Question 1 2 3 4 5 TOTAL

Allocated 15
20 21 13 31 100
Marks

Question 1
a) Calculate the value of lease receivable at inception
Fair value of the underlying asset + initial direct costs of lessor= $898 000 + $8 075 = $ 906
075
Lease Repayment Schedule

Date OB Receipt Interest 7% Reduction in CB

$ $ $ Principal $
$
31.12.20 906 075 250 000 - 250 000 656 075
31.12.21 656 075 250 000 45 925 204 075 452 000
31.12.22 452 000 250 000 31 640 218 360 233 640
31.12.23 233 640 250 000 16 355 233 645 0
(½ mark for each entry= 9 marks)
Public Finance Limited – Extract of the Financial Position Statement as at 31 December
2021:
Assets
Current Assets
Lease Receivable $218 360 (2 marks)
Non-Current Assets
Lease Receivable $233 640 (2 marks)

Public Finance Limited – Extract of the statement of profit or loss for the year ending 31
December 2021
Finance Income $ 45, 925 (2 marks)

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b) Operating Lease
Statement of Financial Position would record:
 Machine as a fixed asset, lee accumulated depreciation
 Initial direct costs will be added to the carrying amount of the machine and
amortised over the 4-year lease term.
Statement of Profit and Loss would record:
 Annual depreciation of the machine over its useful life
 Amortisation of the initial direct costs over the lease term
 Operating lease income represented by the annual $ 250 000 payments on a
straight-line basis.
(1 mark for each point=5 marks)
Total= 20 marks)

2
Question 2
Solution

a) Basic earnings:

Profit after tax $2 100 000

Less Preference dividends ($200 000 x 10%) 20 000

Basic earnings $2 080 000 (1mark)

Weighted average number of ordinary shares:

Period Proportion No of shares Weighted

of yr average

Fully paid 01/07/16- 1 500 000 500 000

ord shares 30/06/17 (1mark)

Partly paid 01/07/16- 1 100 000 45 000

ord shares 30/06/17 ($0.90/2.00 = (1mark)
0.45)

Weighted av 545 000

(1mark)

Basic EPS

Basic EPS = $2 080 000 / 545 000 = $3.817 (2 marks)

(6 marks)

b) Calculate diluted earnings per share for Strezlecki Ltd for the year ending 30
June 2017.

Partly paid shares

Equiv number of ord shares (100 000 sh x $1.10 / $2.00) 55 000

Number of shares that would be issued with the proceeds

(100 000 sh x $1.10) / $2.50 av market price 44 000

Number of shares issued for no consideration 11 000

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Convertible notes

New shares issued = 400 000 ordinary shares

Interest saved = $1 200 000  0.10= $120 000 (before tax)

After-tax saving = $120 000 x (1 – 0.30) = $84 000

Options

New shares issued = 250 000 ordinary shares

Shares issued for no consideration

Earnings= 250 000 shares  $2.30 = $575 000

Shares issued at FV = $575 000 / $2.50 current average market price= 230 000
ordinary shares

Shares issued at nc = 250 000 – 230 000= 20 000 ordinary shares

Convertible preference shares

New shares issued = 200 000 / 2 = 100 000 ordinary shares

Dividend saved = $20 000 (after tax)

Determine order to be applied in trigger test:

Most diluted must be on top for the table (based on incremental EPS)
Change in earnings Change in ord. shares Inc EPS

Options $0 20 000 $0

Partly paid shares $0 11 000 $0

Conv. pref. shares $20 000 100 000 $0.200

Conv. notes $84 000 400 000 $0.210

0.75 x 12 = 9 marks
The order is: options, partly paid shares, preference shares, notes.

