MAA261-Financial Accounting

Objective

The objective of this assignment is to evaluate and assess recording, expensing and reporting of noncurrent assets and revenue as well as examining the impact of accounting standards on the recording and reporting of financial information.

Task

At your first meeting decide within your group which student will complete which question. It is a good idea that before your first meeting that each group member reads the case study so that they are able to present their point of view about the case study. It is recommended that each group member is allocated a question, you should then allocate a different group member to provide feedback on the answer given for each question. This is a suggestion only and you can allocate the work differently but keep in mind that every student in your group must participate and answer questions as well as provide feedback to others. Students should be allocated a questions based on their strengths. Please record details of your first meeting using the document titled ‘Action Plan Template.’ You should also document who is answering which question and who is providing feedback on that question. Set deadlines that group members agree to have their questions and feedback finished and record these details. Provide a copy to each group member to ensure they all agree on what was said. 

The case data (Gym Life Pty Ltd) is given in a separate file.

Imagine that you are a graduate analyst working in the consulting service line of the accounting firm, Trendy Accountants. The department provides consulting services to small businesses around Australia and has recently received a new client, Gym Life Pty Ltd. As part of the engagement, Trendy Accountants needs to assess Gym Life’s recording, expensing and reporting of non-current assets and revenue as well as examine the impact of accounting standards on the recording and reporting of financial information because the owners are concerned about the choices being made. As part of these assessment, Trendy Accountants needs to consider how Gym Life has recorded assets and revenue in previous and current financial years. 

Your supervisor would like you to work as a group (team) with three other graduate analysts from the firm and meet with the concerned client next week (Gym Life Pty Ltd). In preparation, your supervisor has provided you with some background information regarding the company’s noncurrent assets and revenue from customers. The group is required to prepare a brief report prior to the upcoming meeting. Your group is encouraged to refer to AASB 116 Property, Plant and Equipment, AASB 136 Impairment of Assets and AASB 15 Revenue from Contracts with Customers and the Conceptual Framework to justify your answers. When referring to the accounting standards to justify your answer, you may reference the paragraph number within the text. See the following example below:

In this scenario, the revaluation increase should be recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus (para 39, AASB 116).

Required Your group is required to refer to the case data for Gym Life Pty Ltd, and produce a report. The report should address the following:

1. Determine the amounts to be recorded in the balance sheet for the newly acquired land, building and machinery. Consider any additional amounts that need to be included in the cost of the land, building and machinery and justify why or why not they should be included. Include in your answer journal entry required to record the lump-sum acquisition. Show your calculations.

2. Calculate the annual depreciation expense to be charged in the accounts of Gym Life Pty Ltd, with respect to the building and machinery for each of the years ending 30 June 2011, 2012, 2013, 2014. Please display your results in a table. Explain whether Rebecca and Dario are permitted to change depreciation method for the machinery for the 30 June 2014. Provide a reason as to why Rebecca and Dario would want to change depreciation methods and include a calculation of the depreciation expense for 2014 financial year under the units of production method to justify your answer.

3. Explain how under the revaluation model, revaluation increases and decreases should be accounted for. Record the general journal entries to recognise the revaluations of the building and land. Show your calculations.

4. Prepare an excerpt of the balance sheet which shows the non-current assets that Gym Life Pty Ltd has on hand as at 30 June 2014. Show any relevant calculations.

5a. Briefly explain why, after the fire, Rebecca and Dario do not want to record the revaluation for the building and impairment loss for the machinery and whether they can change from the revaluation to the cost model for the building. Identify and discuss which qualitative characteristics of financial reporting would be violated if the revaluation and impairment loss are not recorded.

b. Assuming that the revaluation reversal for the building and impairment loss for the machinery are recorded, calculate the revised amount that the building and machinery should be recorded for 30 June 2016 and record the general journal entries to recognise the revaluation and impairment of these non-current assets. In your answer, justify how you determined the machine’s recoverable amount. Show your calculations.

6. Following the change in Gym Life’s business operations to a gym services providers, advise Rebecca and Dario whether Gym Life Pty Ltd needs prepare general-purpose financial reports. Use the Conceptual Framework to justify to your answer.

7. With reference to AASB 15 Revenue from Contracts with Customers, apply the five-step process for revenue recognition in regards to the non-refundable joining fee and monthly membership fee. Students need to consider whether the joining fee and membership fee are separate performance obligations. Include in your answer the general journal entries that need to be recorded to recognise the revenue from gym members for the 30 June 2017 financial year. Show any calculations.