ACC204 Advanced Financial Accounting Assignment Solution: Analysis

This assignment provides solutions to several advanced financial accounting problems. It includes calculations for depreciation expense and gain/loss on disposal of machinery using the sum-of-digits method. The assignment also covers the determination of goodwill acquired during a business purchase, analyzing the fair value of consideration and net assets. Furthermore, it addresses the accounting treatment of lease payments, including the computation of present value and implicit interest rate. The solutions are detailed and include relevant working notes, providing a comprehensive guide to understanding these advanced accounting concepts.

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced Financial Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1ADVANCED FINANCIAL ACCOUNTING
Table of Contents
Question 1:.......................................................................................................................................2
Question 2:.......................................................................................................................................3
Question 3:.......................................................................................................................................4
Requirement a:.............................................................................................................................4
Requirement b:.............................................................................................................................5
Question 4:.......................................................................................................................................5
Requirement a:.............................................................................................................................6
Requirement b:.............................................................................................................................6
References:......................................................................................................................................7

2ADVANCED FINANCIAL ACCOUNTING
Question 1:
Working Notes:

3ADVANCED FINANCIAL ACCOUNTING
Question 2:
Working Notes:

4ADVANCED FINANCIAL ACCOUNTING
Question 3:
Requirement a:
In order to determine whether goodwill has been acquired by Tamarama Limited on the
purchase of 100% shares of Bronte Limited, it is necessary to conduct certain calculations. The
fair value of consideration and fair value of net assets acquired have to be considered. From the
provided information, it has been found that the fair value of consideration includes cash, land
and plant and equipment. On the other hand, fair value of net assets acquired constitutes of assets
less liabilities. After this, fair value of net assets acquired needs to be deducted from fair value of
consideration to determine whether there has been acquisition of any goodwill or not (Beams et
al. 2016).
From the above table, it could be seen that the total fair value of consideration is obtained
as $620,000, while the fair value of net assets acquired is $500,000. Since the fair value of
consideration is greater compared to the fair value of net assets acquired, it implies the
recognition of additional amount as goodwill by Tamarama Limited (Hoyle, Schaefer and
Doupnik 2015). Therefore, Tamarama Limited has acquired goodwill amounting to $120,000
($620,000 - $500,000) by purchasing 100% shares of Bronte Limited.

5ADVANCED FINANCIAL ACCOUNTING
Requirement b:
The values of all assets of an organisation need to be recognised and documented in their
accounts. The primary values of these assets are obtained from the existing market values. There
might be fluctuations in some assets owing to the changes in market value. When any asset rises
in value, it is necessary to conduct revaluation. On the other hand, if the value of an asset
declines, it is necessary to conduct impairment. Revaluation could be defined as the positive
difference between the fair market value of an asset and its actual cost (Hoyle, Schaefer and
Doupnik 2018). A revaluation is realised in the equity of an organisation and there would be no
effect on the income statement.
According to AASB 138, as only purchased goodwill is allowed to be reported in the
financial statements. As a result, there is general prohibition on the subsequent revaluation of
goodwill in any subsequent period.
Question 4:

6ADVANCED FINANCIAL ACCOUNTING
Requirement a:
From the above table, it could be seen that the present value of minimum lease payments
is calculated as $820,979. In order to compute the total present value of minimum lease
payments, the initial up-front payment of $200,000 is taken into consideration, since it is the
amount paid for the lease contract (Ramirez 2015). Moreover, this amount is paid at the
commencement of the lease. The present value factor for the initial up-front payment is
calculated as 1. The residual value of $80,000 is not taken into consideration for computing the
present value of minimum lease payments.
Requirement b:
In order to prove that the rate of implicit interest is 6%, it is necessary to compute the
total present value. For this, the residual value of the machinery amounting $80,000 is
considered and it is discounted at the discounting value factor of Year 8. The total present value
is obtained as $871,172, which is equal to the fair value of the machine at the lease inception.
This proves that the implicit interest rate is 6%.

7ADVANCED FINANCIAL ACCOUNTING
References:
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-18.pdf
[Accessed 25 May 2019].
Beams, F.A., Anthony, J.H., Bettinghaus, B. and Smith, K.A., 2016. Advanced accounting.
Pearson Education Limited 2018.
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
Hoyle, J.B., Schaefer, T.F. and Doupnik, T.S., 2018. Fundamentals of advanced accounting.
McGraw-Hill Education.
Ramirez, J., 2015. Accounting for derivatives: advanced hedging under ifrs 9. John Wiley &
Sons.