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AF210 Financial Accounting Semester 1 - 2012 Assignment 1 (7.5%) 1. Due Date: Thursday 29th March in the Lecture and on moodle. Penalty at 10% per...

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Page 1 of 3 AF210 Financial Accounting Semester 1 - 2012 Assignment 1 (7.5%) 1. Due Date: Thursday 29 th March in the Lecture and on moodle. Penalty at 10% per day. 2. Must be word- processed, not hand written, word size 12 with „Times new roman‟ font type and double-spacing. 3. Bullet points are not acceptable. 4. Each answer must be clearly marked by the designated question to which it corresponds. 5. The assignment should be within the range of 2000 words. 6. Please list any references (books, articles, web-based material) you use at the end of your assignment in alphabetical order, using the referencing style seen in academic articles (i.e. with in text references and bibliography, as in the Harvard referencing style). Assume that you are employed by one of the Big 4 accounting firms in Suva. One of the clients of the firm is Bach Ltd. Bach operates a small fleet of aircrafts and is the only airline currently serving Fiji. Alipate King is the CEO of Bach Ltd. He has limited knowledge of business accounting and regularly engages your firm to provide him with accounting advice. He has recently sent you the following email, dated 15 March, 2012 which contains a number of questions and issues that he seeks your advice on. I am unsure about the following accounting concepts and accounting treatment; can you please provide some brief advice with respect to the following current accounting issues affecting the business? 1. We have recently acquired a piece of land in Nadi to construct a maintenance facility for our aircrafts. Equipment for the maintenance facility were purchased and installed and we began using the facility in October last year. The following costs were incurred in relation to the maintenance facility: a) Cost of land purchased $170 000 b) Paid architects fees for design of new building 23 000 c) Paid for demolition of old building on building site purchased 28 000 d) Paid land tax on the land purchased 1 700 e) Paid excavation costs for the new building 15 000 f) Made the first payment to the building contractor 250 000 g) Paid for equipment to be installed in the new maintenance facility 148 000 h) Received from sale of salvaged materials from demolishing the old building 6 800 i) Made final payment to building contractor 350 000 j) Paid interest on building loan during construction 22 000
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Page 2 of 3 k) Paid freight on maintenance equipment purchased 1 900 l) Paid installation cost of equipment 4 200 m) Paid for repair of equipment damaged during installation 2 700 All costs are stated in $Fijian. All amounts are exclusive of VAT. We have paid VAT on all expenditure at a rate of 15%. We will be able to claim the VAT as an input tax credit from the Tax Office. I request your advice on how we should account for these costs. Please include in your advice accounting treatment for each cost with reference to the applicable accounting rules and regulations. At the moment I have instructed our accounts person to record these costs (debits and credits) in a new account titled “Property” in our general ledger. I would also appreciate if you could provide us the journal entry that we would need to pass to properly account for the transactions listed above. 2. We received delivery of a new airplane on 1 st January. The total cost of the plane was $10 million. A break-down of the costs to build the plane was given by the manufacturers as: Aircraft body $3,000,000 Engines 4,000,000 Fitting out of aircraft: Seats 1,000,000 Carpets 50,000 Electrical equipment: Passenger seats 200,000 Cockpit 1,500,000 Food preparation equipment 250,000 All costs included installation and labor costs associated with that part. It was expected that the aircraft would be kept for 10 years and then sold. The main value of the aircraft at that stage is the body and the engines. The expected selling price is $2,100,000 with the body and engine retaining proportionate value. Costs in relation to the aircraft over the next 10 years are expected to be as follows: Aircraft body. This requires an inspection every 2 years for cracks and wear and tear, at a cost of $10,000. Engines. Each engine has an expected life of 4 years, after which it will be sold for scrap. It is expected that the engines will be replaced in 2016 for $4.5 million and
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