Department of Accounting & Finance
Faculty of Creative Industries & Business
Bachelor of Business
ACTY6201 – Financial Accounting
Test - Semester 1, 2013
Date:
Tuesday, 14 May 2013
Time allowed:
1 hour 30 minutes, plus 5 minutes reading time
Total marks:
50 marks
Weighting:
25% of course
Instructions:
Answer ALL FOUR questions.
Answer the questions directly in the answer booklet provided.
Read each question carefully.
Answer only what is asked for.
Please write clearly.
Mark Allocation:
Question
Marks
1
Owner’s equity
16
2
Property, plant & equipment
16
3
Borrowing costs
12
4
Application of IFRS
TOTAL
6
50
ACTY6201 – Financial Accounting
Test - Semester 1, 2013
Question 1: Owner’s equity
16 Marks
PART A
11 MARKS
J Holm changed her business from a sole trader, Moon Supplies, to a trading company, Space
Ltd, on 1 April 2012. The arrangement was that Space Ltd would purchase the business of
Moon Supplies from J Holm as a going concern for $1,050,000. The carrying amount of the
assets and liabilities of Moon Supplies were as follow:
Assets
Inventory
Trade Receivables
Fixtures and Fittings
$ Liabilities
123,000 Trade Payables
87,000 Mortgage
895,000
$
44,000
70,000
All the assets and liabilities are determined to be at fair value except for the Fixtures and Fittings
and Trade Receivables which are fair valued at $855,000 and $81,000 respectively.
The company’s constitution would permit the issue of preference and ordinary shares. The
purchase consideration was to be satisfied by the issue of 200,000 ordinary shares at $4.50 per
share, fully paid; 20,000 preference shares at $1.80 per share, fully paid; with any balance
remaining as a loan from J Holm to Space Ltd.
On 31 January 2013, the Directors resolved at a meeting to pay an interim dividend of $0.50 per
ordinary share and $0.30 per preference share. The dividends were paid on 15 February 2013.
The balance date of Space Ltd is 31 March.
REQUIRED
Prepare General Journal entries to record the above transactions for the year to 31 March 2013.
PART B
5 MARKS
On 28 February 2013, Infratil Limited, a company listed in NZX, repurchased 500,000 of its
issued ordinary shares at a fair value of $2.388 a share. This was part of an acquisition
approved and authorised by directors on 28 June 2011. The reason for the acquisition is that
the directors believe that the acquisition is in the best interests of Infratil and its shareholders.
Before the acquisition, Infratil had 600 million issued ordinary shares at a capital value of $420
million. Balance date is 31 March.
REQUIRED
a) Prepare the General Journal entries to record the share buyback.
[3 marks]
b) Outline two reasons why a company may decide to buy back shares.
[2 marks]
2
ACTY6201 – Financial Accounting
Test - Semester 1, 2013
Question 2: Property, plant & equipment
16 Marks
PART A
8 MARKS
Tiptronic Ltd purchased some equipment for $59,000 cash on 1 April 2011. There were
additional transport and installation costs of $6,800 paid on 6 April 2011. The company
depreciates equipment on a straight line basis (to the nearest month). The useful life of the
equipment was estimated at four years, with an estimated residual value of $5,000.
The decision at 30 September 2012 has been made to reduce the useful life of the equipment
from four to three years (leaving one and a half years remaining) and the residual value from
$5,000 to $4,000 as a result of rapid changes in technology.
Tiptronic Ltd has a financial year end of 31 March.
REQUIRED
a) Prepare the Journal entries to record the above transactions and events for
the period 1 April 2011 to 31 March 2013.
b) Assuming that the change in the useful life of the equipment has a material
effect on the financial performance for the period, prepare a supporting Note
for the financial statements to disclose the change that has been made.
PART B
[6 marks]
[2 marks]
8 MARKS
AA Store Ltd acquired a manufacturing machine on 1 April 2012 for $520,000 in cash. The
company depreciates machinery on a straight line basis (to the nearest month). The useful life
of the equipment was estimated at three years, with an estimated residual value of $40,000.
