Question 2 :Bendigo Ltd sells consumer whitegoods through 100 retail outlets throughout Victoria, New South Wales andQueensland. Bendigo Ltd leases the retail outlets and their accounting policy (in accordance with AASB 117Leases) is to classify leases as finance leases when the terms of the lease transfer substantially all the risks andrewards of ownership to the lessee (Bendigo Ltd); all other leases are classified as operating leases. In applyingthis policy, Bendigo Ltd has classified all of its leases for the retail outlets as operating leases. In February 2016,the AASB issued a new accounting standard (AASB 116 Leases which is based on the new IFRS 16 Leases) thatintroduces a new accounting policy for the classification of leases. Although AASB 116 Leases does not becomeeffective for some years, early adoption is permitted and Bendigo Ltd has decided to adopt it for the reportingperiod ending 30 June 2016.In July 2015, at the beginning of the current reporting period, Bendigo Ltd decided to change its accountingpolicy for the valuation of inventories from a weighted-average cost (WAC) method to a first-in, first-out (FIFO)method. Bendigo Ltd believes that the FIFO method more accurately reflects the usage and flow of inventoriesin the economic cycle.Required(a) Explain the term 'accounting policy'. What is the policy of the Wesfarmers Group (in their 2015Annual Report) about the recognition of operating lease payments?(b) Distinguish between 'retrospective application' and retrospective restatement'.(c) According to AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, how wouldBendigo Ltd account for the change in accounting policy for lease classification as a consequence ofadopting the new accounting standard, AASB 116 Leases?(d) According to AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, under whatcircumstances is Bendigo Ltd permitted to change its accounting policy for the valuation ofinventories? How, according to AASB 108 Accounting Policies, Changes in Accounting Estimates andErrors, should the change be accounted for?(e) Bendigo Ltd has determined that the cumulative effect of the change in accounting policy for thevaluation of inventories is a decrease in profit of $80,000 as at 1 July 2015 (the beginning of thecurrent reporting period) but that it is impracticable to determine the individual period-specificeffects of the change in accounting policy on the prior periods presented. What should Bendigo Ltd doin this situation? Question 3 :Benson Ltd is a manufacturing company that operates a production facility in the Sydney suburb of Alexandria.In January 2016, residents living adjacent to the production facility complained that groundwater was beingcontaminated from waste discharged from Benson Ltd's production facility. In May 2016, environmentalofficers from the City of Sydney Council confirmed the existence of groundwater contamination although theydid not regard the contamination as particularly serious. Benson Ltd immediately responded by implementingnew procedures for the storage and disposal of waste material to prevent any further contamination fromoccurring. Although Benson Ltd is not required by law to restore the contaminated environment, the companymade a series of public announcements that it would undertake to restore the contaminated environment intwo years' time.As at 30 June 2016, the individual most likely outcome (with an 80% probability) is that it will cost Benson Ltd$400,000 to restore the contaminated environment. Also on this date the risk-free discount rate, based ontwo-year government bonds, is 6%. However, Benson Ltd believes that a discount rate of 4% is appropriate toadjust for the risks specific to this liability.Required(a) How is a provision defined in AASB 137 Provisions, Contingent Liabilities and Contingent Assets? Whywould Benson Ltd's obligation to restore the contaminated environment be classified as a provision?(b) Briefly explain the three methods that, according to AASB 137 Provisions, Contingent Liabilities andContingent Assets, can be used by an entity to estimate the amount to be recognised as a provision.(c) How has Benson Ltd taken risk into account to estimate the amount to be recognised as a provision?What is an alternative approach to taking risk into account?(d) From the information in the question, calculate the amount that Benson Ltd should recognise as aprovision as at 30 June 2016.(e) By how much will the provision have increased as at the end of the following year on 30 June 2017?How should Benson Ltd account for the increase?