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HA3011 Advanced Financial Accounting Tutorial Questions Assignment 2 Answer

Assessment Task  Tutorial Questions Assignment 2

Unit Code: HA3011

Unit Name: Advanced Financial Accounting Assignment: Tutorial Questions Assignment 2

Weighting:   25% Total Mark: 50 Marks 


This assignment is designed to assess your level of knowledge of the key topics covered in this unit

Unit Learning Outcomes Assessed

  1. Understand the various theoretical models of accounting
  2. To apply knowledge and understanding to specific financial reporting issues unit to AASB accounting standards
  3. Discuss the theoretical constructs of contemporary financial accounting
  4. Evaluate and explain the need for the development of a conceptual framework for accounting, and discuss the influence of such a framework on accounting practice.
  5. Understand the Australian accounting regulatory framework and the conceptual framework
  6. Be able to understand how to account for assets, non-current assets and liabilities
  7. Be able to calculate for revaluations and impairments of non-current assets, and then journalise
  8. Account for leases for both lessees and lessors.
  9. Account for company income taxes
  10. Accounting for extractive industries


Each week students were provided with three tutorial questions of varying degrees of difficulty. These tutorial questions are available in the Tutorial Folder for each week on Blackboard. The Interactive Tutorials are designed to assist students with the process, skills and knowledge to answer the provided tutorial questions. Your task is to answer a selection of tutorial questions for weeks 6 to 10 inclusive and submit these answers in a single document.

The questions to be answered are:

Week 6 – Question 1 (10 Marks)

An item of depreciable machinery is acquired on 1 July 2016 for $280 000. It is expected to have a useful life of 10 years and a zero-residual value (straight-line). On 1 July 2020, it is decided to revalue the asset to its fair value of $150 000.


Provide journal entries to account for the revaluation.

Week 7 – Question 2 (10 marks)

On 1 July 2018 BMW Ltd issues $2 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 12 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 = 1-1(1+k)n/k

where, k is the discount rate expressed in decimal


  1. Determine the issue price of the debenture.
  2. Provide the journal entries at 1 July 2018 and 30 June 2019.

Week 8 – Question 3 (10 marks)

FRM Ltd acquired an item of equipment and enters into a non-cancellable lease agreement with FEN Equipment Ltd on 1 January 2015. The lease consists of the following:

  • Date of inception:1/1/15
  • Duration of lease:4 years
  • Life of leased asset:5 years
  • Lease payments (annual):$550 000 (annual) which includes $80 000 for Maintenance and insurance costs per annum
  • Guaranteed residual value

(Added to final payment):$190 000

  • Interest rate:7%

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 = 1-1/(1+k)n/k

where, k is the discount rate expressed in decimal


  1. Determine the present value of minimum lease rental payment. (5 Marks)
  2. Prepare the journal entries for FRM Ltd (the Lessee) using the Net Method for the following; (5 Marks)
  3. Transfer of control
  4. Payment of annual payments for 2015 and 2016.

Week 9 - Question 4 (10 marks)

A. You are provided with the following information form the accounts of BBS Ltd for the year ending 30 June 2019

Cash Sales
950 000
Cost of Goods Sold
35 000
Amount received in advance for services to be performed in August 2019
9 500
Rent expenses for year ended 30 June 2019
9 000
Rent Prepaid for two months to 31 August 2019
1 200
Doubtful debts expenses
1 200
Amount provided in 2019 for employees’ long-service leave entitlements
5 000
Goodwill impairment expenses
7 000


Calculate the taxable profit and accounting profit for the year ending 30 June 2019.

B. GYV Ltd has the following deferred tax balances as at 30 June 2019.

Deferred tax asset$9 00 000

Deferred tax liability$7 00 000

The above balances were calculated when the tax rate, was 20 per cent. On 1 December 2019 the government raises the corporate tax rate to 25 per cent.


Provide the journal entries to adjust the carry-forward balances of the deferred tax asset and deferred tax liability.

