Share the Post

Marking criteria:

  1. Technical content (70%) – The appropriate use of the requirements of the relevant NZ IASs/IFRSs standards and the NZ Conceptual Framework
  2. Quality of writing, structure and flow (30%) – This includes the following sub-criteria:
  3. Use of academic language, grammar and clarity of communication (10%)
  4. Structure, articulation and flow of ideas (10%)
  5. In-text citations and references (10%)


Question 1. Inventories                                              

  1. The Conceptual Framework says that accounting information should be useful to investors and creditors. NZ IAS 2 requires that inventories be measured at the lower of cost or net realizable value. Briefly explain the usefulness of the inventory figure resulting from this rule.  
  2. Briscoe Group estimates the cost of inventories using the weighted average formula (see note 3.1.3 to Briscoe Group 2019 financial statements). During an inflationary period, what would have been the impact on profit if Briscoe Group had adopted FIFO instead of the weighted average formula?
  3. Briscoe Group estimates the cost of inventories using the weighted average formula (see note 3.1.3 to Briscoe Group 2019 financial statements). According to NZ IAS 2, explain whether the Group can use the specific identification formula to determine the cost of its inventories.

Question 2. Property, plant & equipment                            

  1. NZ IAS 16, para. 29 allows two alternative models for the subsequent measurement of property, plant and equipment: the cost model or the revaluation model. Briefly explain whether this choice is consistent with the qualitative characteristics of accounting information.
  • Instead of requiring the disclosure of the carrying amount of PPE (i.e., the gross carrying amount net of accumulated depreciation), NZ IAS 16, para. 73 (d) requires an entity to disclose, for each class of (PPE), separately the gross carrying amount and the accumulated depreciation. Does this disclosure provide useful information to users? Explain.
  • An entity owns beef cattle that forms the breeding stock of its agricultural activity. The entity also owns a tractor and trailer for transporting feed to the cattle. Briefly discuss whether the cattle and the tractor and trailer meet the definition of property, plant and equipment, and are within the scope of NZ IAS 16.

Question 3. Financial Reporting Case                                             

A private bus company operates its fleet of buses carrying passengers to and from Auckland Airport. On 1 January 2015 the company purchased one bus for $60,000. The bus has two components: the body of the bus and the engine. Cost allocated to the body and the engine is as follows: $20,000 to the body and $40,000 to the engine.

The company’s management expects that body and the engine will have to be replaced after four years and 10 years, respectively. The bus will be scrapped after 20 years. The company does not expect any proceeds from scrapping the body and the engine of the bus. Nor does it expect to receive any proceeds from scrapping the bus after 20 years. The passenger carrying capacity of the bus is constant over its useful life.

One 30 June 2016 the body of the bus was seriously damaged in an accident. Consequently, the company replaced its body with a new one at a cost $25,000. The company reviewed the useful life of the engine after the accident and estimates that the engine needs to be replaced after four years from the date of accident.

On 30 September 2018 the company received an offer to sell the bus at $5,000 and sold it. The company uses 31 December as the year-end for preparing its financial statements.

  1. If you want to buy shares in the bus company, briefly discuss what accounting and non-accounting information you would consider relevant for the decision to invest in the company.
  2. Give journal entries until 30 September 2018. Show all relevant calculations.