ACC510 Major Assignment (Task 2)

Semester (Trimester) 2 – 2017

Word count: approximately 1,500 words

Weighting: 30%

This assignment (task) requires you to prepare answers to the following four (4) questions. The assignment must be your own individual work, that means it is not a group assignment. If it is believed that a student has copied material from another student or any other source without appropriate referencing, the necessary action will be taken in accordance with the University’s Student Academic Integrity – Governing Policy:

( policy). Consequently, it is critical that you provide complete referencing for any and all sources of information that you use in preparing your answers to the assignment. This includes both in-text references and a list of references at the end of your assignment. Please, contact your local campus lecturer/tutor if you have any questions about referencing (APA 6th Edn. is to be used – it is available on MSWord). Alternatively, you can post your enquiry on the Discussion Board of the Blackboard site for this course.

Other general points about this assignment:

  • The assignment should only be submitted electronically via Safe Assignment on the ACC510 Blackboard site. If you wish to apply for an extension to your submission date, please email Dr Greg Laing () to explain the circumstances and attach any necessary supporting documentation.
  • Late penalties will be applied for assignments submitted after 12 midnight (24:00 hours) on Monday 9th October, 2017 without an approved extension. More details on late penalties are provided in the course outline.
  • It is not necessary to include an overall introduction and conclusion for the assignment.
  • The suggested word count for each of the four (4) questions provides you with a guide to the approximate number of words that you should use in answering each question. The total word count is approximately 1,500 words. But if your word count is above 1,800 words, we will not continue marking your assignment after reading that number of words.

Assessment Criteria:

The assignment will be marked according to the rubric and allocation list which encompasse aspects such as:

  • Logical application of concepts to situations, with adequate justification/support for choice made;
  • Professional presentation (word template provided), correct spelling, grammar and the use of the American Psychological Association (APA 6th Edn.) referencing method.

Question 1: (Approximately 400 words)

Case study 3.1 - The highest and best use principle

The following is an extract from an article by Alexandra Cain (2013).

Anne Lockwood FCA, audit partner with accounting firm Crowe Horwath, says one of the main problems with fair value is that too much judgement is involved in its use.

‘Lots of judgement goes into determining fair value. The volatile global economy causes fair value to continually move. So it’s very confusing to report against,’ says Lockwood.

The way fair value requires unrealised gains and losses to be treated does not necessarily reflect what an asset means to a business. ‘Financial institutions use fair value to value financial instruments as part of everyday business. But when it comes to valuing property, plant and equipment, you get swings and roundabouts and changing valuations. On top of this there are inconsistencies in the way individual businesses use fair value to account for plant and equipment, which is a problem,’ she adds.

Lockwood explains that AASB 13 directs financial account preparers to use the market price of an asset, taking into account the highest and best use of an asset to determine fair value. But this poses problems for not-for-profit groups.

‘If you take the example of an aged care home, if you knocked it down to build a block of flats, which might be the highest and best use, you are going to get an inflated figure because no-one’s going to knock it down because it’s being used for altruistic purposes. So you might carry a value of $10 million for the asset in the accounts, but this value isn’t realistic to the entity or the users of the financial statements because there is no intention by the organisation to realise the value of the asset determined under a highest and best use scenario.’ The problem is this inflation of asset valuations, especially for not-for-profits, makes valuations more complex and requires accountants to use too much judgement when applying fair value.

Required:

Discuss the highest and best use principle and the relevance of the information provided by its application.

Question 2: (Approximately 300 words)

Exercise 7.14 - Impairment, two CGUs

Last Ltd has two divisions, Time and Leisure. Each of these is regarded as a separate CGU.

At 31 December 2016, the carrying amounts of the assets of the two divisions were:

Time / Leisure
Plant / $1 500 / $1 200
Accumulated depreciation / (650) / (375)
Patent / 240
Inventories / 54 / 75
Receivables / 75 / 82
Goodwill / 25 / 20

The receivables were regarded as collectable, and the inventories’ fair value less costs of disposal was equal to its carrying amount. The patent had a fair value less costs of disposal of $220. The plant at Time was depreciated at $300 p.a., and that at Leisure was depreciated at $250 p.a.

