Accounting Business Reporting for Decision Making

CHAPTER 5 Balance sheet 207

direction with at least two available reward seats. Qantas, with 9.1 million Frequent Flyer members, was

ranked ninth with a score of 72.9 per cent, down 3.5 points on last year.

Source: Sorensen, J 2015, ‘Southwest and Air Berlin still tops for rewards, but Alaska Airlines and Avianca jump in the

rankings’, IdeaWorks Company.com, 14 May.

Required

Assume that the 3.5 million Virgin Velocity members had an average of 200 000 frequent flyer

points. Referring to the Conceptual Framework, discuss if Virgin Australia has a liability to record

in relation to its frequent flyer program.

5.24  LO9

Typical classifications of liabilities on the balance sheet include: payables; interest-bearing liabilities;

deferred tax liabilities; and provisions. The equity classifications for large entities are: share capital;

reserves; non-controlling interests; and retained earnings. Categorise the following items:

a. Other creditors

b. Contributed capital

c. Provision for warranty

d. Revaluation surplus

e. Bank overdraft

f. Foreign currency translation reserve

g. Secured bank loan

h. Trade creditors

5.25  LO4

Entities spend millions of dollars on marketing and advertising intended to promote and build

brands, develop customers and sell services or products. Consider a new hotel being launched.

Extensive marketing spend is required to create an awareness of the hotel and attract the first

visitors. With reference to the Conceptual Framework, discuss whether the marketing costs

incurred by the hotel can be capitalised and recognised on the balance sheet.

5.26  LO4

One of Google’s largest acquisitions was Motorola Mobility for $12.5 billion in 2011. Google

subsequently sold Motorola to Chinese giant PC producer Lenovo for $2.9 billion.

Required

Explain how goodwill associated with Lenovo’s acquisition would be determined.

5.27  LO10

Sunglasses Shop Ltd was acquired by Specsavers for $10 million. The fair value of the net assets

acquired by Specsavers was assessed at $7 million. Prepare the double-entry transaction that would

keep the accounting equation in balance.

5.28  LO4, 5, 6

For each of the transactions identified, analyse how the asset, liability and/or equity accounts

increase, decrease or remain unchanged. (Hint: Remember the accounting equation.)

Assets

(A)

Liabilities

(L)

Equity

(E)

a. Obtained a loan to purchase equipment for $55 000.

b. The owners took $6000 in inventory for personal use.

c. A trade receivable, who owes $8000, made a part payment of $4000.

d. Purchased inventory for $10 000, paying $6000 cash and the

balance on credit.

e. Impaired a building from its acquisition cost less accumulated

depreciation of $100 000 to its recoverable amount of $85 000.

f. Inventory with a cost price of $45 000 had a net realisable

value of $60 000.