OFFICE USE ONLY

Semester Two 2017

Examination Period
Faculty of Business and Economics
Department of Accounting

EXAM CODES: ACC1100

TITLE OF PAPER: INTRODUCTION TO FINANCIAL ACCOUNTING - PAPER 1
EXAM DURATION: 2 hours writing time
READING TIME: 10 minutes

THIS PAPER IS FOR STUDENTS STUDYING AT: (tick where applicable)

 Berwick  Clayton  Malaysia  Off Campus Learning  Open Learning

 Caulfield  Gippsland  Peninsula  Monash Extension  South Africa
 Parkville  Other (specify)

During an exam, you must not have in your possession any item/material that has not been authorised
for your exam. This includes books, notes, paper, electronic device/s, mobile phone, smart watch/device,
calculator, pencil case, or writing on any part of your body.  Any authorised items are listed below. 
Items/materials on your desk, chair, in your clothing or otherwise on your person will be deemed to be
in your possession. 

No examination materials are to be removed from the room. This includes retaining, copying,
memorising or noting down content of exam material for personal use or to share with any other person
by any means following your exam.
Failure to comply with the above instructions, or attempting to cheat or cheating in an exam is a
discipline offence under Part 7 of the Monash University (Council) Regulations.

AUTHORISED MATERIALS

OPEN BOOK  YES  NO

CALCULATORS  YES  NO
(If YES, only a HP 10bII+ calculator is permitted, except at Malaysia and South Africa campuses
where an 'approved for use' Faculty label is permitted)
SPECIFICALLY PERMITTED ITEMS  YES  NO
If YES, items permitted are: An unannotated copy of the Locke, C. (Ed.). Financial Reporting Handbook
(2016/2017*). CAANZ (Chartered Accountants Australia & New Zealand) John Wiley and Sons Australia.
Tabs permitted; no writing permitted inside or on tabs,; coloured highlighting permitted inside.

This paper consists of six (6) questions printed on a total of eight (8) pages.
Students must attempt to answer ALL of questions 1 to 5 and then either question 6A OR 6B.
Candidates must complete this section if required to write answers within this paper
STUDENT ID: __ __ __ __ __ __ __ __ DESK NUMBER: __ __ __ __ __

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PLEASE CHECK THE PAPER BEFORE COMMENCING. THIS IS A FINAL PAPER. THIS EXAMINATION
PAPER MUST BE INSERTED INTO THE ANSWER BOOK AT THE COMPLETION OF THE PAPER.

Question 1 2 3 4 5 6 Total
Allocated Marks 9 9 14 14 12 8 66
Mark received

Second marking

Question 1

a) Messy Ltd is an oil company. The company is aware that it that is has caused
severe contamination to land during the process of oil extraction. While Messy
Ltd operates in countries where there is no environmental legislation, the
company has a widely published environmental policy specifying that it
undertakes to clean up ALL contamination that it causes. The company has had a
record of honouring this published policy for the last thirty years and has
previously cleaned up after 4 contamination incidents.

Required:

With reference to the AASB Framework, discuss whether Messy Ltd should recognise
a “Liability for Environmental Clean Up” in its Statement of Financial Position.

(9 marks)

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Question 2

PinkCow Ltd sells PinkCow energy drink cans to customers.

The following relates to PinkCow Ltd’s activities during June 2017:

June 1 Opening inventory 50,000 cans — cost $2 each

9 5,000 cans purchased at a cost of $2.50 each
17 40,000 cans purchased at a cost of $2.50 each
23 10,000 cans purchased at a cost of $2.60 each
31 Closing inventory (as per physical stocktake) 20,000 cans.

Additional information
i. The most recent selling price of the PinkCow can is $4.60 per can.

ii. One thousand cans of the closing inventory have been dented and can only be sold for $1
per can. The dented cans were from the purchase on the 17th June.

iii. Freight from the supplier to PinkCow Ltd costs $0.50 per can. Freight from PinkCow
Ltd to supermarkets costs $0.60 per can and would also apply to the cans with dents.
PinkCow Ltd pays both sets of freight costs.

iv. PinkCow Ltd uses the periodic inventory system.

Required:
Calculate the value of closing inventory as provided for in AASB 102 Inventories, applying the
FIFO (first-in-first-out) method.
Justify all aspects of your calculations.

(9 marks)

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Question 3

Answer each of the following two independent parts.

a) On 1 July 2016, Trippier Ltd entered into a non-cancellable, three-year lease of a

computer system. The computer had a fair value of $15,100 and a present value
of the minimum lease payments of $14,934. The computer had an estimated
useful life of 4 years and a zero-residual value. The lease involved an initial
payment of $2,500 on 1 July 2016 plus 3 annual payments of $5,000. Payments,
except for the initial payment, are made on 30 June each year. The implicit
interest rate in the lease is 10% p.a. Ownership of the computer system will
transfer to the company at the end of the lease term.

Required:

(i) Prepare a lease schedule for the three years of the lease.

(ii) Assuming the lease is treated as a finance lease, record in general journal form,
all journal entries relating to the lease asset AND lease liability for the year
ending 30 June 2017.

(iii) Show how the lease would be reported in the Balance Sheet at 30 June 2017.

b) AASB 137 Provisions, Contingent Liabilities and Contingent Assets highlights the
difference between provisions and contingent liabilities.

Required:

(i) Explain the distinction between a provision and a contingent liability.

(ii) Explain whether contingent liabilities and provisions are treated differently in
terms of recognition.

(4 + 5 + 2) + (2 + 1) = 14 marks

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Question 4

Vertonghen Ltd has various non-current assets, including Buildings and Machinery. The
Buildings were purchased on 1 July 2009, have an anticipated residual value of $400,000 and an
expected useful life of 20 years. The Buildings are being recorded under the revaluation
model (AASB 116).

