By Anup Singhania - CPA | CFA L2 | 5K+ students | A++
Financial Accounting
Bachelors/Undergraduate, Masters/Postgraduate
Homework, Assessment
Language used:

  1. Goodwill could be described as the value of all favourable attributes that relate to a business as a whole that are not separately identifiable. Give four examples of attributes that could result in goodwill. (2 marks)

  1. Y Ltd acquired K Ltd at a cost of $2.8m. The fair value of K Ltd’s assets is assessed at $3.5m and the fair value of its liabilities at $1.4m. Calculate the amount of goodwill to be recorded in the balance sheet of Y Ltd. (2 marks)
    Check balance – Goodwill = $0.7m

  1. The draft income statement for Thomson Pty Ltd for the year ended 31 December 2013 showed service revenue of $120 000, wages expense of $35 000 and insurance expense of $2400. Before the report is finalised you discover the following additional information that has not been taken into account in calculating the above draft figures.
    • Wages of $900 owing for work done on the last day of December 2013.
    • Services for clients totalling $1700 were performed but have not been invoiced.
    • The insurance premium of $2400 above is for a 12 month policy that expires on 31 March 2014.

Show the three items as they would appear in the income statement for Thomson Pty Ltd after taking into account the additional information. (3 marks)
Check balance – wages expense $35,900, service revenue $121,700, insurance expense $1,800

  1. How does the format of the income statement differ between a retail and a service business? Explain. (3 marks)

‘Entities must juggle the costs of holding cash with the costs of not having enough cash’. Explain and discuss.

QUESTION 2 Management Accounting (20 marks total)

The following data has been estimated for Macquarie Machinery, who commenced business on 1 August 2013.

    • Estimated total sales:


$55 000


$50 000

Cash sales are estimated to be 20% of total sales.

  • Debtors are expected to pay:

50% in the month of sale

48% in the month after the sale with the balance owing never collected.

  • Estimated purchases:


$30 000


$36 000

  • All purchases are to be on credit and are to be paid for in the month following the purchase.

  • Estimated operating expenses are:
  • Freight outwards 15% of total sales, paid in cash.
  • Office salaries, August $9000, Sept. $11 600, paid in cash.
  • Depreciation of equipment 25% per annum on $250 000. (The equipment was purchased on credit.)

  • Other information:
  • The owner contributed $85 000 cash to the business on August 1, 2013.
  • The owner intends withdrawing $3000 per month for private use.
  • The accountant of Macquarie Machinery estimates the firm will need a minimum cash balance of $15 000 in order to maintain liquidity.

QUESTION 3 Finance (20 marks total)

Electronic Pro manufactures and delivers prototype chips to customers within 24 hours. The current production facility was set up when the company began operations in Sydney, Australia in 1994. It is outdated and constrains future growth. In 2012, Electronic Pro expects to deliver 460 prototype chips at an average price of $80,000 per prototype. Electronic Pro’s marketing vice president forecasts growth of 50 prototype chips per year through 2021. That is, demand is 460 in 2012, 510 in 2013, 560 in 2014, and so on.

The current facility cannot produce more than 500 prototypes annually. To meet future demand, Electronic Pro must either modernize the current facility or replace it. The old equipment is fully depreciated and can be sold for $3,000,000. If the current facilities are modernised, such costs are to be capitalised and depreciated over the useful life of the updated facility. The old equipment is retained as part of the modernised alternative. Following is some data on the two options available to Electronic Pro:

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