Posted: May 12th, 2022

ACCT6003 FINANCIAL ACCOUNTING PROCESS Assessment – Part 2

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ASSESSMENT BRIEF
Subject Code and Title ACCT6003 FINANCIAL ACCOUNTING PROCESS
Assessment Major Assessment – Part 2
Individual/Group Individual
Length Not applicable
Learning outcomes
1. Explain the regulatory framework that governs financial
reportinginAustraliawithemphasisontheConceptual
Framework for financialreporting
3.Apply accounting principles and standards when accounting
for non-current assets, revenue and liabilities and recognise
the judgements required in a range of diverse business
contexts
5. Differentiate between shares and debentures and apply
appropriate accountingprocedures
Submission Week 8, Sunday 11 Nov 2018 by 11:55pm AEST/AEDT
Weighting 25% (Part 2 only, Full assessment 30%)
Total Marks 100 marks
Context:
This assignment forms Part 2 of the major assignment. Students are provided with a business
case in which an entrepreneur, Xiaojing Wu, from China immigrated to Australia and considered
setting up a business in South Australia. Xiaojing decided to change the business structure from
apartnershiptoaprivatecompany,ChiHerbalPtyLtd,andithasbeengreatyearsforthem.
After ten years of operation, the company has grown and again they have made a decision to
move onto public company structure ChiHerbal Ltdfrom private company structure.
InPart2oftheassignment,studentsarerequiredtopreparejournalentriestoaccountfora
range of transactions undertaken by ChiHerbal Ltd.
Business Case
Refer to the transactions for Modules 2, 3 and 4 (Impairment of Assets will not be assessed in
this assignment).
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Instructions
StudentsareexpectedtoreviewthecontentofModule2,3and4(excludingImpairmentof
Assets inModule4).Students arerequiredtoaccount fortheformationandoperationof
CHiHerbalLtd,i.e.transactions regardingthecompany’s financingactivities,fixedassets,and
intangible assets.
Assignment Part 2 Questions
Assume you were the accountant of ChiHerbal Ltd, address the requirements of the following
independent scenarios for the company.
Scenario 1 Financing Company Operations (30 marks)
On 1 July 2017, essay cola, write my essay, dissertation writing service, writer my paper, homework help ChiHerbal Ltd was registered and offered 500,000 ordinary shares to the public
at an issue price of $7, payable as follows. As per the company’s constitution, all surplus money
from application would be transferred to allotment and/or calls accounts.
$3 on application (due by 1 August 2017)
$2.5 on allotment (due by 30 August 2017)
$1.5 on Call 1 (due by 15 June 2018)
$1 on Call 2 (due by 30 July 2018)
Application has been closed and by 1 August 2017, 600,000 shares have been applied for of
which applicants for 100,000 shares forwarded the full $8 per share, and the reminder paid
application money only.
On15August,directorsdecidedtoallotsharesinfulltoapplicantswhohadpaidthefullamount
and to all remaining applications on a pro rata basis.
The cost of publishing prospectus and stamp duty ($29,000) was also paid on 15August. Other
legal fees of $7,000 were paid on this date too.
All outstanding allotment money was received by the due date above.
The Call 1 was made on 1 May 2018 with money due by 15 June. Subsequently Call 2 was made
on 1 July 2018 with money due by 30 July 2018. All money was received on the due dates except
forthe holder of 15,000 shares who failed tomeetboth call 1&2.On1September 2018, as
provided for in the constitution, the directors decided to forfeit these shares. They were
reissued,on15September2018,aspaidto$8for$6cashwithabrokeragefeeof$4,000.The
balanceoftheforfeitedsharesaccount(afterthereissuingsharecosts)wasreturnedtothe
former shareholder on 30 September 2018.
Required
Prepare the journal entries to record the transactions of ChiHerbal Ltd up to and including that
which took place on 30 September 2018. (Show all workings and narrations are compulsory)
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Scenario 2 Property, Plant and Equipment (25 marks)
The end of the reporting period for ChiHerbal Ltd is 30 June. The company depreciates all
depreciable assets using the straight-line method.
The following events / transactions occurred during 2017 and 2018:
01April2017 Paid $90,000 cash for a TruckA. ChiHerbal Ltd estimated the truck’s
useful life and residual studybay value at 5 years and $10,000.
30June302017 Paid $140,000 cash for equipment. ChiHerbal Ltd estimated the
equipment’s useful lifefor 10 years with no residual value.
31August2017 Paid$2,500cashforTruckA’s transmissionrepairsandoil change.
01September 2017 ChiHerbal Ltd decided to change the basis of measuring equipment to
the rAssessment model. ChiHerbal Ltd directors assessed the
equipment’s fair value at 1 September 2017 at $115,000 with remaining
