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tute 10

The document outlines the structure and content of a Week 10 tutorial for ACB1120, including in-semester consultations, assessment details, and a recap of key topics such as leases, provisions, and payroll. It details the tutorial activities, including group discussions and reporting, as well as the journal entries related to lease accounting. Additionally, it provides examples of warranty expense calculations and the treatment of lease payments and liabilities.

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fuyunshen
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3 views

tute 10

The document outlines the structure and content of a Week 10 tutorial for ACB1120, including in-semester consultations, assessment details, and a recap of key topics such as leases, provisions, and payroll. It details the tutorial activities, including group discussions and reporting, as well as the journal entries related to lease accounting. Additionally, it provides examples of warranty expense calculations and the treatment of lease payments and liabilities.

Uploaded by

fuyunshen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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ACB1120

Week 10 tutorial

Michelle Song
Email: [email protected]

In-semester consultation
• starts in week 2 and ends in week 12
• Wednesday 3.30 – 5pm via Zoom
• Assessments (10 minutes)
Tutorial structure • Lecture recap (10 minutes)
• For more information, please watch the
Q1 – Q3 Lease
lecture recordings on Moodle.
Q4 – Q5 Provision for warranty
Q6 Sick leave
• Discuss Q1 & Q4a (20 + 10 minutes)
Q7 Annual leave
• Unless you prefer another question
• Solutions to all questions will be available
on Moodle after Friday 6pm.

• Group discussion – Q3 (20 minutes)


• Students voluntarily form a group of 3-4
students

• Group reporting (5 minutes)


• One group presents their discussion to the
class

• Wrap up (5 minutes)
Assessment 4
Assessment 4
Lecture 10 revision
1. Payroll payable
2. Provisions
• Employee benefits, e.g. sick and annual leave
• Warranty
3. Leases
• Lessee’ s accounting book
• Finance lease
4. Contingent liabilities
Lecture 10 revision
Finance lease
• Lease schedule
• Journal entries
• Initial recognition and measurement
• Subsequent measurements
• Income statement and balance sheet extracts
Lecture 10 revision
Lease schedule No time value of money

For the duration of the lease


contract, not the useful life
of the leased asset
Lecture 10 revision
Journal entries
Initial recognition and Dr Lease Asset
measurement (at the Cr Lease Liability
commencement of the lease Dr Lease Liability
contract) Cr Cash

Subsequent measurements Dr Lease Liability


Making Lease Payments Dr Interest expense
Cr Cash

Depreciating Leased Asset Dr Dep/n of Lease Asset


Cr Accum. Dep/n of L.A.
Lecture 10 revision
Journal entries
Initial recognition and Dr Lease Asset xxx lower of
measurement (at the Cr Lease Liability xxx 1) Fair value (FV) and
commencement of the lease Dr Lease Liability 2) Present Value of Minimum Lease
contract) Cr Cash Payments (PV of MLPs)

PV of MLPs = discounted future cash


Subsequent measurements Dr Lease Liability flows, taking time value of money
Making Lease Payments Dr Interest expense into consideration

Cr Cash In this unit, both FV and PV of


MLPs are known in question
Depreciating Leased Asset Dr Dep/n of Lease Asset
Cr Accum. Dep/n of L.A.
Lecture 10 revision
Journal entries
Initial recognition and Dr Lease Asset
measurement (at the Cr Lease Liability
commencement of the lease Dr Lease Liability xxx
lease payments, provided in the question
contract) Cr Cash xxx
No interest expense

Subsequent measurements Dr Lease Liability


Making Lease Payments Dr Interest expense
Cr Cash

Depreciating Leased Asset Dr Dep/n of Lease Asset


Cr Accum. Dep/n of L.A.
Lecture 10 revision
Journal entries
Initial recognition and Dr Lease Asset
measurement (at the Cr Lease Liability
commencement of the lease Dr Lease Liability xxx
contract) Cr Cash xxx

Subsequent measurements Dr Lease Liability


Making Lease Payments Dr Interest expense
Cr Cash

Depreciating Leased Asset Dr Dep/n of Lease Asset


Cr Accum. Dep/n of L.A.
Lecture 10 revision
Journal entries
Initial recognition and Dr Lease Asset
measurement (at the Cr Lease Liability
commencement of the lease Dr Lease Liability
contract) Cr Cash