On 31 March 2013 depreciation for the year was charged and the manufacturing machine
revalued at a fair value of $300,000, a considerable drop in value because a new version of the
machine had come onto the market. The useful life and residual value remained unchanged.
Although the company had intended to retain the machine for the next financial year, in April the
company received what it regarded as an excellent offer of sale and on 30 April 2013 it sold it
for $350,000.
AA Store Ltd has a financial year end of 31 March.
REQUIRED
Prepare the appropriate general journal entries to account for all transactions related to this
machine at 1 April 2012, 31 March 2013 and 30 April 2013.
3
ACTY6201 – Financial Accounting
Test - Semester 1, 2013
Question 3: Borrowing costs
12 Marks
Fabulous Homes Ltd (FHL) commenced construction of a garden on 1 November 2011. The
garden is to be completed and ready for use on 31 December 2012.
The following payments were made during the construction:
$
1 November 2011
300,000
1 December 2011
360,000
28 February 2012
216,000
31 May 2012
108,000
30 September 2012
270,000
1,254,000
FHL negotiated funding of $1,400,000 at the start of the project specifically for the project, at an
interest rate of 10.5 percent per annum.
The company year-end is 31 March.
REQUIRED
a)
Calculate the weighted average expenditure for the construction of the
garden at 31 March 2012 and at 31 March 2013.
[5 marks]
b)
Prepare a journal entry at each balance date to record the cost of the
garden to be capitalised. (Show your workings.)
[5 marks]
c)
FHL has borrowed $1.4 million for the construction of the garden. For the
year ending 31 March 2013 how much interest will FHL capitalise and how
much interest will be expensed. (This is the only borrowing that FHL has.)
[2 marks]
4
ACTY6201 – Financial Accounting
Test - Semester 1, 2013
Question 4: Application of IFRS
6 Marks
The Warehouse Ltd has the following in its Notes to its 2012 financial statements:
Inventories
“Inventories are stated at the lower of cost and net realisable value. Cost comprises direct
purchase cost and an appropriate proportion of supply chain variable expenditure. Cost also
includes the transfer from equity of any gains or losses on qualifying hedges related to
inventories. Costs are assigned to individual items of inventory on the basis of weighted
average costs. Net realisable value is the estimated selling price in the ordinary course of
business less the estimated costs necessary to make the sale.”
REQUIRED
With reference to the appropriate accounting standards:
a)
Distinguish between what would be a change in accounting policy as
opposed to a change in accounting estimate for inventories held by The
Warehouse Ltd, giving one potential example of each.
[4 marks]
b)
Explain the conditions under which The Warehouse Ltd could change its
accounting policy for inventories.
[2 marks]
5
ACTY6201 – Financial Accounting
Test - Semester 1, 2013
ACTY6201 Financial Accounting - Mid-semester Test Solutions
QUESTION ONE
16 MARKS
PART A – 11 marks
a)
11 marks: 4 marks for Jnl 1.1, 2 marks for Jnls 1.2, 1.4 &1.5, and 1 mark for Jnl 1.3
Journal Entries for Space Limited:
2011
2012
1 April
Jnl
No.
1.1
Debit
$
Inventory
Trade Receivables
Fixtures and Fittings
Goodwill
123,000
81,000
855,000
105,000
Trade Payables
Mortgage
Vendor – Holm
(To record assets and liabilities taken over as
per agreement of sale and purchase)
1.2
1.3
2013
15 February
31 March
1.4
1.5
Credit
$
44,000
70,000
1,050,000
Vendor – Holm
Issued Capital – Ordinary Shares
Issued Capital – Preference Shares
(To record the issue of 200,000 ordinary
shares at a fair value of $4.50 per share and
of 20,000 ordinary shares at a fair value of
$1.80 per share)
936,000
Vendor - Holm
Loan – Holm
(To record loan from J Holm to Space Ltd)
114,000
Interim Dividend – Ordinary Shares
Interim Dividend – Preference Shares
Bank
(To record interim dividends paid at 50c per
ordinary share and 30c per preference share)
100,000
6,000
Retained Earnings
Interim Dividend – Ordinary Shares
Interim Dividend – Preference Shares
(To record the closing entry for the Dividend
accounts)
106,000
900,000
36,000
114,000
106,000
100,000
6,000
6
ACTY6201 – Financial Accounting
Test - Semester 1, 2013
PART B – 5 marks
a)
Journal Entry for Infratil Limited (3 marks):
2013
28 Feb
Jnl
No.
