Acct2007: Financial Accounting Regulation- Assessment Answer
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Task: Question 1 Financial Instruments and Foreign Currency Transactions On 15 April 20X9, Outfits Ltd placed an order for inventory with Lan Ltd, a supplier in Vietnam. The goods are delivered on 15 May 20X9 with the payment due on 31 July 20X9. The inventory’s price is ?50 million Vietnamese Dong. Outfits Ltd is concerned that the exchange rate will fall resulting in a larger payment on the payment day (31 July 20X9). To hedge against the risk, the company entered into a forward rate agreement with ANZ Bank on 16 April 20X9. The terms of the agreement are that Outfits Ltd will receive ?10 million Vietnamese Dong on 31 July 20X9 at the forward rate of A$1 = ?18,000. Outfits Ltd elected to classify this transaction as a cash flow hedge and to adjust the cost of the inventory as a result of the hedging transaction. On 1 August 20X9, the purchased inventory was sold for $10,000. Required (a) Assuming that the hedge is effective, prepare the necessary journal entries for Outfits Ltd to recognise the transaction above. Outfits Ltd’s financial year ends on 30 June. Ignore GST (b) How will you change your answer to (a) if the hedge is classified as a fair value hedge? Question 2 Extractive Industries Claws Ltd is a company involved in the search for, production of and sale of coal. During the year ended 30 June 20X9, the company incurs the following exploration and evaluation costs in two different areas of interest. 40% of the exploration and evaluation costs are related to property, plant and equipment, with the remaining costs related to intangible assets. On 30 June 20X9, Drills Ltd concluded that Area of Interest B did not contain any commercially viable quantities of resources and therefore abandoned the area. During the year ended 30 June 20Y0, coal was discovered in Area of Interest A. During this year, Drills Ltd paid $800 000 costs to develop area A. These development costs include $600 000 in property, plant and equipment and $200 000 in intangible assets. These costs will be depreciated/amortised on a production basis. The development constructions were completed on 30 June 20Y0. Required Provide the journal entries to record the above transactions using the area-of-interest method. Question 3 Agriculture Yellow Ltd operates a local apricot farm. The apricot trees were planted in 20X4 and began producing saleable apricots in 20X9. All apricots were picked on 15 June 20X9 with a fair value less cost to sell of $150 000. A total cost of $30 000 has incurred for picking and packing all apricots. During the reporting period ending 30 June 20X9, employee expenses, fertilisers, lease expenses and other expenses amounted to $80 000. As at 30 June 20X9, 75% of the picked apricots have been sold at a total price of $200 000. The sales transaction has incurred total costs of $5000. At 30 June 20X8, the fair value less estimated point-of-sale costs of apricot trees was $850 000. This value has been increased to $950 000 at 30 June 20X9. Required Provide the journal entries to record the transactions above. Question 4 Events occurring after reporting period The end of the reporting period of Bricks Ltd is 30 June 20X9. Assuming the financial statements are authorised on 15 September 20X9, determine and explain whether the following events require adjustment to the financial statements or disclosure. (a) On 4 July 20X9, the management has decided to close down one of their major production lines. The letters have been sent to their major customers on 15 July 20X9, and the redundancy notices have been distributed to their employees on 10 July 20X9. (b) On 15 July 20X9, a major customer of Bricks Ltd indicated that they had found an alternative supplier and will no longer purchase from Bricks Ltd. The management of Canine Ltd estimated that the sales revenue will decrease by 40% in the following period. (c) On 31 July 20X9, the company received a court’s judgment to pay $50 000 for the damage arose from a case. The case commenced in May 20X9. (d) On 15 August 20X9, the auditor has found out a mistake with the valuation of a building. The building’s value has been overstated by $100 000 as at 30 June 20X9.Buy Acct2007: Financial Accounting Regulation- Assessment Answer Online
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