ACT204 Financial Accounting Position

Added on -2020-02-24

| ACT204| 11 pages| 2321 words| 51 views

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Solution-1In the annual report the case will be disclosed under "Director's Report" column as below:During the year, a case was lodged against the bank by Gloucester Council and an investment company,Clurname alleging that the bank was engaged in selling the toxic investments. The case is still pendingwith the Federal court to decide. Further, a class action was conducted against the bank, in which 35investors had participated. Considering the class action results and to clam the investors the bank has paid$50 million to the investors and $1.5 million to International Litigation Partners, funder of the classaction. However, this settlement is still pending with the court for approval. Moreover, it has came to notice that certain news are being gossiped by various news papers regardingthe credibility of the bank and previous fallouts. The management wants to clarify that these news arebaseless and the investors should not be fearful regarding their hard earned money which they haveinvested with us. The case is being invested by the court and further by an internal team of the bank andthe management wants to assure you that the case will be investigated by every aspects and the culpritsengaged in issuing the toxic investments, if any will be punished hardly.Financial DisclosuresFurther, the bank considering the density of the case, has created contingent liability to the extent bankseems the loss or settlement claims to be paid in the future. The same is shown in the foot notes to thestatement of financial position. Factors to be considered for determining the form of disclosures:a.The facts of the caseb.Position by the directors or managementc.Current measures undertakend.Financial impact on the company/ banke.Future actions to be taken for mitigating the situationf.The financial disclosureYear of disclosure - The disclosure should be made in the year of starting of the case i.e. 2012 and till thesettlement of the case.
Solution-21.Calculation of the fair value of the portable sound recording studio at 1 July 2019PV of MLPPV of periodic rental payments=Annual rental payments x PVIFA (n = 4, I = 8%)=50000 x 3.577097=$178,855PV of guaranteed residual=Guaranteed residual / (1 + i)^4=40000 / (1 + 8%)^4=$29,401Lease Liability (fair value)=178855 + 29401=$208,2562.Schedule for the lease payments incorporating accrued interest expense Lease Amortization ScheduleDateLease PaymentsInterest ExpensesReduction in LiabilityLease Liability01-Jul-11$208,25601-Jul-11$50,000$50,000$158,25601-Jul-12$50,000$12,660$37,340$120,91601-Jul-13$50,000$9,673$40,327$80,59001-Jul-14$50,000$6,447$43,553$37,03701-Jul-15$40,000$2,963$37,037$0Lease payment on 1st July-15 refers to the guaranteed residual value.3.Journal entries to account for the lease in the books of Hopeful Ltd DateParticularsDr./Cr.Amount(Dr.)Amount (Cr.)01-Jul-11Leased StudioDr.$208,256To Leased Liability$208,25601-Jul-11Leased LiabilityDr.$50,000To Cash$50,00030-Jun-12Interest ExpensesDr.$12,660To Interest Payable$12,660
30-Jun-12Depreciation Expenses-LeasedStudioDr.$42,064To Accumulated Depreciation$42,06401-Jul-12Leased LiabilityDr.$37,340Interest PayableDr.$12,660To Cash$50,00030-Jun-13Interest ExpensesDr.$9,673To Interest Payable$9,67330-Jun-13Depreciation Expenses-LeasedStudioDr.$42,064To Accumulated Depreciation$42,0644.The journal entries in the books of Hopeful Ltd for return of the asset to Lessor Ltd and the settlement ofall obligations under the lease on 1 July 2023Hopeful Ltd. must pay difference $15,000 (40,000 - 25,000) between fair value of studio and guaranteedresidual value.DateParticularsDr./Cr.Amount(Dr.)Amount (Cr.)01-Jul-15Accumulated DepreciationDr.$168,256To Leased Studio$168,25601-Jul-15Leased LiabilityDr.$37,037Interest PayableDr.$2,963To Leased Studio$40,00001-Jul-15Loss on Guaranteed ResidualDr.$15,000To Cash$15,000
Solution-31.Calculation of Alexandra Bay’s current obligation for long-service leaveLeave entitlement (in weeks)=10Inflation rate=2%Corporate bond - Period to Maturity (in years)Bond rate108.00%87.00%66.50%46.00%25.80%Name of employee Current salary ($) Years of serviceYears until LSL vestsProbability that LSL will vestProjectedSalaryAccumulated LSL benefitPresent Value of LSL ObligationLSL LiabilityMike Black4000021015%48,7601,563724109Jan White 400004820%46,8663,0041,749350Noel Brown 500006650%56,3085,4143,7111,855Peter Green600008470%64,9468,3266,5954,617Alvin Purple 7000010290%72,82811,67110,4279,384 16,314 Alexandra Bay's current obligation for long service is $16,314/-.2.The journal entry to record Alexandra Bay’s long-service leave expenseClosing balance of provision required=$16,314Opening balance of provision (given)=$12,500Additional provision required=$3,814Journal EntryLong Service Leave ExpensesDr.$3,814To Provision for Long Service LeaveCr.-$3,814

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