
directors are of the opinion that there is a 50% chance that Go Party Ltd will be found
Determine how GPL should treat the above two issues in its financial statements for the year
ended 30 June 2020. Include in your answer the criteria as per NZ IAS 37, necessary journal
entries (if required) or any disclosure note/s required.
QUESTION 07 5 Marks
With reference to the content covered in lecture materials Weeks 6-11, briefly explain five
potential Balance sheet/ Income statement items that may have been impacted by COVID 19.