FACULTY OF LAW AND BUSINESSPeter Faber Business SchoolSEMESTER 1, 2016ACCT603 ACCOUNTING FOR CORPORA

FACULTY OF LAW AND BUSINESSPeter Faber Business SchoolSEMESTER 1, 2016ACCT603 ACCOUNTING FOR CORPORATESTRUCTURESIndividual Assignment (20%)ACCT603Semester 1, 2016Question 1 – Lease Accounting (20 Marks)On 30 June 2006, Salohcin Ltd entered into a non-cancellable lease with FfoegLtd, for a period of 4 years. The lessor is a Manufacturer/Dealer of the leasedequipment. The leased asset is a specific item of industrial machinery (PortableEnamel Drying Room) with a fair value of $349,160. The equipment has acarrying value on the books of the lessor of $280,000. The equipment is expectedto have an economic life of 5 years with an expected salvage value at the end ofYear 5 of $50,000. The estimated residual value at the end of the lease term is$80,000 and the terms of the lease require that the lessee guarantees $60,000 ofthe residual value. The lessee is required to make 4 annual payments of $120,000,due on 30 June, each year. Included in the annual lease payments is $20,000representing payment to the lessor for expected executory costs relating toinsurance and maintenance of the equipment. At the end of the lease term theasset reverts to the lessor. The lessor incurs $15,000 in initial direct costs.The implicit interest rate in the lease is 20%. The present value of an annuity duefor 4 periods at 20% is 3.106. The present value of an amount for 4 periods at20% is .482.REQUIRED:a) Explain why the lease agreement in this case would be treated as a financelease from the perspective of the lessee; Your answer should reflect therelevant requirements in AASB117 – Leasesb) Calculate the present value of the lease receivable at the inception of the leasec) Complete the Schedule of Lease Receipts for the lessor. Your answer shouldprovide proof that the interest rate implicit in the lease is in fact 20%.d) Prepare the necessary journal entries for 2006, 2007, and 2010 for the lessorassuming that the lessee is not required to make the guaranteed residualpayment and that the asset is returned to the lessor.e) Prepare the portion of the balance sheet for 2006 and 2007 for the lessorrelating to the asset associated with the lease(2 + 3 + 8 + 5 + 2 = 20 Marks)Question 2 – Intangible Assets (20 Marks)A recent discussion paper issued by the AASB, suggests that there are potentialadvantages for bringing to account internally generated intangible assets at fairvalue.REQUIRED:As a leading consultant undertaking an engagement for a large biomedicalcompany that incurs considerable annual expenditure on drug research anddevelopment, write a brief report for the company’s board which evaluates thePage 2ACCT603Semester 1, 2016possible advantages and disadvantages of recognising internally generatedintangible assets in the accounts of the company.Question 3 – Conceptual Framework (20 Marks)In December 2013, the Australian Accounting Standards Board issued a significantamendment to the AASB’s Framework for the Preparation and Presentation ofFinancial Statements (CF- 1-2013)REQUIRED:Comment on the genesis of the amendment, the main requirements prescribed bythe amendment, and the consequential effects of the amendment on the existingAASB framework.Page 3