Corporate Accounting: Asset Retirement, Depreciation, and More

This assignment provides solutions to several accounting problems, including preparing journal entries for a nuclear power generator's asset retirement obligation, calculating depreciation expenses using different methods (straight-line, sum-of-digits, declining balance, and units of production), determining revaluation gains or losses on land assets, calculating goodwill in a business acquisition, and preparing journal entries for bond issuance and premium amortization. It also addresses the conditions for capitalizing a lease transaction as a financial lease, the accounting treatment of foreign currency transactions, and the use of forward rate agreements for hedging foreign currency risks. The solutions include detailed workings and explanations, covering various aspects of corporate accounting and financial analysis.

Question 1
Year ending 30 June 2018
Date Description Debit Credit
30-Jun-18 Nuclear power generator asset $ 16,551,500.00
Cash $ 16,551,500.00
30-Jun-18 Nuclear power generator asset $ 809,640.91
Asset retirement obligation $ 809,640.91
Year ending 30 June 2019
Date Description Debit Credit
30-Jun-19 Finance cost $ 80,964.09
Asset retirement obligation $ 80,964.09
Year ending 30 June 2024
Date Description Debit Credit
30-Jun-24 Finance cost $ 130,393.48
Asset retirement obligation $ 130,393.48
Working note for calculating finance cost for the year 2024
Year Asset retirement obligation Finance cost Asset retirement obligation closing
2018 $ 809,640.91 0 $ 809,640.91
2019 $ 809,640.91 $ 80,964.09 $ 890,605.00
2020 $ 890,605.00 $ 89,060.50 $ 979,665.50
2021 $ 979,665.50 $ 97,966.55 $ 1,077,632.05
2022 $ 1,077,632.05 $ 107,763.20 $ 1,185,395.25
2023 $ 1,185,395.25 $ 118,539.53 $ 1,303,934.78
2024 $ 1,303,934.78 $ 130,393.48 $ 1,434,328.26
2025 $ 1,434,328.26 $ 143,432.83 $ 1,577,761.08
2026 $ 1,577,761.08 $ 157,776.11 $ 1,735,537.19
2027 $ 1,735,537.19 $ 173,553.72 $ 1,909,090.91
2028 $ 1,909,090.91 $ 190,909.09 $ 2,100,000.00
Question 2
Straight line method

year ending Depreciation expenses
30-Jun-16 $ 10,000.00
30-Jun-17 $ 10,000.00
30-Jun-18 $ 10,000.00
30-Jun-19 $ 10,000.00
30-Jun-20 $ 10,000.00
30-Jun-21 $ 10,000.00
The sum of digits method
year ending Depreciation expenses
30-Jun-16 $ 17,142.86
30-Jun-17 $ 14,285.71
30-Jun-18 $ 11,428.57
30-Jun-19 $ 8,571.43
30-Jun-20 $ 5,714.29
30-Jun-21 $ 2,857.14
Declining balance method
Declining balance depreciation rate 34.79%
year ending Depreciation expenses Declined balance of asset
30-Jun-16 $ 22,610.71 $ 42,389.29
30-Jun-17 $ 14,745.41 $ 27,643.87
30-Jun-18 $ 9,616.12 $ 18,027.76
30-Jun-19 $ 6,271.08 $ 11,756.67
30-Jun-20 $ 4,089.64 $ 7,667.03
30-Jun-21 $ 2,667.03 $ 5,000.00
Units of production method
year ending Depreciation expenses
30-Jun-16 $ 6,829.27
30-Jun-17 $ 8,292.68
30-Jun-18 $ 10,243.90
30-Jun-19 $ 13,414.63
30-Jun-20 $ 16,585.37
30-Jun-21 $ 4,634.15
Question 3

