Subject Code and Title ACCT2000: FINANCIAL ACCOUNTING
Length 1000 words (Part B only)
Learning Outcomes 4. Understand methods of presenting statements of cash flows.
6. Differentiate between shares and debentures and apply appropriate accounting procedures.
Submission By 11:55pm AEST Sunday of Week 10
Total Marks 60 marks
This assignment will assess your understanding of preparation and interpretation of accounting for shares as well as presentation of statement of cash flows.
• Ensure all your work/answers for the assignment is prepared using Word (not Excel).
• This assignment needs to be submitted on Blackboard by the due date above. Late penalties will apply.
• This is an individual assignment, not a group assignment. Sharing of work and answers is not permitted and will be marked as an automatic Fail grade.
Students are strongly advised to reference all academic sources used in this assignment. Submit as a Word document properly referenced using the APA referencing style along with your turnitin similarity report. Wikipedia and Investopedia are not acceptable academic sources.
Note: Reference list, appendices and calculations are not included in word count.
A high level of scrutiny will be conducted to detect plagiarism. Students are strongly advised to use Turnitin.
Question 1: Shares (20 marks)
Milestone Ltd’s equity at 30 June 2019 was as follows:
400 000 ordinary shares, issued at $1.60, fully paid $ 640 000
500 000 ordinary shares, issued at $2, called to $1.20 600 000
180 000 redeemable preference shares, issued at $1, fully paid 180 000
Calls in advance (10 000 ordinary shares) 8 000
Share issue costs (7 000)
General reserve 60 000
Retained earnings 310 000
The following events occurred during the year ended 30 June 2020:
July 15 The final call, due 31 August, was made on the partly paid shares.
Aug. 31 All call money was received, except for that due on 24 000 shares.
Sept. 10 In accordance with the constitution, the shares on which the call was unpaid were forfeited. The company is entitled to keep any balance from forfeiture of shares.
Oct. 1 The company offered ordinary shareholders 1 option (at a price of 80 cents per option) for every 5 shares held. Each option entitled the holder to buy 1 ordinary share at a price of $1.50 per share, exercisable on or before 15 April 2020.
31 70 000 options were taken up by shareholders, for which all money due was received.
Jan. 3 A prospectus was issued, inviting applications for 100 000 ordinary shares at an issue price of $2, payable in full on application. The purpose of the issue was to fund the redemption of the preference shares. The issue was underwritten at a commission of $6700.
31 The issue closed fully subscribed, with all money due having been received.
Feb. 5 The 100 000 shares were allotted, and the underwriting commission was paid.
18 The directors resolved to redeem the preference shares out of the proceeds of the January share issue for $1.06 per share.
26 Cheques were issued to the preference shareholders.
April 15 52 000 shares were issued as a result of 52 000 options having been exercised, for which money had been received. The unexercised options lapsed.
Prepare general journal entries to record the above transactions.
Question 2: Shares (20 marks)
The equity of Foresters Ltd at 30 June 2019 consisted of:
200 000 10% cumulative pref. shares issued at $2, fully paid
100 000 ordinary shares issued at $1, paid to 50c
$400 000 50 000
The following transactions occurred during the year ended 30 June 2020:
Already deducted from the retained earnings balance of $860 000 were final ordinary dividends of $7000 and preference dividends of $40 000 that had been declared at 30 June 2019. These dividends were expected to be paid later in 2019.
22 Final call made on 100 000 partly paid ordinary shares.
Call money received.
Final dividends paid.
Revaluation of an item of land upwards by $50 000. (This is the initial revaluation of land. Ignore taxation.)
With the surplus created from the revaluation of land, the directors made a bonus issue of ordinary shares to existing ordinary shareholders, on the basis of 3 shares for every 10 shares, valued at $1.08 per share.
Interim dividend of 6c per ordinary share paid out of retained earnings. Preference dividend for the year and final ordinary dividend of 6c per share were declared. Transfer of $3000 to the general reserve from retained earnings.
Prepare ledger accounts to reflect the above transactions.
Question 3: Statements of cash flows (20 marks) (1000 words)
Case Study – Research Based : Direct vs indirect method of presentation of statement of cash flows.
Find and read the following academic articles:
• Bradbury, M 2011, ‘Direct or Indirect Cash Flow Statements?’ Australian Accounting Review, vol. 21, no. 2, June, pp. 124–30.
• Smith, R.T. and Freeman, R.J. 1996, ‘Statement of Cash Flows: The Direct vs Indirect Method Debate Continues’, Government Finance Review, 12: 12– 21.
• Ding, Y., Jeanjean, T. and Stolowy, H. 2006, ‘The Usefulness of Disclosing both Direct and Indirect Cash Flows: An Empirical Study’, Research Working Paper, Centre National de la Recherche Scientifique.
Present your own arguments as to whether the direct method is superior to the indirect method of presenting cash flows from operating activities. Justify your answers.
NB: This assignment is not a summary of the key definitions and concepts of the above readings. The focus is on you carefully identifying, applying and discussing relevant concepts and theories in relation to specific examples to illustrate your understanding of the direct and indirect method of cash flow statements.
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