ACC204 – Advanced Financial Accounting Essay Example

QUESTION 1: Accounting for Lease

Owner of property — Lisa Ltd.

Leaseback transaction — Lisa Ltd leases back the entity after the sale.

Purchaser/lessor – Anderson Ltd

Seller/lessee – Lisa Ltd

Carrying Value of land and buildings in the books of Lisa Ltd

Land, at cost — $1800000

Building at cost — $1750000

Accumulated Depreciation — $350 000

Leaseback term = 20years

Implicit interest rate is 12 percent

Lease Payments

Payment on inception of the lease on 1 July 2015 = $600,000

Payment on 30th June each year starting 30th June 2016 = $500,000

  1. Provide the entries for the sale and leaseback in the books of Lisa Ltd as at July 2015.

$1,800,000

Dr Accumulated Depreciation

$350, 000

Cr Building

$1,750,000

Cr Deferred Gain

($350, 000 *12%) $42, 000

  1. Provide entries for the purchase and lease in the books of Anderson Ltd as at July 2015

$1, 800, 000

Cr Building

$1,800,000

Cr Deferred Gain

  1. Provide entries in the books of Lisa Ltd as at 30 June 2025

Dr Leased Building

$1,800,000

Cr Lease Liability

$1, 800, 000

(30th June 2016)

Dr Interest expense

Lease liability * interest = $216, 000

$500,000

Periodic lease payment; interest = $1, 800, 000 * 12

$350, 000

Dr Depreciation of leased asset

Cr Accumulated lease depreciation

$216, 000

(to record depreciation of the leased asset assuming the straight line method is used)

Dr deffered gain

Cr profit on sale of leased asset

$500, 000

  1. Provide entries in the books of Anderson Ltd as at 30th June 2025

Dr Building

$1, 800, 000

$1, 800, 000

Dr Lease Receivable

$1, 800, 000

Cr Building

$1, 800, 000

$500, 000

Cr Interest Revenue

Cr Lease Receivable

$216, 000

Question 2

Accounting for Income Taxes

profit before income and tax (PBIT)

$300, 000

Estimated Warranty Expenses

Actual Warranty cost

(10, 000)

Difference Temporary in Insurance Expense

(10, 000)

Calculation for Difference in

Depreciation Expense

$400, 000 / 4

$100, 000

(80, 000)

(20, 000)

Taxable income

$310, 000

Income Taxes payable

Deferred tax Asset

($10, 000 *30%)

Deferred tax liability

Depreciation expense * tax

($20, 000 * 30%)

income tax expense

$93, 000 + $6, 000 — $3, 000

Question 3: consolidation

Consolidated statement of financial position for the entities as at June 2015

Non-Current Assets

Land (600 +400)

P.P.E (600 + 387)

Goodwill

Total Non-Current Assets

Current Assets

Inventory (140 + 123)

Dividends Receivable

Accounts Receivable (50 + 50)

Cash (80 + 40)

Equity and Liabilities

Capital and Reserves

Ordinary share capital

Retained Earnings (500+300-300)

Non-controlling interest

Non-current Liabilities

Loan (670 + 140)

current Liabilities

Accounts Payable (100 + 10)

Dividends Payable