Subsequent measurements Dr Lease Liability xxx cash – interest exp


Making Lease Payments Dr Interest expense xxx interest rate*Lease L at the start of a period
Cr Cash xxx lease payments, provided in the question

Depreciating Leased Asset Dr Dep/n of Lease Asset


Cr Accum. Dep/n of L.A.
Lecture 10 revision
Journal entries
Initial recognition and Dr Lease Asset
measurement (at the Cr Lease Liability
commencement of the lease Dr Lease Liability
contract) Cr Cash

Subsequent measurements Dep/n exp


Dr Lease Liability
Making Lease Payments Dr Interest expense Useful life = economic life if there is a
Cr Cash reasonable certainty that lessee will
obtain ownership, otherwise lease term

Depreciating Leased Asset Dr Dep/n of Lease Asset xxx


Cr Accum. Dep/n of L.A. xxx
Lecture 10 revision
Provisions for warranty
To record the expense When claimed

Dr Warranty expense xxx Cr Provision for warranty (L)


Cr Provision for warranty (L) xxx Cr Inventory
Cr Cash/Wages payable
xxx = % of sales revenue
The credit entries depend on what’s
consumed to repair products, e.g.
inventory (for parts) and cash/wages
payable (for labour)
Lower of
1) Fair value (FV) and
2) Present Value of Minimum Lease
Payments (PV of MLPs)

Lower of $300,000 and $286,168


Lower of
1) Fair value (FV) and
2) Present Value of Minimum Lease
Payments (PV of MLPs)

$286,168
Interest expense = Lease L at beginning x
interest rate

Is an interest component on the $80,000


made on 1 July 2019?

$286,168 $80,000 $0 No, because the payment is made


$80,000 immediately, no time value of money
$80,000
$80,000
Reduction in principal = payment – interest expense
Reduction in principal = $80,000 – $0

$286,168 $80,000 $0 $80,000


$80,000
$80,000
$80,000
Liability end = liability beg – reduction in principal
Liability end = $286,168 – $80,000 = $206,168

$286,168 $80,000 $0 $80,000 $206,168


$206,168 $80,000
$80,000
$80,000
Interest expense = interest rate x Lease
L at the start of a period
Interest expense = 8% x $206,168
$286,168 $80,000 $0 $80,000 $206,168 Interest expense = $16,493.44
$206,168 $80,000 $16,493
$80,000
$80,000
Reduction in principal = payment – interest expense
Reduction in principal = $80,000 – $16.493
= $63,507
$286,168 $80,000 $0 $80,000 $206,168
$206,168 $80,000 $16,493 $63,507
$80,000
$80,000
Liability end = liability beg – reduction in principal
Liability end = $206,168 – $63,507 = $144,661

$286,168 $80,000 $0 $80,000 $206,168


$206,168 $80,000 $16,493 $63,507 $144,661
$144,661 $80,000
$80,000
From 1 July 2019 to 30 June 2021
1. Lease A & lease L as at 1 July 2019
2. Lease payment as at 1 July 2019
3. Lease payment as at 30 June 2020
4. Depreciation expense as at 30 June 2020
5. Lease payment as at 30 June 2021
6. Depreciation expense as at 30 June 2021
From 1 July 2019 to 30 June 2021
1. Lease A & lease L as at 1 July 2019
2. Lease payment as at 1 July 2019
3. Lease payment as at 30 June 2020
4. Depreciation expense as at 30 June 2020
5. Lease payment as at 30 June 2021
6. Depreciation expense as at 30 June 2021
From 1 July 2019 to 30 June 2021
1. Lease A & lease L as at 1 July 2019
2. Lease payment as at 1 July 2019
3. Lease payment as at 30 June 2020
4. Depreciation expense as at 30 June 2020
5. Lease payment as at 30 June 2021
6. Depreciation expense as at 30 June 2021
From 1 July 2019 to 30 June 2021
1. Lease A & lease L as at 1 July 2019
2. Lease payment as at 1 July 2019
3. Lease payment as at 30 June 2020
4. Depreciation expense as at 30 June 2020
5. Lease payment as at 30 June 2021
6. Depreciation expense as at 30 June 2021
From 1 July 2019 to 30 June 2021
1. Lease A & lease L as at 1 July 2019
2. Lease payment as at 1 July 2019
3. Lease payment as at 30 June 2020
4. Depreciation expense as at 30 June 2020
5. Lease payment as at 30 June 2021
6. Depreciation expense as at 30 June 2021
Lecture 10 revision
Journal entries
Initial recognition and Dr Lease Asset
measurement (at the Cr Lease Liability
commencement of the lease Dr Lease Liability
contract) Cr Cash