a. Recoverable value is maximum of
(Fair value-cost of sales) or (value in use)
Value in use Fair value Recoverable value
30-Jun-17 $ 1,050,000.00 $ 950,000.00 $ 1,050,000.00
30-Jun-18 $ 960,000.00 $ 950,000.00 $ 960,000.00
30-Jun-19 $ 900,000.00 $ 970,000.00 $ 970,000.00
b. Calculation of revaluation gain of loss
Recoverable value
Carrying value before
revaluation Revaluation gain/(loss)
30-Jun-17 $ 1,050,000.00 $ 1,000,000.00 $ 50,000.00
30-Jun-18 $ 960,000.00 $ 1,050,000.00 $ (90,000.00)
30-Jun-19 $ 970,000.00 $ 960,000.00 $ 10,000.00
Required journal entries
Date Description Debit Credit
30-Jun-17 Land asset $50000
Revaluation reserve $50000
30-Jun-18 Revaluation reserve $50000
Loss on asset revaluation $40000
Land asset $90000
30-Jun-17 Land asset $10000
Revaluation reserve $10000
c. Calculation of revaluation gain of loss
Recoverable value Carrying value before revaluation Revaluation gain/(loss)
30-Jun-17 $ 1,050,000.00 $ 1,000,000.00 $ 50,000.00
30-Jun-18 $ 960,000.00 $ 1,050,000.00 $ (90,000.00)
30-Jun-19 $ 970,000.00 $ 960,000.00 $ 10,000.00
Required journal entries
Date Description Debit Credit
30-Jun-17 Land asset $50000
Revaluation reserve $50000

30-Jun-18 Revaluation reserve $50000
Loss on asset revaluation $40000
Land asset $90000
30-Jun-17 Land asset $10000
Revaluation reserve $10000
Question 4
Goodwill is an amount excess of consideration paid by the acquirer organization in exchange for
net assets of the organization acquired. In the present case, the fair value of net assets acquired is
lower than the consideration paid hence this transaction involved goodwill.
Calculation of goodwill
Consideration transferred
Cash $ 70,000.00
Plant and equipment $ 250,000.00
Land $ 300,000.00
Total consideration transferred $ 620,000.00
Less: Net assets $ 500,000.00
Goodwill $ 120,000.00
Question 5
Bond issue price
Journal entries
Date Description Debit Credit
01-Jul-18 Cash $ 1,081,108.96
Bond payable $ 1,000,000.00
Premium on Bonds Payable $ 81,108.96
31-Dec-18 Interest expenses $ 43,244.36
Premium on Bonds Payable $ 6,755.64
Cash $ 50,000.00

30-Jun-19 Interest expenses $ 42,974.13
Premium on Bonds Payable $ 7,025.87
Cash $ 50,000.00
30-Jun-19 Profit and loss account $ 86,218.49
Interest expenses $ 86,218.49
31-Dec-19 Interest expenses $ 42,693.10
Premium on Bonds Payable $ 7,306.90
Cash $ 50,000.00
30-Jun-20 Interest expenses $ 42,400.82
Premium on Bonds Payable $ 7,599.18
Cash $ 50,000.00
30-Jun-20 Profit and loss account $ 85,093.92
Interest expenses $ 85,093.92
Working note
Calculation of premium amortized
Opening bond
payable
Interest
expenses
Cash
expenses
Premium
amortized
Closing bond
payable
30-Dec-18 $1,081,108.96 $ 43,244.36 50000 $ 6,755.64 $ 1,074,353.32
30-Jun-19 $ 1,074,353.32 $ 42,974.13 50000 $ 7,025.87 $ 1,067,327.45
30-Dec-19 $ 1,067,327.45 $ 42,693.10 50000 $ 7,306.90 $ 1,060,020.55
30-Jun-20 $ 1,060,020.55 $ 42,400.82 50000 $ 7,599.18 $ 1,052,421.37
30-Dec-20 $ 1,052,421.37 $ 42,096.85 50000 $ 7,903.15 $ 1,044,518.23
30-Jun-21 $ 1,044,518.23 $ 41,780.73 50000 $ 8,219.27 $ 1,036,298.96
30-Dec-21 $ 1,036,298.96 $ 41,451.96 50000 $ 8,548.04 $ 1,027,750.91
30-Jun-22 $ 1,027,750.91 $ 41,110.04 50000 $ 8,889.96 $ 1,018,860.95
30-Dec-22 $ 1,018,860.95 $ 40,754.44 50000 $ 9,245.56 $ 1,009,615.39
30-Jun-23 $ 1,009,615.39 $ 40,384.62 50000 $ 9,615.38 $ 1,000,000.00
Question 6
Lease transaction is capitalized when lease transaction is a financial lease. Any lease transaction
is known as a financial lease if any of following conditions satisfied,
 Lease asset is transferred to the lessee at the end of the lease

