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ACCOUNTING THEORY
INDIVIDUAL ASSIGNMENT
DUE DATE 23.59 Tuesday 20 September SUGGESTED LENGTH 300 – 500 words; The word lengths are a suggestion only, i.e., they are NOT strict word limits for each part. FORMAT The assignment is set up as a MyUni quiz for you to enter responses to each part of the question. OTHER REQUIREMENTS AND INFORMATION A forum has been placed on MyUni for questions regarding the assignment. Tutors will not discuss the assignment with you in consultations or tutorial time. Please post any questions you have to that forum so that the responses provided by staff are accessible to all students in the course. This assignment is weighted 8% of your final grade. CASE: UPDATING PHONE-E LTD’S ACCOUNTING POLICY MANUAL Phone-E Ltd1 operates in the telecommunications industry. Many years ago, Phone-E Ltd withdrew from the retail market due to intense competition from international suppliers. Recently, Phone-E Ltd decided to re-enter the retail market and has four new products: Item Cost $ Retail price $ ePhone 22 50 75 Prepaid SIM 100 GB data, expires after 12 months Standard cost 0.50/GB 180 Prepaid SIM 250 GB data, expires after 12 months Standard cost 0.50/GB 300 Combined ePhone 22 plus prepaid SIM 250 GB data, expires after 12 months 50 + standard cost 0.50/GB 350
The prepaid SIM is for the provision of data service over a period of time. Phone-E Ltd had sold similar items a long time ago and the accounting treatment for them is described in the company’s Accounting Policy Manual. The accountant has already updated the Accounting Policy Manual for the sale of the phone and the prepaid SIM cards as separate items. She said, “I am going on holidays now, so try and finish this task before I get back on 20 September. It was very easy; I just changed the name of the Accounting Standard because the accounting treatment is the same under the new Standard.”
1 While an attempt has been made to provide realistic transactional data, the firm in this assignment is fictitious and any resemblance to any actual entity is coincidental. 2 Extract from Phone-E Ltd’s Accounting Policy Manual Sale of Combined Phone plus prepaid SIM card Recognise all of the consideration received as unearned revenue when received and amortise to revenue as data is used until the expiry date. Recognise any unamortised unearned revenue as revenue when the contract expires. Recognise the cost of providing data as an expense, based on standard cost and the amount of data provided each month. Disclose the policy for accounting for revenue for data service and the carrying amount of unearned revenue at the end of the reporting period. (Reference AASB 118: Revenue). Recognise the cost of the phone as a “customer acquisition asset” at the beginning of the contract. Classify it as an intangible asset and amortise it over three years. Disclose the policy for accounting for cost of phones and the assumption that customers will renew their contracts for several years. Required 1. Describe the key issue(s) to be decided in developing an accounting policy for the sale of Combined ePhone 22 plus prepaid SIM card. (suggested length up to 50 words) (1.5 marks) 2. Does the transaction fall within the scope of any current Australian Accounting Standards? If so, identify the Standard(s) (E.g. the transaction is within the scope of AASB XXX: Title of standard). Maximum = 2 standards If not, identify up to two pronouncements (Standard, Interpretation or Conceptual Framework), as applicable, that should be used as a source of principles or rules to guide the development of the accounting policy for the sale of Combined ePhone 22 plus prepaid SIM card. (E.g., the transaction is outside the scope of any Australian Accounting Standards, so XXXXX should be used as a source of principles or rules.) Maximum = 2 pronouncements (suggested length for Question 2 up to 50 words) (1.5 marks) 3. Identify one principle or rule from a Standard or pronouncement identified in your answer to question 2 and explain how it is relevant to an accounting policy issue(s) referred to in question 1. (E.g. AASB XXX Paragraphs XA-XB is relevant to because …) (suggested length up to 50 words) (1 mark) 4. Identify in total two more principles or rules from Standards or pronouncements listed in your answer to question 2 that are relevant to the issue referred to in question 1. (suggested length up to 50 words) (1 mark) 5. Describe an accounting policy for the sale of the Combined ePhone 22 plus prepaid SIM card. Ignore the disclosure component. Your policy must be different from the policy in Phone-E Ltd’s Accounting Policy Manual. Do not justify or explain your policy, just describe it (suggested length up to 200 words) (3 marks)