The machinery was purchased on 1 July 2013. It has an anticipated residual value of $80,000 and
an expected useful life of 15 years. The machinery is being recorded under the cost model
(AASB 136).

Both assets are being depreciated using the straight-line method.

An extract of the balance sheet at 1 July 2015 is provided below:

Non-current Assets

Buildings 750,000
Less Accumulated Depreciation (105,000) 645,000

Machinery 230,000
Less Accumulated Depreciation (20,000)

Information relating to the assets at 30 June 2016 is:

Machinery Value in Use $197,000

Machinery Fair Value $198,000
Costs to sell Machinery $2,000
Buildings fair value $712,000
Buildings Value in Use $713,000
Costs to sell Buildings $1,000

Information relating to the asset at 30 June 2017 is:

Buildings fair value $507,000

Buildings Value in Use $509,000
Costs to sell Buildings $1,000

Required:

a) Prepare the general journal entries for the year ended 30 June 2016 for both assets, taking
into account the information provided above. Justify your answer and show all workings

b) Prepare the general journal entries for the year ended 30 June 2017 for the Buildings.
Justify your answer and show all workings.

(Total: 9 + 5 = 14 marks)

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Question 5

Answer each of the following five parts assuming a balance date of 30 June, 2017. Journal
narrations are not required.

(a) Kane Pty Ltd entered into a loan of $10,000 on 1 March 2017 and was being charged
interest at 12% simple per annum.

Prepare any required general journal adjusting entry for the financial year assuming no
payment of interest has been made.

(b) Dele Pty Ltd had accounts receivable at 30 June 2017 totaling $76,100 Dr. The doubtful
debts allowance at the same time was $2,310 Cr, but it was decided by the accountant to
increase the allowance for doubtful debts to 2% of accounts receivable after writing off
$3,100 in uncollectable accounts.

Prepare the necessary general journal entries to record the above events.

(c) Ericson Pty Ltd, a small Australian service company, has 10 employees. The current
annual payroll for these employees is $375,000. The employees are entitled to four weeks
of annual leave.

Calculate the annual cost of the leave and provide a general journal entry to record the
weekly accrual of annual leave.

(d) Lloris Pty Ltd purchased machinery for $380,000 on 1 March 2017. It is estimated that the
machinery will have a working life of 10 years but the company believes it will only use
the machinery for 6 years and then sell it for an estimated $20,000. The company uses the
straight-line method of depreciation for the machinery.

The company purchased a computer on 1 July 2015 for $10,000. The company believes it
will use the computer for ten years and can sell it at the end of that period for $500. The
company uses the reducing balance method of depreciation and a depreciation rate of
26% p.a.

Prepare the necessary general journal entries to record the depreciation of the two assets
for the financial year ending 30 June 2017.

(e) Dembele Pty Ltd paid $4,200 for 6 months advertising on the 1 January 2017. The
transaction was initially recorded as an expense.

Prepare any required adjusting entry for the financial year ending 30 June 2017. Justify
your answer.
(Total: 1 + 4 + 2.5 + 3 + 1.5 = 12 marks)

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Question 6

Answer Part A or Part B – you have the choice.

During class, we discussed various accounting standards and their consistencies and
inconsistencies with the Conceptual Framework.

Part A

Required:

Compare and contrast the accounting treatment of increases and decreases in value of assets
between the conceptual framework and the following two standards:
(a) AASB116 – Property, Plant and Equipment
(b) AAB136 – Impairment of Assets
(4 + 4 = 8 marks)
OR

Part B
AASB138 “Intangible Assets” highlights the treatment of Research and Development
expenditure. AASB6 “Exploration for and Evaluation of Mineral Resources” highlights
the treatment of Exploration expenditure. Both standards focus on the issue of “risky”
expenditure and whether to treat such expenditure as an asset or expense.

Required:

(i) Describe the requirements under both the standards with respect to this asset
versus expense recognition issue.

(ii) Are the requirements of the two standards consistent with the approach that
would be adopted if using the definitions and recognition criteria provided by the
AASB Conceptual Framework? Justify your answer.

(3.5 + 4.5 = 8 marks)

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CHIEF EXAMINERS – PLEASE REMOVE THIS IF STUDENTS ARE NOT WRITING IN THE
EXAM PAPER.

INSTRUCTIONS TO CANDIDATES

1. Exam conditions start NOW.

2. Please remove your watches and place them face up on your desk. Any
smart watch or device and mobile phone must be switched off,
including the alarm, and placed in your bag or screen down on the
floor.
3. During an exam, you must not have in your possession any
item/material that has not been authorised for your exam. This
includes books, notes, paper, electronic device/s, mobile phone, smart
watch/device, calculator, pencil case, or writing on any part of your
body. Any authorised items are listed on the front cover of your exam
paper. Items/materials on your desk, chair, in your clothing or
otherwise on your person will be deemed to be in your possession.
No examination materials are to be removed from the room. This
includes retaining, copying, memorising or noting down content of
exam material for personal use or to share with any other person by
any means following your exam. Failure to comply with the above
instructions, or attempting to cheat or cheating in an exam is a
discipline offence under Part 7 of the Monash University (Council)
Regulations.
4. You are not permitted to leave during the first hour of the exam, or
during the last 10 minutes.
5. All rough work must be done on the unruled pages of your
scriptbook(s) or exam paper. You must not use your own paper for
this purpose.
6. You must not commence writing until permission is given to do so.
Listen for announcements.
7. You must stop writing when instructed to do so, or else you may be
reported.

DO NOT TEAR OUT ANY PAGES OF YOUR SCRIPTBOOK OR EXAM PAPER

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