Question 1
Polo Limited is an Australian finance business. Polo Limited enters into a two-year lease for a laptop with Apex Limited. Polo classifies the lease with Apex as a finance lease. The lease commenced on 1 July 2021 and included these key terms:
- Two annual lease payments of $2,500, with the first payment to be made on 30 June 2022.
- The lease gives Polo the right to use the laptop exclusively for the two-year period.
- Ownership of the laptop transfers to Apex at the end of the lease.
- The interest rate implicit in the lease is 6%.
The fair value of the laptop that Polo paid to a third-party supplier on 1 July 2021 was $4,500. The useful life of the laptop is three years. Polo paid costs of $150 in setting-up the lease contract.
When accounting for leases, Polo and Apex take advantage of any available exemptions under AASB 16 Leases.
Required:
Prepare the journal entries to recognise the lease for the year ending 30 June 2022 in the general ledger of:
- Lessor
- ii) Lessee
Justify the use of an exemption, if applicable. Ignore the impact of tax.
Question 2
You are the director of finance for Orange, a listed entity in Melbourne which prepares consolidated financial statements in accordance with Australian Accounting Standard Board (AASB). The chief executive officer (CEO) of Orange has reviewed the draft consolidated financial statements of the Orange group and of a number of the key subsidiary companies for the year ended 30 June 2022. None of the subsidiaries are listed entities but all prepare their financial statements in accordance with AASB. The CEO has sent you an email concerning the following issue:
“When, I read the disclosure note relating to intangible non-current assets in the consolidated financial statements, I noticed that this figure includes brand names associated with subsidiaries which we’ve acquired in recent years. However, the brand names which are associated directly with products sold by Orange (the parent entity) are not included within the non-current assets figure. I don’t understand why it is not included. Please explain how this practice can be in line with AASB requirements. One final question: would I be right in thinking that, as with property, plant and equipment, we can use the fair value model to measure intangible assets?”
Required:
Provide answers to the issue raised by the chief executive officer. Your answers should refer to relevant provisions of AASB.
Note:
- The assignment must be in MS word format, double-spacing and 12-pt Times New Roman font.
- Submissions must be properly referenced (Harvard Reference Style).
