Explain the qualitative characteristics of comparability and the importance of this characteristic from the users’ perspective

Questions:

1. On 1 July 2018 Power Ltd. issues $10 million in five–year debentures that pay interest each six months at a coupon rate of 5 per cent. At the time of issuing the securities, the market requires a rate of return of 8 per cent. Interest expense is determined using the effective-interest method.

Required:

  1. Determine if the debenture is issued premium or discount?
  2. Determine the Fair Value of the Debentures?

2. Explain the qualitative characteristics of comparability and the importance of this characteristic from the users’ perspective. Explain how could the comparability characteristics of the financial information in support of mandatory financial reporting requirements been met?

3. The financial period for ABC ltd Company will be ended by June 2020. During this financial period, as a result of the change in the currency exchange rate, ABC made $650 000 gain between the time of the sale of goods and the date on which payment was received for the first time. The company had not previously made sales denominated in foreign currencies.

Assuming that the quantitative guidelines on materiality in AASB 1031 have been satisfied, describe how this event would be reported in the comprehensive profit statement.

In your answer, discuss the disclosure requirement for these kinds of events in future.

4. Adelaide Briton Ltd was registered on the first of July 2020. The company’s directors issue a disclosure document inviting applicants for 2 000 000 ordinary shares for an issue price of $1. The share is payable 60c on application and 20c on allotment. Adelaide Briton Ltd reserves the right to allot to individual applicants on a pro rata base, a lesser number of shares than the number applied for, and may apply excess application monies to the allotment and to calls in advance. The company’s director must allot exactly 2 000 000 shares.

First Scenario: Applications for 2 200 000 shares are received with the correct application money.

Second Scenario: Applications for 2 750 000 shares are received with the correct application money.

Required:

For each of the above scenarios:

  1. Calculate the amount of application money that would be applied to application and calls (including allotment).
  2. Prepare journal entries.

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