ACCT6003 Financial Accounting Processes

Answer:

Scenario 1- Financing company operations

Date

1/7/2017

1/8/2017

15/8/2017

30/8/2017

1/05/2018

15/06/2018

Particulars

Bank A/c

To Equity Share Application A/c

(Being cash received on applications)

Equity Share Application A/c

Equity Share Allotment A/c

To Equity Share Capital

(Being 500000 shares allotted)

Equity Share Application A/c

To Equity Share Allotment A/c

To Calls in Advance A/c

(Being allocation of application across allotment and calls in advance)

Share issue costs A/c

To Bank A/c

(Being payment done on prospectus, stamp duty and legal fees)

Bank A/c

To Equity Share Allotment A/C

(Being cash received on allotment)

Call 1 A/c

To Equity Share Capital A/c

( Being call of $ 1.5 per share)

Calls in Advance A/c

To Call 1 A/c

( Transfer of calls received in advance)

Bank A/c

To Call 1 A/c

( Being cash received on 485000 shares)

Equity Share Capital A/c

To Call 1 A/c

Share Forfeiture A/c

(Being 15000 shares forfeited)

2100000

1500000

1250000

600000

36000

600000

750000

150000

727500

105000

21000000

2750000

350000

250000

36000

600000

750000

150000

727500

22500

82500

15/06/2018

1/07/2018

30/07/2018

1/9/2018

Bank A/c

Share Forfeiture A/c

To Share Capital A/c

( Reissue of shares forfeited)

Call 2 A/c

To Equity Share Capital A/c

(Being call on $ 1 per share)

Calls in Advance A/c

To Call 2 A/c

(Transfer of calls received in advance)

Bank A/c

To Call 2 A/c

(Being cash received on 48500 shares)

Equity Share Capital A/c

To Call 2 A/c

Share Forfeiture A/c

(Being 15000 shares forfeited)

Bank A/c

Share Forfeiture A/c

To Equity Share Capital A/c

(Reissue of shares forfeited)

Share Forfeiture A/c

To Bank A/c

(Refund to former shareholders)

75000

30000

500000

100000

485000

120000

90000

30000

127500

105000

500000

100000

485000

15000

105000

120000

127500

Working Notes-

No. of Shares applied for	No. of Shares Allotted	Money Received	Application	Allotment	1^st Call	2^nd call
100 000	100 000	800000	300000	250000	150000	100000
500 000	400 000	1300000	12000000	100000	–
600 000	500 000	2100000	$1500000	$350000	$15000	10000

Scenario 2- Property, plant and equipment

Date

Particulars

1/4/2017

30/06/2017

31/8/2017

1/9/2017

1/3/2018

30/6/2018

Truck A A/C Dr

To Cash A/c

(Being truck bought for cash $ 90000)

Equipment A/c Dr

To Cash A/c

(Being equipment bought for cash)

Depreciation on Truck A A/c Dr

To Profit and Loss A/c

(Being depreciation provided at year end)

Truck A A/c Dr

To Cash A/c

(Being expenses debited to truck)

Asset Revaluation Surplus A/c Dr

To Equipment A/c

(Being reduced value of equipment transferred to asset revaluation A/c)

Truck A A/c Dr

To Cash A/c

(Being truck A sold in cash)

Equipment A/c Dr

To Asset Revaluation Surplus A/c

(Being increased value of equipment transferred to asset revaluation)

Depreciation on Equipment A/c Dr

To Profit and Loss A/c

(Being Depreciation provided at year end)

90000

140000

4000

2500

22667

59000

16979

11979

90000

140000

4000

2500

22667

59000

16979

119379

Workings

Cost of equipment on 30^th June 1,40,000

Less: Depreciation for 2 months 23333

(1,40,000/10= 14000 * 2/12)

