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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)