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Topic 1 (week 2) tutorial questions

The document outlines homework questions for a Week 2 tutorial on accounting and the conceptual framework. It includes scenarios involving an airline's aircraft contract, a property developer's public park, ticket sales recording for an events company, and income recognition for a magazine publisher. Each question requires justification based on relevant accounting frameworks and recognition criteria.

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fuyunshen
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2 views

Topic 1 (week 2) tutorial questions

The document outlines homework questions for a Week 2 tutorial on accounting and the conceptual framework. It includes scenarios involving an airline's aircraft contract, a property developer's public park, ticket sales recording for an events company, and income recognition for a magazine publisher. Each question requires justification based on relevant accounting frameworks and recognition criteria.

Uploaded by

fuyunshen
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Week 2 tutorial

Topic 1: Introduction to accounting and conceptual framework

HOMEWORK QUESTIONS

1. Q13.9 (p.725 of Financial Accounting - Reporting, Analysis and Decision Making 7th
Edition)

2. A well-known Australian airline has entered into a contract to order a new Airbus A480
plane. The price between the airline and the manufacturer is fixed and delivery is to
occur in 24 months with full payment to be made on delivery. The contract is for $300
million. The manufacturer has agreed that the contract is non-cancellable from their
point of view. The airline can cancel the contract but must pay a cancellation penalty
of $500 million to do so.

Required:
What should the airline recognise, if anything, at the time it enters the contract? Justify
in accordance with the relevant Conceptual Framework definitions and recognition
criteria.

3. A property developer builds a series of townhouses and is required by local


government to include a public park as part of the project. The construction of the park
has been finished and will form part of the Councils recreational park lands.
Required:
With reference to the AASB Framework, discuss whether the property developer
should recognise the public park as an asset.

4. Tickets Ltd is an organisation that sells concert tickets for upcoming events. The
company has a ‘no refund’ policy once the sale has been finalised. The company
accountant is considering how the ticket sales should be recorded. Of the ticket sales
during 2021, 70% of the events have occurred, while the remaining events are
scheduled to occur during 2022.
Required:
With reference to the AASB Framework, explain how Tickets Ltd should record the
ticket sales during 2021. (Please note that you are not required to prove that Cash at
Bank is an asset)

5. Lion Publishing Company publishes various monthly magazines. Subscribers pay an


annual fee in advance and receive one magazine each subsequent month for 12
months.

The Managing Director argues that the ‘critical event’ in the process of earning income
in the magazine business is the sale of the subscription and collection of the cash up

1
front. Thus the Managing Director believes the annual fee should be recorded as
income as soon as the cash is received.

Lion Publishing Company’s accountant, however, has suggested income be


recognised based on the assumption that one twelfth of the subscription fee is earned
each month when the magazine is published and distributed to subscribers. Thus the
accountant believes the annual fee should not be recorded as income as soon as the
cash is received, as Lion Publishing Company has not yet delivered any magazines.

Required:

a) Applying the relevant definitions and recognition criteria found in the AASB Framework
for the Preparation and Presentation of Financial Statements, evaluate the Managing
Director’s argument.

b) Applying the relevant definitions and recognition criteria found in the AASB Framework
for the Preparation and Presentation of Financial Statements, evaluate the Company
Accountant’s suggestion.

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