Problem 1: Long Service Leave
Darwin Ltd has five employees. According to their particular employment award, longservice leave can be taken after 12 years, at which time the employee is entitled to 10 weeksâ
leave. If an employee were to leave before the completion of 12 yearsâ service, no entitlement
would be paid.
High-quality corporate bond rates exist with periods to maturity that exactly match the
various periods that must still be served by the employees before LSL entitlements vest with
them.
The projected inflation rate for the foreseeable future is 2 per cent. The projected
probabilities that the employees will stay long enough for the LSL to vestâthat is, for a total
of 12 yearsâare as follows:
Name of
Employees
Current
Salary
Years of
service
Years until
LSL vests
Bond rate
(%)
Probability
(%) that LSL
will vest
Black 40 000 2 10 8.0 15
White 40 000 4 8 7.0 20
Brown 50 000 6 6 6.5 50
Green 60 000 8 4 6.0 70
Purple 70 000 10 2 5.8 90
Required
(a) Calculate Darwin Ltd.âs current obligation for long-service leave. 05
(b) If the opening provision for long-service leave is $12 500, provide the journal entry to
record Darwin Ltd.âs long-service leave expense. 05
Problem 2: Share capital
Darwin Ltd issues a prospectus inviting the public to subscribe for 10 million ordinary shares
of $2.00 each. The terms of the issue are that $1.00 is to be paid on application and the
remaining $1.00 within one month of allotment.
Applications are received for 12 million shares during July 2019. The directors allot 10
million shares on 5 August 2019. All applicants receive shares on a pro rata basis. The
amounts payable on allotment are due by 5 September 2019.
By 5 September 2019 the holders of 2 million shares have failed to pay the amounts due on
allotment. The directors forfeit the shares on 10 September 2019. The shares are resold on 15
September 2019 as fully paid. An amount of $1.80 per share is received.
Required
Provide the journal entries necessary to account for the above transactions and events. 10
Question 3: Accounting for Lease
Darwin Ltd leased a truck from a truck dealer, City Vans Ltd. City Vans Ltd acquired the
truck at a cost of
$180 000. The truck will be painted with Darwin Ltdâs logo and advertising and the cost of
repainting the truck to make it suitable for another owner four years later is estimated to be
$40 000. Darwin Ltd plans to keep the truck after the lease but has not made any commitment
to the lessor to purchase it. The terms of the lease are as follows:
⢠Date of entering lease: 1 July 2019.
⢠Duration of lease: four years.
⢠Life of leased asset: five years, after which it will have no residual value.
⢠Lease payments: $100 000 at the end of each year.
⢠Interest rate implicit in the lease: 10 per cent.
⢠Unguaranteed residual: $50 000.
⢠Fair value of truck at inception of the lease: $351 140.
Required
(a) Demonstrate that the interest rate implicit in the lease is 10 per cent. 01
(b) Prepare the journal entries to account for the lease transaction in the books of the lessor,
City Vans Ltd, at 1 July 2019 and 30 June 2020. 03
(c) Prepare the journal entries to account for the lease transaction in the books of the lessee,
Darwin Ltd. at 1 July 2019 and 30 June 2020. 03
(d) On 30 June 2023 Darwin Ltd. pays the residual of $50 000 and purchases the truck. all
journal entries in the books of Darwin Ltd. for 30 June 2023 in relation to the termination of
the lease and the purchase of the truck. 03
Problem 4: The Statement of Cash flows
Read the article adopted from Carol Altmanâs in Financial Accounting in the Real world 19.5
(on page 739 of your text book), âCooking the books the Harris Scarfe wayâ, and then answer
the following questions:
(a) What does âcook the booksâ mean? 02
(b) How would a reader of financial statements know if the books had been cooked? 04
(c) Is it likely that creative accounting was employed to the statement of cash flows? Why
or why not?
