BAO3309 Advanced Financial Accounting Semester 1 2015 SAMPLE Practice Paper B

Section ONE Theoretical concepts Short Answer Questions

Question 1.1

Explain the Bonus Plan and the Political Cost Hypotheses of the Positive Accounting Theory?

Question 1.2

Although many large multinational companies have used a standalone corporate sustainability report to disclose their
economic, social and environmental performance, researchers have found that there is more positive than negative
information reported. Interviews with the managers of those companies also reveal an inconsistency between what is
reported and what is actually being done in practice.

Required: How does the decoupling aspect of the traditional Institutional Theory explain this

Question 1.3
Explain the three approaches to accounting for carbon emissions allowances

Question 1.4

Silk Road, a medium size fashion company announced the sudden resignation of Danny Lawrence, the CEO of Silk
Road. The share price of Silk Road fell immediately after the announcement. How to explain this from Capital
Markets Research perspective?

Question 1.5

Explain how a countrys legal systems explain the differences international accounting practice.

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 BAO3309 Advanced Financial Accounting Semester 1 2015 SAMPLE Practice Paper B

Section Two: Applying accounting standards - Practical questions

Question 2.1 (12 marks)

During the year ended 31 December 2011 the Fire Mining Company acquired three areas Metal, Earth, and Water.
Fire Mining has spent the past year undertaking exploration and evaluation activities in these three areas of interest.
Details of the costs incurred are as follows:

Site Exploration Costs & Evaluation Costs

Metal $20,000,000
Earth $10,000,000
Water $36,000,000

In 2012, Zinc is discovered at the Metal site. The Earth site is abandoned. Exploration at the Water site is still
preliminary and company geologists expect to have access to core drilling data in 2013 which will assist in assessing
the feasibility of the area of interest.

It is estimated that the Metal site has 3,000,000 tonnes of Zinc. Of the total $20,000,000 of exploration and
evaluation costs incurred at Metal, 80% of the expenditure relates to property, plant and equipment, and the
remaining 20% relates to intangible assets. Further development costs of $2,000,000 are incurred at Metal (to be
written off on a production basis). The development costs include $1,200,000 in property, plant and equipment and
$800,000 in intangibles. 500,000 tonnes of Zinc are extracted at a production cost of $300,000. 400,000 tonnes of
Zinc are sold at $9 per tonne.

Required:
Provide the necessary journal entries using the full-cost method to account for:
a. pre-production phase
b. production phase

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 BAO3309 Advanced Financial Accounting Semester 1 2015 SAMPLE Practice Paper B

Question 2.2

On 1 July 2014, KoCo Choc Ltd held a share portfolio that is valued at $1.7 million. Concerned about the market
downturn, on this date, it enters into 60 futures contracts on the All Ordinaries Share Price Index futures in which it
takes a sell position. The All Ordinaries Index on 1 July 2014 is 2500 and the total price of the futures contract is
calculated as 2500X60X$10 contracts = $1 500 000. A total deposit of $100 000 is paid on the futures contracts.

On 31 July 2014, KoCo Choc Ltd decides to sell its portfolio of shares and to close out its futures contract. On this
date, the market value of the share portfolio is $2 million and the All Ordinaries Index is 2600.

Required

a. Provide the journal entries to record the above transactions (8 Marks)

b. Was the market actual performance on 31 July consistent with what KoCo Choc had speculated? Explain (2
Marks)

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 BAO3309 Advanced Financial Accounting Semester 1 2015 SAMPLE Practice Paper B

Question 2.3

OZ Farm Ltd is an emu farm, breeding and maturing emu for future selling as the main business. The following
assumptions apply:
The company was created as at 20 July 2014; at that time, 500 baby emus and 100 mature emus were
acquired. The cost of acquisition for each unit of emu is the same as the costs to sell in the table below.
Emu become mature after seven months.
On 30 March 2015, 50 baby emus were born on the farm.
On 25 June 2015, 80 mature emus were sold.

The fair value (market price) for baby emus and mature emus as well as costs to sell is as follows:

2014 2015
Fair value per baby emu per unit $80 $90
Fair value per mature emu per unit $150 $160
Costs to Sell
- Auctioneers fee $3 $4

Required:

Provide journal entries for the following items according to the requirement of IAS 41 Agriculture.

a. Establishment of the emu farm

b. New born emus on the farm
c. Sale of mature emu
d. The fair value change of the baby emu and the mature emu as at 30 June 2015
e. Net profit or loss of the emu farm as at 30 June 2015

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 BAO3309 Advanced Financial Accounting Semester 1 2015 SAMPLE Practice Paper B

Question 2.4

Happy Fiat works for Great Ocean Ltd. His annual salary is $200 000 and he is paid weekly. As part of his
employment agreement, he is entitled to four weeks annual leave each year. He receives a leave loading of 17.5 per
cent.

Required

(a) Briefly explain employee benefits and the various forms that these benefits can take

(b) Provide the weekly journal entries to record the recognition of Happy Fiats annual leave entitlements
(C) Provide the appropriate journal entries, assuming that Happy Fiat takes two weeks annual leave after being
employed for one year and assuming that the tax deducted from the payment for the two weeks is $1000

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 BAO3309 Advanced Financial Accounting Semester 1 2015 SAMPLE Practice Paper B

Section Three: Professional Judgement Case Study Question

Telstra Ltd is Australias leading telecommunications and information services company, offering a full range of
communications services and competing in all telecommunications markets. Its 2013 Annual report states its revenue
recognition criteria in relation to the rendering of services

Revenue from the provision of our telecommunications services includes telephone calls and other services and facilities
provided, such as internet and data. We record revenue earned from:

telephone calls on completion of the call; and

other services generally at completion, or on a straight line basis over the period of service provided, unless another
method better represents the stage of completion.

Installation and connection fee revenues that are not considered to be separate units of accounting are deferred and
recognised over the average estimated customer life. Incremental costs directly related to these revenues are also deferred
and amortised over the customer contract life.... In relation to basic access installation and connection revenue, we apply
management judgement to determine the estimated customer contract life. Based on our reviews of historical information
and customer trends, we have determined that our average estimated customer life is 5 years (2012: 5 years) (Source:
Telstra 2013 Annual Report)

Required

Refer to 118 Revenue and advise if Telstras revenue recognition is appropriate.