hi, i have submitted assignment part 2 brief, i also have submitted my assignment part 1 as well which i have already done, just do part 2 which i have given to you, and get the help from part 1 if there is any connection between both parts.there is no limit of the words but plz do your best as this is the important assignment
ACCT6003 FAP_Assessment Brief_Part 2 1 | P a g e
ASSESSMENT BRIEF
Subject Code and Title ACCT6003 FINANCIAL ACCOUNTING PROCESS
Assessment Major Assessment – Part 2
Individual/Group Individual
Length Not applicable
Learning outcomes
1. Explain the regulatory framework that governs financial
reporting in Australia with emphasis on the Conceptual
Framework for financial reporting
3. Apply accounting principles and standards when accounting
for non-current assets, revenue and liabilities and recognise
the judgements required in a range of diverse business
contexts
5. Differentiate between shares and debentures and apply
appropriate accounting procedures
Submission Sunday 22nd July of Week 8 by 11:55pm AEST/AEDT
Weighting 25% (Part 2 only, Full assessment 30%)
Total Marks 100 marks
Context:
This assignment forms Part 2 of the major assignment. Students are provided with a business
case in which an entrepreneur, Xiaojing Wu, from China immigrated to Australia and considered
setting up a business in South Australia. Xiaojing decided to change the business structure from
a partnership to a private company, ChiHerbal Pty Ltd, and it has been great years for them.
After ten years of operation, the company has grown and again they have made a decision to
move onto public company structure ChiHerbal Ltd from private company structure.
In Part 2 of the assignment, students are required to prepare journal entries to account for a
range of transactions undertaken by ChiHerbal Ltd.
Business Case
Refer to the transactions for Modules 2, 3 and 4 (Impairment of Assets will not be assessed in
this assignment).
ACCT6003 FAP_Assessment Brief_Part 2 2 | P a g e
Instructions
Students are expected to review the content of Module 2, 3 and 4 (excluding Impairment of
Assets in Module 4). Students are required to account for the formation and operation of
CHiHerbal Ltd, i.e. transactions regarding the company’s financing activities, fixed assets, and
intangible assets.
Assignment Part 2 Questions
Assume you were the accountant of ChiHerbal Ltd, address the requirements of the following
independent scenarios for the company.
Scenario 1 Financing Company Operations (30 marks)
On 1 July 2017, ChiHerbal Ltd was registered and offered 500,000 ordinary shares to the public
at an issue price of $7, payable as follows. As per the company’s constitution, all surplus money
from application would be transferred to allotment and/or calls accounts.
$3 on application (due by 1 August 2017)
$2.5 on allotment (due by 30 August 2017)
$1.5 on Call 1 (due by 15 June 2018)
$1 on Call 2 (due by 30 July 2018)
Application has been closed and by 1 August 2017, 600,000 shares have been applied for of
which applicants for 100,000 shares forwarded the full $8 per share, and the reminder paid
application money only.
On 15 August, directors decided to allot shares in full to applicants who had paid the full amount
and to all remaining applications on a pro rata basis.
The cost of publishing prospectus and stamp duty ($29,000) was also paid on 15 August. Other
legal fees of $7,000 were paid on this date too.
All outstanding allotment money was received by the due date above.
The Call 1 was made on 1 May 2018 with money due by 15 June. Subsequently Call 2 was made
on 1 July 2018 with money due by 30 July 2018. All money was received on the due dates except
for the holder of 15,000 shares who failed to meet both call 1 & 2. On 1 September 2018, as
provided for in the constitution, the directors decided to forfeit these shares. They were
reissued, on 15 September 2018, as paid to $8 for $6 cash with a brokerage fee of $4,000. The
balance of the forfeited shares account (after the reissuing share costs) was returned to the
former shareholder on 30 September 2018.
Required
Prepare the journal entries to record the transactions of ChiHerbal Ltd up to and including that
which took place on 30 September 2018. (Show all workings and narrations are compulsory)
ACCT6003 FAP_Assessment Brief_Part 2 3 | P a g e
Scenario 2 Property, Plant and Equipment (25 marks)
The end of the reporting period for ChiHerbal Ltd is 30 June. The company depreciates all
depreciable assets using the straight-line method.
The following events / transactions occurred during 2017 and 2018:
01 April 2017 Paid $90,000 cash for a Truck A. ChiHerbal Ltd estimated the truck’s
useful life and residual value at 5 years and $10,000.
30 June 30 2017 Paid $140,000 cash for equipment. ChiHerbal Ltd estimated the
equipment’s useful life for 10 years with no residual value.