Sample Solution
Islam is a religion each of the e-book and of subculture. both of these avenues are, to a degree, sacred for the Muslim. in this way it’s miles similar to different fundamental religions of the world. as an example, in Catholicism, there is a veneration of both their Sacred Scriptures and their Sacred way of life (even though this veneration is equal in Catholicism). For maximum Muslim traditions, however, the veneration of the Qurâan and the Hadith (the traditions) isn’t always equal, although possibly it could be justly stated that for all Muslims the Hadith is venerated second best to the sacred Scriptures of Islam (i.e., the Qurâan). this is true for all the main branches of Islam: Sunni, Shiite, and Sufi. however, it is not proper that the Sunni Muslims have the exact equal Hadith as both of the opposite branches (and vice-versa). The traditions contained within the Hadith are not uniform the various various fundamental branches of Islam. but, due to this high veneration of the Hadith amongst all Muslims, the Hadith has been instrumental and essential in shaping Muslim identity. the character of the Hadith but, what’s the Hadith, precisely? consistent with Norman Geisler and Abdul Saleeb, in their current work on Muslim and Christian agreements and variations, they provide the subsequent definition: Hadith: literally, a story; an oral way of life later written down of what the prophet supposedly stated (sunna), did, or permitted ofsomething said or done in his presence, (Answering Islam, 338). This appears to be attested-to with the aid of other pupils. The Sunnis themselves get their call from its relation to sunna and their being fans of the sunna, (R.C. Zaehner, Encyclopedia of the sectorâs Religions, 170). it’s far interesting to notice that the Hadith, although it has a practical result in that it similarly clarifies giant factors of Islamic lifestyles, indicates a in particular robust devotion to the Prophet Muhammed. Akbar S. Ahmed notes this too while he writes, So extremely good is the honor and affection the Prophet instructions that his very sayings, hadith, are the source of awareness and social practice in the Muslim international, (Islam today, 18). in lots of approaches, this hyperlinks Islam with other fundamental religions of the sector in which the sayings and doings of the founding father of a religion are frequently the most revered content of the faith. The Hadith as a supply of notable Reverence for the Prophet the second one a part of the five-component creed of Islam indicated the orthodox view of Muhammed. that is, he changed into simply the Prophet of God. He changed into, to be sure, the finest prophet who outdated all earlier prophets, however he became nonetheless a mere guy. It was not unusual practice even as much as the mid-twentieth century for Westerners who have been no longer themselves Muslims to consult Muslims as Mohammedans. This got here to be visible as a completely offensive reference, in line with Muslims as it ten>
Islam is a religion each of the e-book and of subculture. both of these avenues are, to a degree, sacred for the Muslim. in this way it’s miles similar to different fundamental religions of the world. as an example, in Catholicism, there is a veneration of both their Sacred Scriptures and their Sacred way of life (even though this veneration is equal in Catholicism). For maximum Muslim traditions, however, the veneration of the Qurâan and the Hadith (the traditions) isn’t always equal, although possibly it could be justly stated that for all Muslims the Hadith is venerated second best to the sacred Scriptures of Islam (i.e., the Qurâan). this is true for all the main branches of Islam: Sunni, Shiite, and Sufi. however, it is not proper that the Sunni Muslims have the exact equal Hadith as both of the opposite branches (and vice-versa). The traditions contained within the Hadith are not uniform the various various fundamental branches of Islam. but, due to this high veneration of the Hadith amongst all Muslims, the Hadith has been instrumental and essential in shaping Muslim identity. the character of the Hadith but, what’s the Hadith, precisely? consistent with Norman Geisler and Abdul Saleeb, in their current work on Muslim and Christian agreements and variations, they provide the subsequent definition: Hadith: literally, a story; an oral way of life later written down of what the prophet supposedly stated (sunna), did, or permitted ofsomething said or done in his presence, (Answering Islam, 338). This appears to be attested-to with the aid of other pupils. The Sunnis themselves get their call from its relation to sunna and their being fans of the sunna, (R.C. Zaehner, Encyclopedia of the sectorâs Religions, 170). it’s far interesting to notice that the Hadith, although it has a practical result in that it similarly clarifies giant factors of Islamic lifestyles, indicates a in particular robust devotion to the Prophet Muhammed. Akbar S. Ahmed notes this too while he writes, So extremely good is the honor and affection the Prophet instructions that his very sayings, hadith, are the source of awareness and social practice in the Muslim international, (Islam today, 18). in lots of approaches, this hyperlinks Islam with other fundamental religions of the sector in which the sayings and doings of the founding father of a religion are frequently the most revered content of the faith. The Hadith as a supply of notable Reverence for the Prophet the second one a part of the five-component creed of Islam indicated the orthodox view of Muhammed. that is, he changed into simply the Prophet of God. He changed into, to be sure, the finest prophet who outdated all earlier prophets, however he became nonetheless a mere guy. It was not unusual practice even as much as the mid-twentieth century for Westerners who have been no longer themselves Muslims to consult Muslims as Mohammedans. This got here to be visible as a completely offensive reference, in line with Muslims as it ten>