4
Trigger Test

Profit Number of EPS

shares

Initial position $2 080 000 545 000 $3.817

Options – 20 000
2 080 000 565 000 3.681 1.5 mark
Partly paid shares – 11 000
2 080 000 576 000 3.611 1.5 mark
Convertible preference shares 20 000 100 000
2 100 000 676 000 3.107 1.5 mark

Convertible notes 84 000 400 000

2 184 000 1 076 000 2.030 1.5 mark

Diluted EPS = $2 184 000 / 1 076 000 = $2.030

(6+15=21marks)

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Question 3
i) Operating segments’ are defined in the Appendix to AASB 8 as follows:
An operating segment is a component of an entity:
(a) that engages in business activities from which it may earn revenues
and incur expenses (including revenues and expenses relating to
transactions with other components of the same entity);
(b) whose operating results are regularly reviewed by the entity’s chief
operating decision maker to make decisions about resources to be
allocated to the segment and assess its performance; and
(c) for which discrete financial information is available.
(2 marks each point)

ii) For the purposes of external reporting, individual operating segments may be
aggregated. Indeed, it might be advisable to aggregate similar segments and
thus avoid overwhelming readers with information about too many segments.
As paragraph 12 of AASB 8 states:
Operating segments often exhibit similar long-term financial performance
if they have similar economic characteristics. For example, similar long-
term average gross margins for two operating segments would be
expected if their economic characteristics were similar. Two or more
operating segments may be aggregated into a single operating segment if
aggregation is consistent with the core principle of this Standard, the
segments have similar economic characteristics, and the segments are
similar in each of the following respects: (2marks)
(a) the nature of the products and services;
(b) the nature of the production processes;
(c) the type or class of customer for their products and services;
(d) the methods used to distribute their products or provide their
services; and
(e) if applicable, the nature of the regulatory environment, for example,
banking, insurance or public utilities.
Clearly, whether or not we aggregate two or more operating segments for the
purposes of external reporting will be a matter of professional judgement. (1mark
each point )
(6+7=13 marks)

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Question 4

 Often the foreign operation performs its operations in a currency other than that
of the parent entity. As such, the foreign operation insulates itself from the
effects of variations in the exchange rates between the parent’s currency and its
own currency. The parent entity will not be exposed to foreign exchange gains
and losses in relation to the foreign operation’s cash flows.  Any increase or
decrease in the Australian dollar equivalent of the foreign operation’s assets will
at least in part be offset by changes in the Australian dollar equivalent of the
foreign operation’s liabilities. The exposure will be limited to the difference
between the assets and the liabilities, that is, limited to the net assets of the
foreign operation. 

 Any gains or losses related to translating the net assets will not be treated as part
of income, but will be transferred to reserves.  The gains or losses are
considered to be unrealised from the parent entity’s perspective.  AASB 121,
paragraph 41, states: “These exchange differences are not recognised in profit or
loss because the changes in exchange rates have little or no direct effect on the
present and future cash flows from operations.” 
(6+5=11 marks)

b) AASB 123 requires that borrowing costs (which include the foreign exchange
differences) that relate to qualifying assets should be included in the cost of acquisition
of the asset, to the extent that they arise before the assets cease to be qualifying assets.
As this is a construction of manufacturing equipment, it falls as a qualifying asset. (2
mark)
To recognise the cost of the equipment by Gloat Ltd
1.2.2018
DR Machinery 272723
CR Accounts Payable 272723
(4 marks)

To record the movement in Australian currency monetary item exchange rates

from 1.2.2018 to 1.6.2018 (0.5 mark)

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1.6.2018
DR Machinery 21394
CR Accounts Payable 21394

(RM$300000/1.02) - 272723 = 21394

(4 marks)

To recognise the change in movement in Australian currency, monetary item

exchange rates in the period after which the equipment ceased to be a qualifying asset.
(0.5 mark)

30.6.2018

DR Foreign currency loss 5883

CR Accounts Payable 5883

(RM$300000/1.00) -(272723 + 21394)

(2 marks)

c)
Dr Deposit on SPI futures 100 000

Cr Cash at bank 100 000

(To record the deposit with the futures broker.)

