Question 1 Total 8 marks Oris Engineering Ltd (Oris) is an Australian company that manufactures steel products at its factory in Sydney.
The process that Oris uses to manufacture steel involves feeding a blast furnace with iron ore, coke (which is
produced from coal) and air that has been heated. One of the by-products of this process is the emission of
carbon dioxide (CO2).
Carbon dioxide is a greenhouse gas that is implicated in global warming and one of the objectives of the
Australian government is to reduce the emissions of CO 2 by Australian entities. To achieve this objective, the
Australian government introduced an emission rights scheme that will become effective on 1 July 2017. The
purpose of this scheme is to control the production of CO 2 through providing incentives for entities to reduce
their emissions.
On 1 July 2017, the regulator of the scheme (the Clean Energy Regulator) will allocate emission allowances to
each entity based on the average emissions of CO 2 made by the entity during the last three years. On 1 July
2017, Oris will receive allowances that permit it to emit 150,000 tonnes of CO 2 during the year ending 30 June
2018. These allowances are allocated free of charge; there is no cost to Oris.
A trading market for allowances will be established and the price that the allowances trade for will be
determined by the supply and demand of allowances. This trading market can be used by Oris to purchase
additional allowances (if emissions are expected to exceed 150,000 tonnes during the year) or to sell any
unused allowances (if emissions are expected to be below 150,000 tonnes during the year).
During the year, Oris will deliver allowances to the regulator to ‘pay’ for the CO 2 emissions it makes. If
emissions are made and no allowances are delivered, or the number of allowances delivered does not cover
the emissions, then Oris will have to pay a shortfall charge by way of penalty. This charge will be significantly
higher than the market price for allowances.
The directors of Oris have requested a report from Rebecca Jones, the Chief Accountant, about the accounting
treatment of the emission allowances. To assist her in preparing the report, Rebecca called the accounting
staff together for a discussion. However, this meeting produced conflicting views on how to account for the
emission allowances.
Steven Knight, a senior accountant, proposed that all allowances (whether received for free or purchased)
should be recognised as assets on the date of allocation or purchase.
This approach was challenged by Madelaine Smith, another senior accountant, who stated that only the
purchased allowances should be recognised as assets. Her reasoning was that, prior to the introduction of the
emissions scheme, Oris could make unlimited CO 2 emissions at no cost. The free allowances do not alter the
fact that Oris is in a worse position after the introduction of the scheme through being restricted in its ability
to emit CO2. However, any purchased allowances should be recognised as assets because they have a cost to
Oris.
A different approach was taken by Rodney Kirby, one of the junior accountants. He agreed with Steven that all
allowances were assets. However, he was of the opinion that the assets represented by the free allowances
would offset the liability for emissions. He argued that whether an asset or liability was recognised by Oris
would depend on whether there was an excess or deficiency of allowances held in relation to the liability for
emissions. If the allowances held exceeded the probable emissions then only the surplus allowances would be
recognised as an asset.
Concerned by these conflicting positions, Rebecca has approached you and requested your advice. 1 Required Question 1 continued over next page Using the AASB’s Framework for the Preparation and Presentation of Financial Statements, prepare a
memorandum for the Chief Accountant that addresses the following:
(a) Explain the definition of an asset and the criteria that must be satisfied before an asset can be
recognised in the financial statements.
(1 mark)
(b) Explain whether Oris should recognise the emission allowances (both the allowances received for
free and the purchased allowances) as assets.
