BFA201 Financial Accounting
Revision Questions (Past Exam Questions)
Question 1
Ottens Ltd commences operations on 1 July 2012 and presents its first income statement and first balance
sheet on 30 June 2013. The statements are prepared before considering taxation. The following
information is available:
OTTENS LTD
INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2013
$
Gross Profit
Expenses
Administration expenses
Salaries
Long service leave
Warranty expenses
Depreciation expense - plant
Insurance
730 000
80 000
200 000
20 000
30 000
80 000
20 000
Profit before tax
430 000
$300 000
OTTENS LTD
BALANCE SHEET (EXTRACT)
AS AT 30 JUNE 2013
$
ASSETS
Cash
Accounts receivable
Inventory
Prepaid insurance
Plant at cost
Accumulated depreciation
Total Assets
LIABILITIES
Accounts payable
Provision for warranty expenses
Loan payable
Provision for long service leave
Total Liabilities
Net Assets
20 000
100 000
100 000
10 000
400 000
80 000
320 000
550 000
80 000
20 000
200 000
20 000
320 000
$230 000
Additional Information
a. The current tax rate is 30%.
b. All administration and salaries expenses incurred have been paid as at year end.
c. None of the long service leave expense has actually been paid. It is not deductible until it is
actually paid.
d. Warranty expenses were accrued and, at year end, actual payments of $10 000 were made (leaving
an accrued balance of $20 000). Deductions are available only when the amounts are paid, and
not as they are accrued.
e. Insurance was initially prepaid to the amount of $30 000. At year end, the unused component of
the prepaid insurance amounted to $10 000. Actual amounts paid are allowed as a tax deduction.
f. Amounts received from sales, including those on credit terms, are taxed at the time the sale is
made.
g. The plant is depreciated over five years for accounting purposes, but over four years for taxation
purposes.
Required
a
Calculate the taxable income of Ottens Ltd for the year ended 30 June 2013.
b
Prepare an appropriate worksheet to determine deferred tax liabilities and assets for Ottens
Ltd for the year ended 30 June 2013
c
In accordance with AASB 112, provide journal entries to account for current tax obligations
and record and adjustments to deferred tax for the year ended 30 June 2013.
d
How is a tax rate change from 30% to 28% accounted for under AASB 112?
Question 2
Scamander Ltd has five employees. According to their particular employment award, long-service leave
can be taken after 12 years, at which time the employee is entitled to 10 weeks’ leave. If an employee
were to leave before the completion of 12 years service, no entitlement would be paid.
_____________________________________________________________________
Current
Years of
Years until
Name of employee
salary ($)
service
LSL vests
_____________________________________________________________________
Peter Dickson
40000
2
10
Cathy Jones
40000
4
8
Matt Smith
50000
6
6
Phillip Hoyle
60000
8
4
Bill Bilson
70000
10
2
_____________________________________________________________________
High quality corporate bond rates exist with periods to maturity that exactly match the various periods
that must still be served by the employees before LSL entitlements vest with them.
_______________________________________
Corporate bond
Bond rate
Period to maturity
(%)
_______________________________________
10
8.0
8
7.0
6
6.5
4
6.0
2
5.8
_______________________________________
The projected inflation rate for the foreseeable future is 2 per cent. The projected probabilities that the
employees will stay long enough for the LSL to vest - that is, for a total of 12 years – are as follows:
_________________________________________
Probability (%) that
Name
LSL will vest
_________________________________________
Peter Dickson
15
Cathy Jones
20
Matt Smith
50
Phillip Hoyle
70
Bill Bilson
90
_________________________________________
Required
Calculate Scamander Ltd’s current obligation for long service leave and provide the appropriate journal
entry assuming that there is currently a balance in the provision for long service leave account of $12,500.
Question 3
The shareholders’ equity section of the balance sheet of Burnie Ltd at 30 June 2012 was as follows:
Share capital
General reserve
Revaluation surplus
Retained earnings
2012
160 000
40 000
60 000
160 000
$420 000
Additional information
i.
