Assessment Task – Tutorial Questions Assignment 1 Unit Code ✓ Solved

Assessment Task – Tutorial Questions Assignment 1 Unit Code: HA3011

This assignment requires you to answer a selection of tutorial questions from weeks 1 to 5 inclusive, based on the key topics covered in the unit. You need to provide comprehensive answers to these questions and submit them as a single document by the deadline.

The questions are as follows:

• Week 1 Question (10 marks): It is argued by some researchers that even in the absence of regulation, organisations will have an incentive to provide credible information about their operations and performance to certain parties outside the organisation; otherwise, the costs of the organisation’s operations will rise. What is the basis of this belief?
• Week 2 Question (10 marks): What force of law does the conceptual framework have?
• Week 3 Question (10 marks): Under Positive Accounting Theory, what are agency costs of equity and agency costs of debt? Is it possible to put in place mechanisms to reduce all opportunistic action? If not, why not?
• Week 4 Question (10 marks): TXA Ltd acquired a machine from Blue Ltd for consideration including cash, land, and assumed liabilities. You are asked to:
• (a) Calculate the acquisition cost of the machine.
• (b) Provide the journal entries that would appear in TXA Ltd.’s books to account for the acquisition of the machine.
• Week 5 Question (10 marks): Max Ltd acquired machinery on 1 July 2016. The machinery was later exchanged for a motor vehicle on 1 July 2019. You are asked to:
• Provide the necessary journal entries for the disposal of machinery and acquisition of the motor vehicle on that date.

Submissions must be made via Blackboard, with only one submission permitted per student. Ensure the submitted document is your original work, properly cited if you include external sources, and adhere to academic integrity policies.

Sample Paper For Above instruction

In contemporary financial reporting, understanding the underlying theoretical frameworks and their practical applications is critical for accounting professionals. The influence of regulation, conceptual frameworks, agency theory, and asset management exemplifies core elements that shape sound financial practices and disclosures.

Question 1 explores the incentives for organisations to provide credible external information, even absent regulation. This perspective is rooted in agency theory and market signaling, where the costs of providing false or misleading information outweigh the benefits of misrepresentation. When organisations disclose reliable information, they can lower their capital costs, reduce scrutiny, and maintain investor confidence (Healy & Palepu, 2001). Credibility, therefore, acts as a strategic asset that mitigates information asymmetry — fostering trust with external parties such as investors and regulators. Empirical evidence supports this notion, indicating that firms motivated by reputational considerations tend to improve transparency voluntarily, benefiting their operational costs and stakeholder relations (Verrecchia, 2001).

Question 2 pertains to the legal force of the conceptual framework. The framework, established by standard-setting bodies such as the IASB and FASB, is not legally binding per se. Instead, it functions as a comprehensive guide that influences the development of accounting standards, shapes professional judgment, and enhances comparability and consistency across financial reports (FASB, 2010). While it lacks statutory authority, the conceptual framework's persuasive power lies in its widespread acceptance and technical rigor, which in turn shape the enforceable accounting standards and influence statutory regulations.

Question 3 investigates agency costs under the Positive Accounting Theory (PAT), particularly concerning agency conflicts of equity and debt. Agency costs of equity arise from shareholders’ pursuit of self-interest, potentially leading to over-investment or risk-taking that does not align with the firm's wealth maximization (Jensen & Meckling, 1976). Agency costs of debt, conversely, stem from lenders’ concerns over risk-shifting and underinvestment due to incentives for shareholders to favor riskier projects after debt issuance (Myers, 1977). Although mechanisms such as covenants, monitoring, and managerial incentives aim to reduce opportunistic actions, it is impossible to eliminate all such behaviors entirely. Complete suppression is unfeasible because some level of information asymmetry and individual incentives inherently persists within complex corporate governance structures.

Question 4 concerns the accounting treatment for a machine acquisition. TXA Ltd’s purchase involves multiple considerations, including cash payment, land valuation, and assumed liabilities. The acquisition cost of the machine encompasses the cash paid, the fair value of land exchanged (if relevant), and the liability assumed, following the standards of International Financial Reporting Standards (IFRS). To calculate, the cash paid is $70,000, and assuming the machine’s acquisition cost incorporates the cash and liabilities, the total consideration may be summed accordingly. Journal entries would debit the machine asset account and credit cash, land, and liabilities as appropriate, reflecting the fair value and the consideration transferred.

In the case of machinery disposal and new acquisition, as outlined in Question 5, the depreciation method influences the accounting entries. Max Ltd’s machinery is depreciated using the sum-of-digits method. Upon disposal, the accumulated depreciation must be recorded, and any gain or loss recognized. The new vehicle, with a cost of $17,000 and a fair value of $11,000, is then recorded as an asset, considering its age and market value. Proper journal entries ensure that the accounts accurately reflect the transaction and comply with IFRS standards (IAS 16 and IAS 36).

Overall, these questions highlight vital aspects of modern accounting practice, emphasizing the importance of theoretical foundations, legal influences, and precise asset management in preparing reliable financial statements.

References

• FASB. (2010). Statement of Financial Accounting Concepts No. 8: Conceptual Framework for Financial Reporting. Financial Accounting Standards Board.
• Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31(1-3), 405-440.
• Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305-360.
• Meyers, S. C. (1977). Determinants of corporate borrowing: A review of the evidence. Journal of Financial Literature, 15, 219-264.
• Verrecchia, R. E. (2001). Essays on disclosure. Journal of Accounting and Economics, 32(1-3), 97-180.