Week 10 - Question 5 (10 marks)

“Mining, explorations and other similar extractive businesses are naturally and fundamentally possessing risk, in additio


Week 6: Depreciation and fair valuation

Depreciation = Cost of Assets/Useful life of asset  

             $280 000/10 = $28000

The depreciation for 4 years from 2016 to 2020 is $ 28,000 * 4= $ 112,000 

The Book Value of the assets on July 1 on $ 280000-$ 112000 = $ 168000

The Revaluation Shortage $ 168000-$ 150000 = $ 18000

Depreciation A/c Dr.    $ 28000

To Machinery a/c      $ 28000

(Being accumulated depreciation charged to machinery)

Revaluation Reserve A/c Dr $18000

To Machinery a/c $18000

(Being asset revalued at their fair market value) 

Profit and loss A/c Dr.$ 28000

To depreciation A/c$28000

(Being depreciation transferred to profit and loss a/c)
Week 7: Accounting of debentures

(A) Issue price of debentures

Debenture valuation is calculated on the basis of the present value of all cash outflows. Cash outflows related to debentures are interest payments and redemption payments. so the sum of the present value of these outflows is the issue price of the debentures (Schroeder, et al. 2020).

Effective interest rates for half year compounding = 12 / 2 = 6%

Effective coupon rate per annum = 10% 

Total Effective number of periods =10*2 =20 periods

Interest payment= $2000, 000*10%/2 = $ 100,000 per half year

PV of $1 in 20 periods= 1/ (1+0.06) ^20= 0.31180

PV of $1 in 20 periods= 200000*0.31180 = $623,609

Present value of annuity of $1 per period for 20 periods = 1-1(1+0.06) ^ 20/6% =$ 11.46992

Present value of annuity for interest rate 6 % and period @20 = $ 100, 000 * 11.46992= $ 1146992

Issue price of debenture= $ 623,609+$ 1146992= $ 1,770,601

Discount on debenture= $2,000,000-$1,770,602= $2,29,399

(B) Journal Entries

1 July 2018

Bank a/c Dr.   $1,770,601

Discount on debenture dr $2, 29,399

     To Debenture holders A/c $2,000,000

(Being payment received from debentures holders and discount recognized on the issue of debentures) 

1 July 2018

Debentures holder’s A/c Dr.$ 2000000

To Debentures liability A/c$ 2000000

(Being debentures issued)

30 December 2018

Interest expense A/c Dr.$ 100000

To Debentures holders A/c$100000

(Being interest expense recognized)

30 December 2018

Interest a/c Dr   $100000

  To Bank a/c $ 100000

(Being Interest paid)

30 December 2018

Profit and loss A/c Dr.$ 100000

To interest expense A/c$ 100000

(Being interest transferred to profit and loss A/c)

Week 8: Lease payments and their accounting 

(A) Calculation of present value of lease outflow

Year     Annual Lease Payment    PV factor  Present value Value

1             $ 5500001.0               $ 550000    

2             $ 550000                 0.9346                 $ 514030

3             $ 550000     0.8734                 $ 480370

4            $ 550000                     0.8163                      $ 418800

5 $ 1900000.7628 $ 144932

Total present Minimum lease rental payment = $ 2,108,132

b) Lease table and recording of journal entries

Lease table

Balance in the beginning 
Interest Due
Lease Payments
Principal paid in the lease payment

Balance at the End

Journal entries


 Lease Payable a/c Dr.    $ 550000

      To Bank a/c                $ 550000

(Being advance lease amount paid to the lessor)


Assets a/c Dr.        $ 2108132

       To Lease Liability A/c   2138315

(Being asset received from the lessor)


Lease Liability a/c Dr    $ 550000

To bank a/c                 $ 550000

(Being lease liability paid)


Interest on lease A/c Dr $ 111182

To Lease liability A/c$ 111182

(Being interest expense due to lease liability) 


Lease Liability a/c Dr    $ 550000

To bank a/c                 $ 550000

(Being lease liability paid)


Interest on lease A/c Dr $ 80465

To Lease liability A/c$ 80465

(Being interest expense due to lease liability) 


Lease Liability a/c Dr    $ 550000

To bank a/c                 $ 550000

(Being lease liability paid)