Subsequent measurements Dep/n exp


Dr Lease Liability
Making Lease Payments Dr Interest expense Useful life = economic life if there is a
Cr Cash reasonable certainty that lessee will
obtain ownership, otherwise lease term

Depreciating Leased Asset Dr Dep/n of Lease Asset xxx


Cr Accum. Dep/n of L.A. xxx
From 1 July 2019 to 30 June 2021
1. Lease A & lease L as at 1 July 2019
2. Lease payment as at 1 July 2019
3. Lease payment as at 30 June 2020
4. Depreciation expense as at 30 June 2020
5. Lease payment as at 30 June 2021
6. Depreciation expense as at 30 June 2021
From 1 July 2019 to 30 June 2021
1. Lease A & lease L as at 1 July 2019
2. Lease payment as at 1 July 2019
3. Lease payment as at 30 June 2020
4. Depreciation expense as at 30 June 2020
5. Lease payment as at 30 June 2021
6. Depreciation expense as at 30 June 2021
From 1 July 2019 to 30 June 2021
1. Lease A & lease L as at 1 July 2019
2. Lease payment as at 1 July 2019
3. Lease payment as at 30 June 2020
4. Depreciation expense as at 30 June 2020
5. Lease payment as at 30 June 2021
6. Depreciation expense as at 30 June 2021
Income statement: Income and expenses items
Check if meet both the definition and recognition criteria of liability
For the year ended 30 June 2022
1. The change in the provision
for warranty, i.e., warranty
expense in 2022
2. The cost of repair
For the year ended 30 June 2022
1. The change in the provision
for warranty, i.e., warranty
expense in 2022
2. The cost of repair

30 June 2022 Warranty expense = % of sales revenue


Dr Warranty expense XXX Warranty expense = 1,000 x $2,000 x 0.02 = $40,000
Cr Provision for warranty XXX
For the year ended 30 June 2022
1. The change in the provision
for warranty, i.e., warranty
expense in 2022
2. The cost of repair

30 June 2022 Warranty expense = % of sales revenue


Dr Warranty expense $40,000 Warranty expense = 1,000 x $2,000 x 0.02 = $40,000
Cr Provision for warranty $40,000
For the year ended 30 June 2022
1. The change in the provision
for warranty, i.e., warranty
expense in 2022
2. The cost of repair

30 June 2022
Dr Provision for warranty XXX
Cr Inventory XXX
For the year ended 30 June 2022
1. The change in the provision
for warranty, i.e., warranty
expense in 2022
2. The cost of repair

30 June 2022
Dr Provision for warranty $10,000
Cr Inventory $10,000
Lecture 10 wrap up lower of

Journal entries 1) Fair value (FV) and

Initial recognition and Dr Lease Asset xxx 2) Present Value of Minimum Lease
measurement (at the Cr Lease Liability xxx Payments (PV of MLPs)
commencement of the lease Dr Lease Liability xxx lease payments, provided in the question
contract) Cr Cash xxx No interest expense

Subsequent measurements Dr Lease Liability xxx cash – interest exp


Making Lease Payments Dr Interest expense xxx interest rate*Lease L at the start of a period
Cr Cash xxx lease payments, provided in the question

Depreciating Leased Asset Dr Dep/n of Lease Asset xxx


Cr Accum. Dep/n of L.A. xxx
Dep/n exp

Useful life = economic life if there is a reasonable certainty that


lessee will obtain ownership, otherwise lease term

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