31 August 2017 Paid $2,500 cash for Truck A’s transmission repairs and oil change.
01 September 2017 ChiHerbal Ltd decided to change the basis of measuring equipment to
the revaluation model. ChiHerbal Ltd directors assessed the
equipment’s fair value at 1 September 2017 at $115,000 with remaining
life 8 years.
1 March 2018 Truck A has been sold for $59,000 cash
30 June 2018 ChiHerbal Ltd re-assessed fair value on 30 June 2018 by independent
valuer and the equipment’s fair value at 30 June 2018 was $120,000.
Required
Prepare the journal entries to record the above transactions of ChiHerbal Ltd for the financial
year ended 30 June 2017 and 2018.
Students are required to show depreciation entries as well as closing entry(ies) to Asset
Revaluation Surplus Account only, if any (you do not need to show closing entries to P+L
summary). Show all workings and narrations are compulsory. Tax effect on revaluation is
ignored.
ACCT6003 FAP_Assessment Brief_Part 2 4 | P a g e
Scenario 3 Lease (35 marks)
On 31 December 2016, ChiHerbal Ltd has entered into an agreement to lease a Machine from a
manufacturer, Cessnock Ltd.
The lease agreement details are as follows.
Length of lease, non-cancellable 5 years
Commencement date 1 July 2017
Annual lease payment, commencing 1 July 2017 $8,000
Usual selling price of (fair Value) the Machine at 1 July 2017 $35,322
Lessor’s carrying amount of the machine at 1 July 2017 $31,000
Estimated useful life of the Machine 7 years
Estimated residual value of the plant at the end of its economic life $3,000
Residual value at the end of the lease term, 100% is guaranteed by
ChiHerbal Ltd.
$2,160
Interest rate implicit in the lease 9%
Required
a) Prepare a schedule of lease payments for the entire lease term and the journal entries
for ChiHerbal Ltd in respect of the lease for the financial year ended 30 June 2018 and
2019 only (20 marks).
b) Prepare a schedule of lease receipts for the entire lease term and the journal entries for
the manufacturer, Cessnock Ltd for the financial year ended 30 June 2018 and 2019
only in respect of the lease for the lease term (15 marks).
Note: Include narrations for all journal entries. Present value tables (both single dollar and
annuity tables) have been included at the end of the assessment
ACCT6003 FAP_Assessment Brief_Part 2 5 | P a g e
Scenario 4 Intangible Assets (10 marks)
ChiHerbal Ltd has undertaken a project to develop an online sales team. The project involves all
sales representatives being equipped with a hologram-projecting equipment which can project
an accurate, image of every stock item ordered by customers.
The costs incurred in the current period on this project for the financial year 30 June 2017 were:
Computer equipment (life five years, zero residual value) $500,000
Software development $380,000
Consultants’ fees (for testing) $620,000
ChiHerbal Ltd expected the project to ‘go-live’ by the end of financial year 2017. However errors
were detected and the project was still under on-going experimental testing. Application for a
patent has been delayed. ChiHerbal Ltd was hoping to sell the technology to other companies
but the marketing department have confirmed that currently there’s yet to be existence of a
market for the new product.
Required
For the reporting period ended 30 June 2017, applying the provisions of AASB 138, identify the
amount of development and whether the development costs should be capitalised or
recognised as an expense.
In your answer must refer to the relevant sections and paragraphs in AASB 138 Intangible Assets
to fully justify your conclusion. Journal entries are not required.
ACCT6003 FAP_Assessment Brief_Part 2 6 | P a g e
Present value tables for the Question 3 Lease
Present Value Of $1
4% 5% 6% 7% 8% 9% 10% 11% 12%
0 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
1 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929
2 0.9246 0.9070 0.8900 0.8734 0.8573 0.8417 0.8264 0.8116 0.7972
3 0.8890 0.8638 0.8396 0.8163 0.7938 0.7722 0.7513 0.7312 0.7118
4 0.8548 0.8227 0.7921 0.7629 0.7350 0.7084 0.6830 0.6587 0.6355
5 0.8219 0.7835 0.7473 0.7130 0.6806 0.6499 0.6209 0.5935 0.5674
6 0.7903 0.7462 0.7050 0.6663 0.6302 0.5963 0.5645 0.5346 0.5066
7 0.7599 0.7107 0.6651 0.6227 0.5835 0.5470 0.5132 0.4817 0.4523
8 0.7307 0.6768 0.6274 0.5820 0.5403 0.5019 0.4665 0.4339 0.4039
9 0.7026 0.6446 0.5919 0.5439 0.5002 0.4604 0.4241 0.3909 0.3606
10 0.6756 0.6139 0.5584 0.5083 0.4632 0.4224 0.3855 0.3522 0.3220
Present Value Of Annuity (in arrear)
4% 5% 6% 7% 8% 9% 10% 11% 12%
1 0.9615 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929
2 1.8861 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355 1.7125 1.6901
3 2.7751 2.7232 2.6730 2.6243 2.5771 2.5313 2.4869 2.4437 2.4018
4 3.6299 3.5460 3.4651 3.3872 3.3121 3.2397 3.1699 3.1024 3.0373
5 4.4518 4.3295 4.2124 4.1002 3.9927 3.8897 3.7908 3.6959 3.6048
6 5.2421 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553 4.2305 4.1114
7 6.0021 5.7864 5.5824 5.3893 5.2064 5.0330 4.8684 4.7122 4.5638
8 6.7327 6.4632 6.2098 5.9713 5.7466 5.5348 5.3349 5.1461 4.9676
9 7.4353 7.1078 6.8017 6.5152 6.2469 5.9952 5.7590 5.5370 5.3282
10 8.1109 7.7217 7.3601 7.0236 6.7101 6.4177 6.1446 5.8892 5.6502
Part 1:
Advantages and disadvantages of a company as compared to company:
• The main advantage of companies is the protection of liabilities. The owners of the company, that is, shareholders do not lose their personal assets because of the liabilities of company because company is considered as the separate legal entity. On the other hand, partners have unlimited liability and they have to lose their personal assets because of the solvency of partnership (Kunz, 2018).
