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HI6025 Accounting Theory Tutorial Questions 1

Assessment Task – Tutorial Questions
Unit Code: HI6025
Unit Name: Accounting Theory and Current Issues
Assignment: Tutorial Questions 1
Holmes Institute Assignment

Purpose: This assignment is designed to assess your level of knowledge of the key topics covered in this unit

Unit Learning Outcomes Assessed:

1. Examine conceptual issues and the sources of authority for the accounting requirements which apply to reporting by Australian companies, including Company Law, International and Australian Accounting Standards, and Stock Exchange requirements;

2. Understand and evaluate different theories of accounting such as positive accounting theory, normative accounting theory, stakeholders’ theory, legitimacy theory, institutional theory, and different initiatives of relevant global organisations such as GRI, IR;

3. Apply Australian Accounting Standards and Corporate Legislation to the financial reporting processes;

4. Evaluate advanced level financial accounting problems and select appropriate accounting strategies for the accounting entity;

5. Understand different provisions of accounting standards and the compliance requirements of the professional and legal bodies in Australia;

6. Make judgments about appropriate use of accounting standards and accurately apply appropriate treatments for different advanced level accounting issues;

Description: Each week students were provided with three tutorial questions of varying degrees of difficulty. These tutorial questions are available in the Tutorial Folder for each week on Blackboard. The Interactive Tutorials are designed to assist students with the process, skills and knowledge to answer the provided tutorial questions. Your task is to answer a selection of tutorial questions for weeks 1 to 5 inclusive and submit these answers in a single document.

The questions to be answered are:

Week 1

The fundamental qualitative characteristics that financial information must possess to be useful to the primary users of general purpose financial reports—identified in the Conceptual Framework are ‘relevance’ and ‘faithful representation’.


  1. Provide one example where information is relevant but not faithfully represented. (3 marks)
  2. Provide one example where information is not relevant but is faithfully represented. (3 marks)
  3. Provide one example where information is relevant and faithfully represented. (4 marks)

Week 2

  1. What is a social contract and how does it relate to organisational legitimacy? (6 marks)
  2. Explain two ways organisations can use corporate disclosure policy to maintain or regain organisational legitimacy? (4 marks)

Week 3

Diamond Ltd acquired an item of polishing equipment on 1 July 2015 for $440,000. The equipment is expected to have a useful life of 10 years and the straight-line method of depreciation is to be used. It has salvage value of $40,000. On 1 July 2017, the equipment is deemed to have a fair value of $424,000 and revaluation is undertaken in accordance with the Diamond Ltd policy of measuring property, plant and equipment at fair value. The asset is still usable for next 8 years but the salvage value is determined to be zero. The asset is sold for $356,000 on 1 July 2019.


Provide the journal entries necessary at the following dates to account for the above transactions and events. (Ignore narrations). Show your working. (10 marks)

  • 01/07/2015
  • 01/07/2017
  • 01/07/2019

Week 4

Snowy Ltd acquires Pax Ltd on 1 July 2018 for $5,000,000 being the fair value of the consideration transferred. At that date, Pax Ltd’s net identifiable assets have a fair value of $4,400,000. Goodwill of $600,000 is therefore the difference between the aggregate of the consideration transferred and the net identifiable assets acquired.

The fair value of the net identifiable assets of Pax Limited are determined as follows:


Patent rights 200

Machinery 1,000

Buildings 1,500

Land 2,300


Less: Bank loan 600

Net assets 4,400

At the end of the reporting period of 30 June 2019, the management of Snowy Ltd determines that the recoverable amount of the cash-generating unit, which is considered to be Pax Ltd, totals $4,500,000. The carrying amount of the net identifiable assets of Pax Ltd, excluding goodwill, is unchanged and remains at $4,400,000.


  1. Prepare the journal entry to account for any impairment of goodwill. (6 marks)
  2. Assume instead that at the end of the reporting period the management of Snowy Ltd determines that the recoverable amount of the cash-generating unit, which is considered to be Pax Ltd, totals $4,200,000. Determine the impairment of goodwill amount. (No journal entries required) (4 marks)

Week 5

On 1 July 2019, Fisher Ltd decides to lease a cargo ship from XFinance Ltd. The term of the lease is 20 years. The implicit interest rate in the lease is 10 per cent. The fair value of the cargo ship at the commencement of the lease is $2,215,560. The lease is non-cancellable, and requires a lease payment of $300,000 on inception of the lease (on 1 July 2019) and lease payments of $250,000 on 30 June each year (starting 30 June 2020). Included within the $250,000 lease payments is an amount of $25,000 representing payment to the lessor for the insurance and maintenance of the cargo ship. There is no residual payment required. Annuity factor, n=20; r = 10% is 8.5136.


  1. Prove that the interest rate implicit in the lease is 10 per cent. (2 marks)
  2. Provide the entries for the lease in the books of Fisher Ltd as at 1 July 2019, and 30 June 2020. (4 marks)
  3. Provide the entries for the lease in the books of XFinance Ltd as at 1 July 2019, and 30 June 2020. (4 marks)

Submission Directions:

The assignment has to be submitted via Blackboard. Each student will be permitted one submission to Blackboard only. Each student needs to ensure that the document submitted is the correct one.

Academic Integrity

Academic honesty is highly valued at Holmes Institute. Students must always submit work that represents their original words or ideas. If any words or ideas used in a class posting or assignment submission do not represent the student’s original words or ideas, the student must cite all relevant sources and make clear the extent to which such sources were used. Written assignments that include material similar to course reading materials or other sources should include a citation including source, author, and page number.

In addition, written assignments that are similar or identical to those of another student in the class is also a violation of the Holmes Institute’s Academic Conduct and Integrity Policy. The consequence for a violation of this policy can incur a range of penalties varying from a 50% penalty through to suspension of enrolment. The penalty would be dependent on the extent of academic misconduct and the student’s history of academic misconduct issues. All assessments will be automatically submitted to SafeAssign to assess their originality.

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