HA3011 Advanced Financial Accounting- Machine from Box Ltd for the following

Question 1 

 

Fabric Ltd acquired a Machine from Box Ltd for the following consideration:

Cash $110 000, Land in the books of Fabric Ltd the land is recorded at its cost of $950 000. It has a fair value of $1000 000. Fabric Ltd also agreed to assume the liability of Box Ltd bank loan of $85 000 as part of the Machine acquisition.

Required: 
 
(a)  Calculate the acquisition cost of the Machine and provide the journal entries that would appear in Fabric ltd.’s books to account for the acquisition of the Machine.
(b)  In your own words, explain when should an impairment loss be recognised 

 

Question 2

 

ABC Ltd acquired some machinery at a cost of $200 000 on 1 July 2017. On 30 June 2018,
the machinery, which has an accumulated depreciation balance of $30 000, is assessed as having a fair value equal to $150 000. ABC Ltd measures machinery at fair value.

 

Required:

 

Provide the journal entries to reflect the revaluation decrement

On 1 July 2018 Foreign Security Incorporation(FSI) Ltd issues $3 million in 10-year debentures that pay interest each six months at a coupon rate of 10 per cent. At the time of issuing the securities, the market requires a rate of return of 14 per cent. Interest expense is determined using the effective-interest method.

 

Formula for PV of $1 in n periods =1/(1+k)n 
Formula for present value of annuity of $1 per period for n periods = 
where, k is the discount rate expressed in decimal