 The present value of lease payments equal to fair value of the leased asset
 Lessee has the option to purchase lease asset at the end of the lease term
 Lease term is equal to the life of the leased asset
 Leased asset is of special nature so that it can be used by lessee only. (Australian
Accounting 2010)
Value of leased asset and amount of lease liability under the financial lease are the present value
of minimum lease rentals.
Question 7
At the end of reporting period, an organization needs to calculate foreign currency transaction
reserve by using the closing value of foreign currency and the foreign currency monetary items.
This adjustment is required for every organization having foreign currency monetary items in
financial statements (Melvin & Norrbin 2017).
Such foreign currency transaction reserve needs to be recognized by the organization in the
statement of comprehensive income and needs to be adjusted with the shareholder's equity in the
balance sheet.
Question 8
Journal entries
Date Description Debit Credit
01-03-18 Inventory $ 675,000.00
Accounts payable $ 675,000.00
(inventory purchase)
01-Jun-18 Accounts payable $ 30,000.00
Foreign exchange gain $ 30,000.00
( gain recognized)
30-Jun-18 Accounts payable $ 60,000.00
Foreign exchange gain $ 60,000.00
( gain recognized)
30-Jun-18 Loss on forward contract $ 90,000.00
Forward contract $ 90,000.00
(Loss recognized)
01-Aug-18 Foreign exchange loss $ 30,000.00
Accounts payable $ 30,000.00
(Loss recognized)

01-Aug-18 Forward contract $ 75,000.00
Gain on forward contract $ 75,000.00
( gain recognized)
01-Aug-18 Accounts payable $ 615,000.00
Forward contract $ 15,000.00
Cash $ 630,000.00
(Paid to accounts payable)
Question 9
a. Forward rate agreement hedges the person entering into the agreement from the
fluctuations in the foreign currency rates. In the present transaction, Lehman Ltd sells
material for USD 500000 and amount will be received by then on 1 September 2019. The
exchange rate on s=dale of sell was 0.7 USD for 1AUD. In the present case, the market
may fluctuate and USD’s value may reduce for each AUD.
In such case forward contract provide a certain forward exchange rate. This will reduce
the risk due to currency rate fluctuations and person entering forward contract will
become eligible to settle his transaction at the pre-specified forward rate.
b. In the present case, AUD 694,444.44 i.e. (USD500000/0.72) will be the sale revenue of
Lehman Ltd.
Question 10
Journal entries
Date Description Debit Credit
30-Jun-20 No journal entry
30-Jun-21 Compensation expenses $ 5,000.00
Stock options $ 5,000.00
30-Jun-22 Compensation expenses $ 5,000.00
Stock options $ 5,000.00
30-Jun-22 Stock options $ 10,000.00
Equity share capital $ 10,000.00

Works Cited
Australian Accounting 2010, AASB 117 LEASES, viewed 19 April 2018,
<http://www.aasb.gov.au/admin/file/content102/c3/AASB117_07-04_ERDRjun10_07-09.pdf>.

Melvin, M & Norrbin, S 2017, International money and finance, Academic Press.