Assignment for 3rd year accounting and Finance students
Assignment -1
1- Henok, an owner of machinery, offered machinery with a useful of 5 years for lease to
Ethiopian Road construction Authority. The machine is leased for 4 years at annual year end
payment of 2,500,000 birr. Mr. Henok assumed implicit incremental rate at 5% and it is
probable that the amounts will be collected. The machinery has a fair value of 11,000,000 for
which the book value is 8000,000 birr. Mr. Henok made an agreement to guaranty a residual
value of 1,250,000 birr.
A- Identify whether financial lease or operating lease
B- Show required entries indicating all the necessary adjustments for both Mr Henok and
Ethiopian Road Construction Authorities
C- What will be change on accounting record if the residual value was not guaranteed
D- What kind of change will be found if the annual term payment is 1.5 Million birr only
2- Ethiopian Road Construction Authority has one temporary difference at the end of 2022 that
will reverse and cause taxable amounts of ETB 275,000 in 2023, ETB 300,000 in 2024, and
375,000 in 2025. ERCA financial income for 2022 is ETB 2 Million, and the tax rate is 30%
for all years. Data from the financial statement shows ERCA has a balance deferred tax
amount of 50,000 birr at the beginning of 2022.
Instructions
A- Compute taxable income and income taxes payable for 2022.
B- Prepare the journal entry to record income tax expense, deferred income taxes, and
income taxes payable for 2022.
C- How it could be treated if the current temporary difference of stated amount causes future
taxable amount
3- Handler Company is an established manufacturer of equipment used in the construction
industry. Handler’s products range from small to large individual pieces of automated
machinery to complex systems containing numerous components. Unit selling prices range
from $600,000 to $4,000,000 and are quoted inclusive of installation and training. The
installation process does not involve changes to the features of the equipment and does not
require proprietary information about the equipment in order for the installed equipment to
perform to specifications.
Handler has the following arrangement with Chai Company.

Chai purchases equipment from Handler for a price of $2,000,000 and chooses
Handler to do the installation. Handler charges the same price for the equipment
irrespective of whether it does the installation or not. (Some companies do the
installation themselves because they either prefer their own employees to do the work
or because of relationships with other customers.) The installation service included in
the arrangement is estimated to have a standalone selling price of $20,000.

The standalone selling price of the training sessions is estimated at $50,000. Other
companies can also perform these training services.

Chai is obligated to pay Handler the $2,000,000 upon the delivery and installation of
the equipment.

Handler delivers the equipment on September 1, 2019, and completes the installation
of the equipment on November 1, 2019 (transfer of control is complete). Training
related to the equipment starts once the installation is completed and lasts for 1 year.
The equipment has a useful life of 10 years.
Required:
1. What are the performance obligations for purposes of accounting for the sale of the
equipment?
2. If there is more than one performance obligation, how should the payment of $2,000,000
be allocated to various components?
Assignment 2
4- Discuss the concept of cash flow statements in detail, and prepare basics on preparation of
cash flow statements. What are the main factors those affect cash flow statement?