Interest on lease A/c Dr $ 47597

To Lease liability A/c$ 47597

(Being interest expense due to lease liability) 


Lease Liability a/c Dr    $ 190000

To bank a/c                 $ 190000

(Being residual value of asset paid)


Interest on lease A/c Dr $ 12441

To Lease liability A/c$ 12441

(Being interest expense due to lease liability)

Week 9: Taxation calculation and accounting    

(A) Calculation of taxable profit and accounting profit for BBS Limited

Accounting profit and taxable profit are two different terms. Accounting profit is used to report the correct situation of the business entity in financial statements to various stakeholders of the organization and taxable profit is calculated for the purpose of tax calculations and tax payments on the taxable income (Demerjian, 2017). There is a difference in accounting laws and taxation laws, accounting profits calculated in accordance with accounting laws, and taxable profit is calculated in accordance with taxation laws. These differences are being the reason for the creation of deferred tax assets and deferred tax liabilities (Siddik, et al. 2018).

Accounting profit
Taxable profit
 Cash Sales 
Add: Advance received from customers
 Less: Cost of goods sold 
 Less: Rent expense 
 Less: Doubtful debts expense 
 Less: Provision for employee long leave service benefits 
 Less: Goodwill impairment expense 
 Less: Prepaid rent expense

Working notes

  1. Prepaid rent expense is not debited in profit and loss account according to accounting laws but it is a deductible expense as per the tax laws.
  2. Goodwill impairment expense is not an allowable expense as per income tax laws but it should be debited to calculate accounting profit.
  3. Provisions are not allowable according to income tax law but according to prudence, it is debited in profit and loss account.

(B) Calculation of fair market value of deferred tax assets and deferred tax liabilities and accounting thereof 

Deferred tax assets and deferred tax liabilities are calculated by multiplying effective tax rates with temporary timing difference. So, when a deferred tax asset or deferred tax liability is generated it is generated with tax rates prevails that time (Loughran, et al. 2016). At the time when tax rate of future periods are changed there should be an adjustment of this change is required to be adjusted in deferred tax assets and deferred tax liabilities (Schroeder, et al. 2019).

Calculation of fair value of deferred tax assets

Current deferred tax assets = $ 900000

Previous tax rates = 20%

Future tax rates = 25%

Fair value of deferred tax assets = 900000*25/20 = $ 1125000

Increase in fair value of deferred tax assets = $ 225000

Calculation of fair value of deferred tax liabilities

Current deferred tax liabilities = $ 700000

Previous tax rates = 20%

Future tax rates = 25%

Fair value of deferred tax liabilities = $ 700000*25/20 = $ 875000

Increase in value of deferred tax liability = $ 175000

Journal Entries

Deferred tax assets A/c Dr.$ 225000

To revaluation reserve A/c$ 225000

(Being deferred tax assets revalued at fair market value)

Revaluation reserve A/c Dr.$ 175000

To deferred tax liabilities A/c$ 175000

(Being deferred tax liabilities revalued)Week 10: Accounting of expenditure on highly risky business 

An expense made by an organization is either write off to Profit and loss account or it should be capitalized in assets. For classify as an asset, and expense should satisfy conditions to be recognized as an asset. According to the definition of an asset as per generally accepted accounting principles, an expense should capitalize if it (Schroeder, et al. 2011).

Drive future economic benefits for the organizations, and

There is the use of such an asset for a long time.

After satisfying both the conditions an expense should be capitalized as an asset. In the case of mining, exploration, and other similar extractive businesses, these businesses are naturally and fundamentally possessing risk, any expense made on such businesses satisfied condition of long-time use. But there is very less probability of probable future economic benefits. Thus, the amount expended in the business of mining, exploration, and other similar extractive businesses is not capitalized and they should charge to the profit and loss account (Watts, & Zimmerman, 2010).

Apart from this extraction from these businesses is not certain. That means if you explore something from an area than it is not certain that there are minerals in that area. Thus, if the area of such an asset is not able to produce any mineral than expenses made on such an area is debited to profit and loss account, and there is no capitalization of such expense.

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