• Another advantage of a company is the ease of accessing of funds. Company can sell their share to raise the funds and on the other hand partners have to come up with their own funds or have to look for loans (Kunz, 2018). However, proprietary companies cannot also raise the funds by selling shares.
• Corporate Tax rate is lesser than the individual income tax rate. Partners pay tax at individual tax rate (Kunz, 2018).
Disadvantages:
• The companies are very expensive to establish as compared to partnership.
• The reporting requirements are very complex (Business.tas.gov.au, 2018).
How to set up a small proprietary company :
1. First, people need to decide which business structure will be suitable for their business needs.
2. Then the company name is chosen , decide how company will be governed and understand the legal rights and obligations of the people involved(Asic.gov.au, 2018).
3. Thirdly, get the consent of each person that will be involved in the business.
4. Register the business by completing Form 201 including signs and fees with the form and submit it to ASIC or this can be done with the help of business provider ( Asic.gov.au, 2018).
Rights and obligations of company directors:
Under the corporation ACT 2001,
• Director must act in good faith
• Directors must exercise care and diligence
• Directors must avoid conflict of interests.
• Director must prevent company from trading while insolvent.
• If company is going to wound up, the director must inform to liquidator and also help them by providing all the books and records of the company.
Funding option for the company:
Company can have access to the funds by selling their shares to investors and also from the loans provided by different financial institutions.
Part 2:
Advantages and disadvantages compared to small private companies:
• Public companies can publically trade shares in Australian stock exchange and private companies cannot trade shares on ASX and publically.
• The investment in public companies is done by many shareholders while in private companies the investment is done by few people.
• Valuation of public companies are easier and more appropriate.
Disadvantages:
• It is easier for the private company to become public company; however, public company cannot become private easily.
• Reporting requirements of public companies are complex than private companies.
Funding options of the company:
Public companies have two options to raise money:
• Borrow the money
• Raise more equity
Reporting requirements as per ASX:
The companies are required to prepare financial statements in accordance with the corporation Act 2001 from the maintained financial records. The financial statement must be audited and lodged within four months from 30th June (Aicd.companydirectors.com.au, 2018). The report must be given to their members within four months or 21 days before annual general meeting or which one is earlier. Public companies are also required to make half yearly reports. The half yearly report must be lodged with ASIC along with auditor report (Aicd.companydirectors.com.au, 2018).
References:
Business.tas.gov.au. (2018). Company – advantages and disadvantages – Business Tasmania. [online] Available at: https://www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-intro/proprietary-company-advantages-and-disadvantages [Accessed 1 Jul. 2018].
Kunz, M. (2018). The Advantages of a Corporation Over a Partnership and Sole Proprietership. [online] Smallbusiness.chron.com. Available at: http://smallbusiness.chron.com/advantages-corporation-over-partnership-sole-proprietership-19197.html [Accessed 1 Jul. 2018].
Asic.gov.au. (2018). Small business-starting a company | ASIC – Australian Securities and Investments Commission. [online] Available at: https://www.asic.gov.au/for-business/your-business/small-business/starting-a-small-business/small-business-starting-a-company/ [Accessed 1 Jul. 2018].
Aicd.companydirectors.com.au. (2018). Financial reporting requirements. [online] Available at: https://aicd.companydirectors.com.au/~/media/cd2/resources/director-resources/director-tools/pdf/05446-2-3-director-tools-bp-financial-reporting-requirements_a4_web.ashx [Accessed 1 Jul. 2018].