Last Ltd undertook impairment testing at 31 December 2016, and determined the recoverable amounts of the two divisions to be:

Time / $1 044
Leisure / 990

As a result, management increased the depreciation of the Time plant from $300 to $350 p.a. for the year 2017.

By 31 December 2017, the performance in both divisions had improved, and the carrying amounts of the assets of both divisions and their recoverable amounts were as follows:

Time / Leisure
Carrying amount / $1 322 / $1 433
Recoverable amount / 1 502 / 1 520

Required:

Determine how Last Ltd should account for the results of the impairment tests at both 31 December 2016 and 31 December 2017.

Question 3: (Approximately 500 words)

Case study 6.1 - Research and development

On 29 April 2014, Lockheed Martin posted an announcement on its website in relation to achieving a significant milestone in research and development for unmanned technologies. The announcement inclued the following:

Three systems acquired by Lockheed Martin [NYSE: LMT] have progressed from their research and development phase to operational readiness. The Indago vertical take-off and landing (VTOL) quad-rotor, accompanied by its handheld ground control station (GCS) will offer a robust, mobile surveillance application. Additionally, a new Commercial Avionics Suite delivers the same performance and reliability that customers have enjoyed with the previous products but at a new low price.

‘After two years of developing these capabilities, we will now be able to deliver affordable and effective products to both military and commercial customers,’ said Kevin Westfall, director of unmanned solutions at Lockheed Martin’s Mission Systems and Training business. ‘The Indago VTOL, handheld GCS and advanced Commercial Avionics Suite will provide mobility and high accuracy for a range of missions – now and in the future.’

Required:

In accounting for internally generated intangible assets it is necessary to distinguish between the research phase and the development phase of a project. Discuss the difference between these two phases, and the accounting for outlays incurred in the two phases.

Question 4: (Approximately 300 words)

Exercise 9.19 - Accounting for defined benefit superannuation plans

Some years ago, Wattle Ltd established a defined benefit superannuation plan for its employees. The company has since introduced a defined contribution plan, which all new staff join when commencing employment with Wattle Ltd. Although the defined benefit plan is now closed to new recruits, the fund continues to provide for employees who have been with the company for a long time. The following actuarial report has been received for the defined benefit plan:

2016
$
Present value of the defined benefit obligation 1 Jan. / 20 000 000
Past service cost / 2 000 000
Net interest / ?
Current service cost / 800 000
Benefits paid / 2 100 000
Actuarial loss on DBO / 100 000
Present value of the defined benefit obligation 31 Dec. / 23 000 000
Fair value of plan assets at 1 Jan. / 19 000 000
Return on plan assets / ?
Contributions paid to the fund during the year / 1 000 000
Benefits paid by the fund during the year / 2 100 000
Fair value of plan assets at 31December 2016 / 20 130 000

Additional information

(a)All contributions received by the funds were paid by Wattle Ltd. Employees make no contributions.

(b)The interest rate used to measure the present value of the defined benefit obligation was 10% at 31December 2015 and 31 December 2016.

(c)The asset ceiling was nil at 31 December 2015 and 31 December 2016.

Required:

1.Determine the surplus or deficit of Wattle Ltd’s defined benefit plan at 31 December 2016.

2.Determine the net defined benefit asset or liability that should be recognised by Wattle Ltd at 31December 2016.

3.Calculate the net interest and the return on plan assets for the year ended 31 December 2016.

4.Present a reconciliation of the opening balance to the closing balance of the net defined benefit liability (asset), showing separate reconciliations for plan assets and the present value of the defined benefit obligation.

5.Prepare a summary journal entry to account for the defined benefit superannuation plan in the books of Wattle Ltd for the year ended 31 December 2016.

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