(5 marks)
Two marks are allocated for written communication skills: Format: the format of the Memorandum should conform to the example included in the ‘Assignment
information’ below. Organisation: the material included in the Memorandum should be directly relevant to the issue,
logically structured and include appropriate headings. Clarity: meaning should be clearly expressed and should not be ambiguous or confusing. Technical writing skills: there should be no errors in grammar, spelling, punctuation and
capitalisation. Note: you are not required to make reference to any specific accounting standards (for example, AASB 138
Intangible Assets) in your response to this question. 2 Question 2 Total 6 marks Capricorn Holdings Ltd is an Australian public company. The accounting staff of Capricorn Holdings Ltd have
asked for your assistance in preparing the company’s financial statements for the year ended 30 June 2016
and have provided you with the following information: Capricorn Holdings Ltd
Trial Balance
As at 30 June 2016
Item
Sales revenue
Revaluation of property, plant and equipment
Other income
Exchange differences on translation of foreign operations
Cost of goods sold
Distribution expenses
Occupancy expenses
Administrative expenses
Income tax expense
Finance costs
Loss for the year from discontinued operations
Other operating expenses
Loss on investments in equity instruments
Unrealised losses on cash flow hedges
Income tax related to items of other comprehensive income:
Investments in equity instruments
Cash flow hedges
Exchange differences on translation of foreign operations
Revaluation of property, plant and equipment Notes
1. Debit Credit
50,000
6,000
5,000
4,500 30,000
5,000
3,500
3,000
3,000
2,000
2,000
1,500
2,000
1,000 2,000
1,500 500
500 In relation to items of other comprehensive income: The revaluation of property, plant and equipment and investments in equity instruments will not
be reclassified subsequently to profit or loss. The cash flow hedges and exchange differences on translation of foreign operations may be
reclassified subsequently to profit or loss. 2. Comparative figures for the preceding year (ending 30 June 2015) have been omitted. 3. All amounts in the trial balance are in thousands ($’000). 3 Question 2 continued over next page Required (a) Prepare the Statement of profit or loss and other comprehensive income for Capricorn Holdings Ltd
for the year ended 30 June 2016 in accordance with the requirements of AASB 101 Presentation of
Financial Statements.
(4
marks)
(b) On 1 July 2016, Capricorn Holdings Ltd paid $500,000 to purchase a portfolio of financial assets
comprising shares in companies listed on the Australian Securities Exchange. In accordance with
AASB 9 Financial Instruments, Capricorn Holdings Ltd made an irrevocable decision to measure the
portfolio of financial assets at fair value through other comprehensive income.
As at 30 June 2017, the fair value of the portfolio of financial assets had increased to $580,000. Due
to concerns about the volatility of the Australian share market, Capricorn Holdings Ltd sold the
portfolio of financial assets on 1 July 2017 for $580,000. Capricorn Holdings Ltd reclassifies gains on
the sale of financial assets that were measured at fair value through other comprehensive income to
profit or loss.
Complete the following tables in relation to the portfolio of financial assets. Ignore tax. For each of
the two years, you should provide the appropriate line item description/s (for example, gain on sale
of financial assets) and the amount/s to be recognised in profit or loss and/or other comprehensive
income and show the net effect on total comprehensive income.
(2
marks) 30 June 2017 Line item description: Amount ($): Line item description: Amount ($): Profit or loss
Other comprehensive income
Total comprehensive income 30 June 2018
Profit or loss
Other comprehensive income
Total comprehensive income 4 Question 3 Total 6 marks Nelson Ltd acquired an item of machinery for $280,000 on 1 July 2014. The residual value of the item of
machinery was estimated to be $30,000. Nelson Ltd decided that it was appropriate to depreciate the item of
machinery using the units-of-production (UOP) method based on the following expected units of output:
Year ended:
30 June 2015
30 June 2016
30 June 2017
30 June 2018
30 June 2019
Total: Units manufactured:
40,000
25,000
25,000
20,000
15,000
125,000 In January 2017, management of Nelson Ltd decided to significantly increase production to meet higher than
anticipated demand for their products. The expected output from the item of machinery was reassessed as
follows:
Year ended:
30 June 2017
30 June 2018
30 June 2019
30 June 2020
Total: Units manufactured:
30,000
30,000
20,000
20,000
100,000 Also in January 2017, the residual value of the item of machinery was reassessed as zero.
The management of Nelson Ltd propose to treat the change in depreciation resulting from the change in the
number of units manufactured and the reassessment of the residual value as the correction of prior-period
errors and to retrospectively restate the financial statements for the years ending 30 June 2016 and 30 June
2015. 5 Question 3 continued over next page
Required
(a) Is Nelson Ltd correct in to treat both the change in depreciation resulting from the change in the
number of units manufactured and the reassessment of the residual value of the machine as the
correction of prior-period errors? Explain how both of these should be accounted for by Nelson Ltd in
accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. (1
mark)
(b) Complete the following table to show the depreciation expense for each year. Provide appropriate
supporting calculations.
(2
marks)
Year ended: Depreciation expense: Supporting calculations 30 June 2015
30 June 2016
30 June 2017
30 June 2018
30 June 2019
30 June 2020 (c) What are the disclosures required by AASB 108 Accounting Policies, Changes in Accounting Estimates
and Errors that must be made by Nelson Ltd in its financial statements for the year ending 30 June
2017?