life 8 years.
1March2018 Truck A has been sold for $59,000 cash
30 June 2018 ChiHerbal Ltdre-assessedfairvalueon30June2018byindependent
valuer and the equipment’s fair value at 30 June 2018 was $120,000.
Required
Prepare the journal entries to record the above transactions of ChiHerbal Ltd for the financial
year ended 30 June 2017 and 2018.
Students are required to show depreciation entries as well as closing entry(ies) to Asset
RAssessment Surplus Account only, if any (you do not need to show closing entries to P+L
summary). Show all workings and narrations are compulsory. Tax effect on rAssessment is
ignored.
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Scenario3Lease(35marks)
On 31 December 2016, ChiHerbal Ltd has entered into an agreement to lease a Machine from a
manufacturer, Cessnock Ltd.
The lease agreement details are as follows.
Length of lease, non-cancellable 5 years
Commencement date 1 July 2017
Annual lease payment, commencing 1 July 2017 $8,000
Usual selling price of (fair Value) the Machine at 1 July 2017 $35,322
Lessor’s carrying amount of the machine at 1 July 2017 $31,000
Estimated useful life of the Machine 7 years
Estimatedresidual value of the plant at the end of its economic life $3,000
Residualvalueattheendoftheleaseterm,100%isguaranteedby
ChiHerbal Ltd. $2,160
Interest rate implicit in the lease 9%
Required
a) Prepare a schedule of lease payments forthe entire lease term and the journal entries
forChiHerbal Ltdin respect ofthelease forthe financial year ended 30 June 2018and
2019 only (20marks).
b) Prepare a schedule of lease receipts forthe entire lease term and the journal entries for
themanufacturer,CessnockLtdforthefinancialyearended30June2018and2019
only in respect of the essaypro lease for the lease term (15 marks).
Note: Include narrations for all journal entries. Present value tables (both single dollar and
annuity tables) have been included at the end of the assessment
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Scenario 4 Intangible Assets (10 marks)
ChiHerbal Ltd has undertaken a project to develop an online sales team. The project involves all
sales representatives being equipped with a hologram-projecting equipment which can project
an accurate, image of every stock item ordered by customers.
Thecostsincurredinthecurrentperiodonthisprojectforthefinancialyear30June2017were:
 Computer equipment (life five years, zero residual value) $500,000
 Software development $380,000
 Consultants’ fees (for testing) $620,000
ChiHerbal Ltd expected the project to ‘go-live’ by the end of financial year 2017. However errors
weredetectedandtheprojectwasstillunderon-goingexperimentaltesting.Applicationfora
patenthasbeendelayed.ChiHerbalLtdwashopingtosellthetechnologytoothercompanies
butthemarketingdepartment have confirmedthat currently there’s yetto be existence ofa
market for the new product.
Required
Forthe reporting period ended 30 June 2017, applying the provisions ofAASB138, identify the
amount of development and whether the development costs should be capitalised or
recognised as anexpense.
In your answer must refer to the relevant sections and paragraphs in AASB 138 Intangible Assets
to fully justify your conclusion. Journal entries are not required.
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Present value tables for the Question 3 Lease
Present Value Of $1
4% 5% 6% 7% 8% 9% 10% 11% 12%
0 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
1 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929
2 0.9246 0.9070 0.8900 0.8734 0.8573 0.8417 0.8264 0.8116 0.7972
3 0.8890 0.8638 0.8396 0.8163 0.7938 0.7722 0.7513 0.7312 0.7118
4 0.8548 0.8227 0.7921 0.7629 0.7350 0.7084 0.6830 0.6587 0.6355
5 0.8219 0.7835 0.7473 0.7130 0.6806 0.6499 0.6209 0.5935 0.5674
6 0.7903 0.7462 0.7050 0.6663 0.6302 0.5963 0.5645 0.5346 0.5066
7 0.7599 0.7107 0.6651 0.6227 0.5835 0.5470 0.5132 0.4817 0.4523
8 0.7307 0.6768 0.6274 0.5820 0.5403 0.5019 0.4665 0.4339 0.4039
9 0.7026 0.6446 0.5919 0.5439 0.5002 0.4604 0.4241 0.3909 0.3606
10 0.6756 0.6139 0.5584 0.5083 0.4632 0.4224 0.3855 0.3522 0.3220
Present Value Of Annuity (in arrear)
4% 5% 6% 7% 8% 9% 10% 11% 12%
1 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929
2 1.8861 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355 1.7125 1.6901
3 2.7751 2.7232 2.6730 2.6243 2.5771 2.5313 2.4869 2.4437 2.4018
4 3.6299 3.5460 3.4651 3.3872 3.3121 3.2397 3.1699 3.1024 3.0373
5 4.4518 4.3295 4.2124 4.1002 3.9927 3.8897 3.7908 3.6959 3.6048
6 5.2421 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553 4.2305 4.1114
7 6.0021 5.7864 5.5824 5.3893 5.2064 5.0330 4.8684 4.7122 4.5638
8 6.7327 6.4632 6.2098 5.9713 5.7466 5.5348 5.3349 5.1461 4.9676
9 7.4353 7.1078 6.8017 6.5152 6.2469 5.9952 5.7590 5.5370 5.3282
10 8.1109 7.7217 7.3601 7.0236 6.7101 6.4177 6.1446 5.8892 5.6502

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