ACC204 – Advanced Financial Accounting

Part A - THEORETICAL QUESTIONS

Theoretical Question One:

Discuss your view of “True and Fair” in financial statement. How would a company director try to ensure that the financial statements are true and fair before signing the directors’ declaration

Theoretical Question Two:

What is the difference between recoverable amount and fair value? Where revaluations are undertaken, can a reporting entity use “value in use” as the basis for the revaluation?

Part B - PRACTICAL QUESTIONS

Practical Question 1

Sunshine Ltd acquires an item of machinery on 1 July 2011 for $420000. When the asset is acquired, it is considered to have a useful life for the entity of six years. After this time, the machine will have no residual value. It is believed that the pattern of economic benefits would best be reflected by applying the sum-of-digits method of depreciation. However, contrary to expectations, on 30 June 2014 the asset is sold for $150000.

Required:

Calculate depreciation expense and gain or loss on disposal of the machinery and prepare all the journal entries necessary for Sunshine Ltd for the year ended 30 June 2012, 30 June 2013, 30 June 2014.

Practical Question 2

As at 1 July 2015, Top Ltd has an asset that has a cost of $100000 and accumulated depreciation of $20000. Top Ltd decided on 1 July 2015 that the asset should be revalued to $120000. The remaining useful life of the asset is eight years, after which time it will have no residual value. Top Ltd use straight line method to allocate depreciation for the asset.

Required:

Prepare journal entries to reflect the revaluation of the asset and the subsequent depreciation of the revalued asset using the net-amount method for the year ended 30 June 2016.