During the preparation of the 2013 financial statements, it was discovered that an amount of
$5 000 for repairs expense had been omitted from the financial statements in the year ended 30
June 2012. The tax rate is 30%. The reported total comprehensive income for the year ending
30 June 2012 was $60 000 (relevant balances at the 1 July 2011 are: retained earnings $100
000, share capital $160 000, general reserve $40 000, and revaluation surplus $60 000)
ii.
Burnie Ltd issued 16 000 shares at $2.50 each on 31 May 2013 for cash;
iii.
A transfer of $10 000 was made from retained earnings to the general reserve during 2013;
iv.
Net profit after tax for the year ended 30 June 2013 was $130 000;
v.
Dividends for the year ended 30 June 2013 comprised: interim dividend $50 000; final
dividend provided $60 000;
vi.
Land was revalued during 2013 to current fair value, resulting in the recognition of a gross
revaluation increment of $20 000 and a deferred tax liability of $6 000.
Required
Prepare the statement of changes in equity of Burnie Ltd for the year ended 30 June 2013 in accordance
with AASB 101 Presentation of Financial Statements and any appropriate notes.
Question 4
You are currently auditing the financial reports and records of Penguin Ltd for the year ended 30 June
2013. In the course of your investigations you uncover the following transactions that occurred after the
reporting date but which appear to relate to the financial year ended 30 June:
1. On 16 September 2013 there was a fire in the company’s main warehouse. Loss of inventory was
covered by insurance but there was significant disruption to the flow of production output. The
financial effects of the disruption are estimated to be $150 000, and are not covered by insurance.
2. On 23 July 2013 a favourable judgement was handed down in a lawsuit lodged by Penguin Ltd
against a major supplier for damages arising from poor quality materials delivered in April 2012.
The damages and costs awarded to Penguin Ltd totalled $1 500 000.
Key financial data at 30 June 2013:
Sales revenue
Cost of goods sold
Profit before tax
Total current assets
Total current liabilities
Total equity
2013
10 000 000
8 500 000
218 000
431 000
396 000
275 000
2012
9 500 000
7 100 000
315 000
516 000
438 000
181 000
Required
Provide a discussion of how each of the two after-reporting-date events outlined above should be treated
under AASB 110 (i.e. the type of event and its treatment).
Question 5
Will was a Blacksmith and after some years pursuing other interests he decided to go back into the
Blacksmithing business. He set up his own company, Turner Ltd. On 1 July 2012 Turner Ltd leased a gas
forge kit from Kayne & Sons Blacksmiths Depot. The non-cancellable five year lease agreement requires
the payment of $1 300 at the end of each year inclusive of $160 periodic maintenance costs. There is a
guaranteed residual of $1500. The equipment will be depreciated on a straight line basis. At the
inception of the lease the forge kit had a fair value of $5 573. The machinery is expected to have an
economic life of six years at which time the salvage value is expected to be $1000.
Required
According to the requirements of AASB 117:
(a) From the point of view of Turner Ltd show calculations that support the implicit interest rate in the
lease is 8%.
(b) Assuming the lease is classified as a finance lease record entries in general form to record the lease
transactions at 1 July 2012; 30 June 2013 and 30 June 2014 for Turner Ltd.
(c) Prepare the portion of the balance sheet for Turner Ltd as at 30 June 2014 relating to the lease asset
and the lease liability.
Question 5
Multiplex Constructions Ltd entered into a fixed-price construction contract to build an office complex
for $20 million at an expected cost to Multiplex Constructions of $16 million. The scheduled billings
were as follows:
2013
2014
2015
$m
$m
$m
Billings during year
4
10
6
Accumulated billings
4
14
20
Billings were as scheduled and the client paid the progress claims in the same period as that in which they
were billed. The actual construction schedule and costs were as follows:
Costs incurred in the current year
Accumulated costs to date
Expected costs to completion
Aggregate accumulated billings
Percentage of completion
Based on engineering estimates using
surveys of work performed
2013
$m
4.4
4.4
12.0
4.0
%
30
2014
$m
10.6
15.0
2.0
14.0
%
80
2015
$m
2.0
17
0
20.0
%
100
Required
a)
Complete journal entries to account for the construction project using the percentage-of-completion
method. The percentage of completion applied is determined by engineering estimates, using
surveys of work performed.
b)
If the percentage of completion cannot be measured reliably, how much revenue and profit would
have been recognised in each year?