(1 mark)

On 29 July the All Ordinaries SPI has increased to 2720 and the value of the
organisation’s share portfolio has increased to $1 725 000. The total gain or loss after
hedging can be calculated as:

Gain on share portfolio:

Market price at 1 July 2018: $1 550 000

Market price at 29 July 2018: $1 725 000 $175 000

(1 mark)

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Loss on SPI futures:

Price on 1 July 2018: 2500 x $60 x 10 units $1 500 000

Price on 29 July 2018: 2720 x $60 x 10 units $1 632 000 $132 000

Net gain $43 000

(1 mark)

After the initial recognition of the futures contract and the related deposit, the
movements in the value of the futures, and the share portfolio can be accounted for on
the basis of movements in their values. The entries would be:

29 July 2018

Dr Share portfolio 175 000

Cr Gain on share portfolio 175 000

(To ‘mark to market’ the value of the organisation’s share portfolio, and to treat the
upward movement as gain.)

(1 mark)

Dr Loss on futures contract 132 000

Cr Deposit held by broker 132 000

(1 mark)

(This entry assumes that the losses are credited to the initial deposit held by the futures
broker. This entry would represent an aggregated entry as in practice the adjustments
to the deposit account may be made daily. Where there have been losses the investor
would probably have been required to make further payments to the broker to cover
the losses rather than just increasing the Futures payable account. We will assume in
this question that a further amount of $132 000 had been paid to the broker to cover
the losses on the future contract and to ensure that the broker still has $100 000 on
hand to cover any future losses that may arise).

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 Dr Deposit held by broker 132 000

Cr Cash at bank 132 000

(This is an aggregated entry which would cover the losses incurred on the futures contract
up to 29 July 2018.)

(1 mark)

If Berwick Ltd decides to sell it shares and close out its futures contract on 29 July 2018,
the accounting entries would be as shown below:

29 July 2018

Dr Cash 1 725 000

Cr Share portfolio 1 725 000

(1 mark)

Dr Cash at bank 100 000

Cr Deposit held by broker 100 000

(This amount represents the total of the original deposit paid to the broker less the
accumulated losses of the SPI future since the date of entering the contract.)

(1 mark)

(Total 8 marks)

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Question 5
(a)(i)
Acc LSL benefit: = (yrs of emp / yrs until LSL vests x LSL ent / 52 weeks) x projected salary
• Cooper = 4 / 12 x 10 / 52 x $61,494 = $ 3,942
• Dante = 5 / 12 x 10 / 52 x $47,762 = $ 3,827
• Nguyen = 7 / 12 x 10 / 52 x $67,530 = $ 7,575
• Pringle = 10 / 12 x 10 / 52 x $43,709 = $ 7,005
• Wang = 12 / 12 x 10 / 52 x $92,000 = $ 17,692

PV of LSL obligation = accumulated LSL benefit / (1 + interest rate) n

(where n = number of years until LSL can be paid)
8
• Cooper = 3,942 / (1.080) $ 2,382
7
• Dante = 3,827 / (1.075) $ 2,545
5
• Nguyen = 7,575 / (1.065) $ 5,796
2
• Pringle = 7,005 / (1.060) $ 6,353
• Wang $ 17,692

Projected Accumulated LSL PV of LSL Probability of LSL liability

salaries benefit obligation entitlement (PV x Prob.)
61,494 3,942 2,382 30% 715
47,762 3,827 2,545 40% 1,018
67,530 7,575 5,796 55% 3,188
43,709 7,005 6,353 80% 5,083
92,000 17,692 17,692 100% 17,692
Total Liability 27,696
½ marks x 16 = 8 marks

(a)(ii)
Dr Cr
Journal entry

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 Long service leave expenses $ 3,244
Long service leave payable $ 3,244
= $27,696 - $24,452 = $3,244 1 mark

(a)(ii)
Dr Cr
Journal entry
Long service leave expenses $ 17,692
Long service leave payable $ 17,692 1 mark

(b)
Vesting sick leave can accumulate and any unused accrued amounts can be paid out to the employee
when they resign.
1 mark
Non-vesting sick leave will only be paid upon a valid claim by the employee.
1 mark
Vesting sick leave is recorded for accounting as a liability as accrued.
1 mark
For non-vesting sick leave, only that part of the entitlement that has accumulated through past service
and is expected to be taken (eg probabilities) should be recognised as a liability.
1 mark
Vesting sick leave that also accumulates and is payable beyond 12 mths from reporting date would
need to be discounted to present value.
1 mark

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