ACCT602 Financial Accounting and Reporting Management

ACCT602 Financial Accounting and Reporting Management


Revenue (Total:  20 Marks)

On 1 March 2021, Waihake Travels Ltd (WTL) signed a contract to purchase a boat from Boat Manufacturers Ltd (BML). The agreed purchase price in the signed contract is $160,000. BML also offers WTL a free boat accessory pack at the delivery of the boat and a free maintenance service of the boat which will be performed 6 months after the delivery of the boat.

The selling price of a similar boat that was sold to WTL excluding any offer is $164,500. A similar boat accessory pack which is offered to WTL usually is sold to other customers at $3,500. The similar maintenance service at the end of 6 months is usually performed at $7,000 to other customers.

On 1 April 2021, WTL paid the contract price as agreed and on the same day the boat is delivered along with the boat accessory pack. The free maintenance service was performed on 1 October 2021 as agreed.

The accountant of BML Ltd, Kate, seeks your help to apply the five-step model in NZ IFRS 15 (Revenue contracts with customers) for the above sale.


(a)  In accordance with the second step of the five-step model in NZ IFRS 15, how many performance obligations have to be identified with relation to the above sale to WTL and what are they?

(b) Advise Kate on how the company allocates the transaction price among performance obligations that are identified in (a) above, in line with the step 4 of the five-step model in NZ IFRS 15. Show all calculations.

(c) In evaluating Step 5 in the 5-step model, prepare relevant journal entries to recognise revenue for the above sale in terms of the 5-step model in BML books.

Section 2: Long Answer Questions

Property, Plant & Equipment (Total:  30 Marks)

(a) Wayne Service Station Ltd acquired a new service truck on 1 July 2015 for $90,000. The Truck was named as “Rambo”. It is estimated the expected useful life of the truck is 9 years and residual value is $9,000. Wayne Ltd uses straight line method to calculate depreciation.

On 30 June 2021, “Rambo” was revalued to $29,500 for the first time. 


Prepare the journal entries required at 30 June 2021 to reflect the revaluation of the Truck – Rambo. Show all workings.

(b) Explain the effect of Truck revaluation has had on company’s profit for the period ended 30 June 2021. Do you think that the effect is conceptually sound? Justify your position using relevant principles from the accounting standard, NZ IAS 16 and the NZ Conceptual Framework?

(c) On 1 July 2021, Rambo’s useful life was reassessed so that it is expected, at that date, to have a remaining useful life of five years. On the same date, the residual value is expected to be zero.


Show the journal entry required at 30 September 2021 to reflect the disposal of “Rambo”. Show all workings.

(d) The accountant of Wayne Ltd understood that one of Fuel Dispenser Machines has not been operating since early July. To bring the machine into an operating condition, key parts must be imported from the original supplier in China, Wong Ltd and unable to be obtained from elsewhere. However, due to the nationwide lockdown during the months of August and September in New Zealand, the Company was unable to get on hold of Wong Ltd. On 31 October 2021, the accountant believes the machine’s value has declined substantially. The value in use is nil but the accountant of Wayne Ltd believes that the company may be able to sell the machine for $90,000 to Wong Ltd back under the terms in the contract. The company will also incur $2,500 costs associated with making the sale. As at 31 October 2021, the carrying value of the machine was $105,000.


Explain the accounting treatment that you are going to apply in the books of Wayne Ltd on 31 October 2021 in respect of this machine in accordance with NZ IAS 36? Justify your reason using the relevant criteria in the accounting standard. Show any relevant workings. Prepare the journal entry required with regards to the machine on 31 October 2021.

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