1
Issued Capital (ordinary shares)
Retained Earnings
Bank
(To record the repurchase of 500,000 ordinary
shares at a fair value of $2.388 as per directors
resolution #..)
Debit
($000)
350
844
Credit
($000)
1,194
Workings:
Value per share of existing share capital is $420m/600 = $0.70 per share
If shares are issued at $2.388 then $0.70 per share ($350,000) is debited back to share capital
and the balance of $1.688 per share ($844,000) is debited to retained earnings.
b) Reasons why a company may choose to repurchase shares






To increase the worth per share of the remaining shares
To manage the capital structure by reducing equity
To effectively manage surplus funds held by the company
To increase % control in the company
To eliminate small parcel shareholders
To reduce shareholder groups that may not share company goals
Any two reasonable statements, one mark each
2 marks
7
ACTY6201 – Financial Accounting
Test - Semester 1, 2013
QUESTION TWO
16 MARKS
PART A – 8 marks
a)
6 marks: 1 marks each for Jnls 1.1, 1.2 and 2 marks each for Jnls 1.3 & 2.1
Journal Entries for Tiptronic Limited:
2011
1 April
6 April
2012
31 March
2013
31 March
Jnl
No.
1.1 Equipment
Cash
(To record the purchase of equipment)
1.2
1.3
2.1
Debit
$
59,000
Credit
$
59,000
Equipment
Cash
(To record the installation costs capitalised
to equipment)
6,800
Depreciation – Equipment
Accumulated depreciation - Equipment
(To record the depreciation charge for the
2012 year)
15,200
Depreciation – Equipment
Accumulated depreciation - Equipment
(To record the depreciation charge for the
2013 year)
20,600
6,800
15,200
20,600
Workings
Depreciation charge at 31 March 2012
(59,000 + 6,800 – 5,000)/4 = 15,200
Depreciation charge at 31 March 2013
First Half Year depreciation 7,600 (15,200/2) + Second Half Year 13,000 {[65,800 –
(15,200+7,600) – 4,000)]/1.5 }/2= 20,600
8
ACTY6201 – Financial Accounting
Test - Semester 1, 2013
b)
2 marks as indicated – 1 mark for noting the change and 1 mark for noting the
financial effects of the change. (Refer NZ IAS 8 para 39)
Note for Equipment
As a result of rapid changes in technology resulting in a shortened useful life, the estimated
useful life for equipment has been reduced from a total of 4 years to 3 years.
At 31 March 2013 there is 1 year remaining of the estimated useful life. 
The result of this change is an increase in the depreciation expense. In the 2013 reporting
period the depreciation expense increased from $15,200 (2012) to $20,600, resulting in a
reduction in the profit.