(1 mark)
(d) Prepare the appropriate note disclosure for Nelson Ltd’s financial statements for the year ended 30
June 2017.
(2
marks) 6 Assignment Information
Assignment presentation
You do not need to include a title page or a table of contents.
Use the question numbers to indicate which question you are answering. You do not need to include the
question as part of your answer.
You should number all of the pages and include your name and student number (as either a Header or a
Footer) on each page.
You should use a consistent font throughout your assignment. Suggested fonts include Calibri or Arial.
Referencing
Your assignment should include references (both in-text and in a reference list) that conforms to the American
Psychological Association (APA) style.
A copy of the ‘Abridged Guide to the APA Referencing Style’ can be accessed from: The ‘Assessment’ page in Moodle, and The CQUniversity Referencing Guides web page: https://www.cqu.edu.au/student-life/services-andfacilities/referencing/cquniversity-referencing-guides You can adopt a simplified approach to the in-text referencing of accounting standards. Your first reference
(within a question) to an accounting standard should be in full. For example, ‘according to paragraph 27 of
AASB 101 Presentation of Financial Statements (Australian Accounting Standards Board [AASB], 2015),
financial statements should be prepared using …’.
Subsequent references to this accounting standard can be abbreviated. For example, ‘it is a requirement of
paragraph 36 of AASB 101 that …’.
The reference list nomenclature depends on whether you obtained the accounting standard directly from the
AASB web site or from the ACCT19062 Intermediate Financial Accounting Moodle website.
Australian Accounting Standards Board (AASB). (2015). AASB 101 Presentation of Financial statements.
Retrieved from http://www.aasb.gov.au/admin/file/content105/c9/AASB101_07-15.pdf
Australian Accounting Standards Board (AASB). (2015). AASB 101 Presentation of Financial statements.
Retrieved from CQUniversity e-courses, ACCT19062 Intermediate Financial Accounting,
http://moodle.cqu.edu.au
Memorandum format
7 Question One requires you to write a Memorandum. An example of a Memorandum, which you can use as a
template, is shown on the following page. MEMORANDUM
DATE: 1 June 2017 TO: Students in ACCT19062 FROM: D. Keene SUBJECT: Format for a Memorandum A Memorandum is a formal written document that, as in this example, is headed at the top by
MEMORANDUM in bold and centered. Below this are: (1) the date in full; (2) the person to whom the Memo
is addressed; (3) the name of the person sending the Memo; and (4) a subject line that indicates the subject
matter.
The body of the Memorandum begins with an introduction that identifies the subject and provides an
overview of the contents. The length of the introduction should be no more than one paragraph but it
depends on the needs of the reader: how much do they already know about the subject? This is followed by
the discussion which moves through the points to be made in a logical order. At the end is a conclusion that
reinforces and reiterates the main points made in the discussion. Heading
The body of the Memorandum consists of a series of paragraphs that begin flush with the left-hand margin.
One-and-a-half line spacing should be used and paragraphs should be separated by a space. A Memorandum
does not contain a salutation (for example, ‘Dear Rebecca’) or a complimentary close (for example, ‘Yours
Sincerely’ or ‘Regards’). Headings can be used to organise the material but these should not be overused.
Headings should, as the example above indicates, be in bold so that they clearly stand out. 8 ACCT19062 Intermediate Financial Accounting
Assignment: Part A
Question
1 2 3 Criteria Marks
Awarded The relevant requirements of the AASB’s Framework for the Preparation and Presentation of Financial Statements relating to the
definition of, and recognition criteria for, assets have been identified, explained and appropriately applied. /6 Written communication skills: format; organisation; clarity; and technical writing skills. /2 The relevant requirements of AASB 101 Presentation of Financial Statements have appropriately and consistently applied.
All amounts (line item amounts, subtotals and totals) are correct.
Where applicable, professional judgement has been exercised appropriately.
The presentation (for example, column alignment, bolding, italics, line spacing) is of a professional standard. /6 The relevant requirements of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors have been identified, explained
and appropriately applied.
All amounts are correct and are workings are provided.
Where applicable, professional judgement has been exercised appropriately.
Written answers are correct (accurate), clearly expressed (the meaning is evident) and succinct (concise/brief).