2013
2012
Profit before depreciation
Depreciation
20,600
$15,200
Profit after depreciation
(5,400) 
-
PART B – 8 marks
8 marks: 1 mark each for Jnls 1.1 & 1.2; 2 marks for Jnl 1.3; 1.5 marks for Jnl 2.1; and 2.5
marks for Jnl 2.2
Journal Entries for AA Store Limited:
2012
Jnl
1 April
1.1 Machine
Cash
(To record the purchase of machine)e
2013
31 March
Debit
$
520,000
Credit
$
520,000
1.2 Depreciation – Machine
Accumulated depreciation – Machine
(To record the depreciation charge for the 2013
year)
160,000
1.3 Accumulated depreciation – Machine
Revaluation decrement
Machine
(To record the revaluation of the machine to
$300,000)
160,000
60,000
160,000
220,000
Workings for annual 2013 depreciation: (510 – 40)/3 = 160,000
9
ACTY6201 – Financial Accounting
Test - Semester 1, 2013
Journal Entries con’t…
2013
Jnl
30 April
2.1 Depreciation expense – Machine
Accumulated depreciation - Machine
(To record the depreciation charge for one
month)
2.2 Accumulated depreciation – Machine
Cash
Machine
Gain on sale
(To record the disposal of machine)
Debit
$
10,833
Credit
$
10,833
10,833
350,000
300,000
60,833
Workings for 1 month’s depreciation: (300 – 40)/2 = 130,000. So 130,000/12 = 10,833
QUESTION THREE
12 MARKS
a) (5 marks as indicated)
The weighted-average expenditure at 31 March 2012:
1 November 2011
1 December 2011
28 February 2012
31 March 2012
Interest to be capitalised:
Accumulated
expenditure
$
300,000
360,000
216,000
876,000
x 5/5
x 4/5
x 1/5
Weighted-average
expenditure
$
½ 300,000
½ 288,000
½ 43,200
½ 631,200
$631,200 x 10.5% x 5/12 = $27,615 
The weighted-average expenditure at 31 March 2013:
31 March 2012
31 May 2012
30 Sept 2012
Accumulated
expenditure
$
903,615
108,000
270,000
1,281,615
x 9/9
x 7/9
x 3/9
Weighted-average
expenditure
$
½ 903,615
½ 84,000
½ 90,000
½ 1,077,615
10
ACTY6201 – Financial Accounting
Test - Semester 1, 2013
b) (5 marks – 1 mark for workings for interest at 31.3.2013 and 2 marks for each journal
entry)
Journal entry at 31 March 2012:
Date
Jnl
31 Mar 12
J1.1 Garden project
Bank
(To record the project costs of $876,000 and
interest capitalized of $27,615 for the garden
project)
31 March 2013
Interest to be capitalised:
Debit
$
903,615
Credit
$
903,615
$1,077,615 x 10.5% x 9/12 = $84,862 ($84,862.18)
Journal entry at 31 March 2013:
Date
Jnl
31 Mar 13
J2.1 Garden project
Bank
(To record the project costs of $378,000 and
interest capitalized of $84,862 for the garden
project)
Debit
$
462,862
Credit
$
462,862
c) (2 marks as indicated)
The interest charged on the borrowing is $1,400,000 x 10.5% = $147,000 per year. Of this
$84,862 will be capitalised and $62,138 will be expensed. This is making the assumption that
no repayments are made during the financial year and that FHL still has the full $1.4 million
liability at the end of the year.
11
ACTY6201 – Financial Accounting
Test - Semester 1, 2013
QUESTION FOUR
a)
6 MARKS
(4 marks as indicated)
A change in accounting policy would be a change in ‘the specific principles, bases,
conventions, rules and practices applied by an entity in preparing and presenting financial
statements’ (NZ IAS 8 para 5) whereas a change in an accounting estimate is a change
in the carrying amount of the asset or its periodic consumption resulting from an
assessment of its present status.
An example of a change in inventory accounting policy for The Warehouse Ltd would be
to change its inventory valuation from weighted average to FIFO costing. 
An example of a change in an accounting estimate for inventory would involve something
like the estimate for inventory obsolescence written off at the year end. 
b)
(2 marks as indicated)
The Warehouse Ltd would change its accounting policy for inventory if a change was
required NZ IAS 2 Inventories, or other NZ IFRS (NZ IAS 8 para 14) . Alternatively The
Warehouse Ltd could change its accounting policy for inventory if it could justify more
relevant or reliable reported information in the financial statements. 
12