WDV on 1^st September 1,37,667

Less: Fair Value on 1^st September 115000

Amount to be debited to Asset Revaluation 22667

Fair Value of Equipment on 1^st September 115000

Less: Depreciation for yr end ( 10 months) 11979

WDV on 30^th June 103021

Fair Value of the equipment on 30^th June,2018 120000

Amount to be credited to Asset Revaluation (1,20,000-1,03,021)= 16979

Calculation of Depreciation

2017- on Truck A- (90000-10000)/5 * 3/12 = 4000

2018- on equipment- (115000)/8 * 10/12- 11979

Scenario 3- Lease

a) Lease payments

PV OF Chiherbal Ltd- 8000* 3.8896 + 2160 * 0.6499= 32520

Schedule of lease payments

Date

MLP

Interest expense

Liability reduction

1^st July 2017

1^st July,2018

1^st July, 2019

1^st July, 2020

1^st July,2021

1^st July, 2022

8000

2160

2207

1685

1117

498

4133

8000

5793

6315

6883

7502

(1973)

32520

24520

18727

12412

5529

(1973)

Date

Particulars

30^th June,2018

30^th June,2019

Leased Machine A/c Dr

To Lease Liability A/c

(Being initial recognition of finance lease)

Lease liability A/c Dr

To Cash A/c

(Being Initial lease liability recognised)

Lease liability A/c Dr

Interest expense A/c Dr

To Cash A/c

(Being first lease payment paid)

Depreciation Expense A/c Dr

To Accumulated Depreciation A/c

(Being depreciation provided at year end between 31^st December and 30^th June)

Lease Liability A/c Dr

Interest expense A/c Dr

To Cash A/c

(Being second lease payment paid)

Depreciation Expense A/c Dr

To Accumulated Depreciation A/c

32520

8000

5793

2207

2069

6315

1685

4337

32520

8000

2069

8000

4337

Date

MLR($)

Interest [email protected] 9%($)

Receivable

Reduction($)

Receivable

Balance($)

1^st July 2017

1^st July,2018

1^st July, 2019

1^st July, 2020

1^st July,2021

8000

2459

1960

1417

824

8000

5541

6040

6583

7176

35322

27322

21781

15741

9158

1982

Particulars

Dr($)

Cr($)

30^th June, 2018

30^th June,2019

Lease Receivable A/c Dr

To Sales A/c

(Being Initial recognition of lease receivable)

Cost of Sales A/c Dr

To Inventory

(Being recording sale of machine)

Cash A/c Dr

To Lease Receivable A/c

To Interest receivable

(Being 1^st payment received)

Cash A/c Dr

To Lease Receivable A/c

To Interest receivable

(Being 2^nd payment received)

35322

31000

8000

35322

31000

5541

2459

1960

6040

scenario 4-Intangible Assets

Total development cost incurred- 500000 + 380000= 880000

Internally generated assets can only be recognizable if they are identifiable and they are only identifiable if they are either separate or generated from contract of agreement.The recognition criteria under IAS 38 for internally generated intangible assets do not allow these recognizable assets whose costs isnot reliably measured(Ertug & Castellucci,2015).If an asset cannot be reliably measured because it does not satisfy the recognition criteria it cannot be recognized afterwards through the revaluation model( Saunders & Brynjolfsson,2016).

Expense on internally generated software will be charged to profit or loss account as the management was not able to demonstrate how this asset will generate economic benefits(Ertug & Castellucci,2015).Under IAS38 an internally generated asset is required to qualify all six criteria under the said IAS.However not being able to find a market for the software, does not fulfill one of the basic criteria(Ertug & Castellucci,2015).

Hence it is recognized as an expense.According to IAS 38 any operating cost or cost of hardware are capitalised.Hence the cost of computer equipment has been treated as capitalized(Saunders & Brynjolfsson,2016).The consultants fees form a part of professional fees that are arising directly from bringing the asset to its working condition.It is a separately acquired intangible asset .It is capitalized as well(Saunders & Brynjolfsson,2016).

References:

Saunders, A., & Brynjolfsson, E. (2016). Valuing Information Technology Related Intangible Assets. Mis Quarterly, 40

Ertug, G., & Castellucci, F. (2015). Who shall get more? How intangible assets and aspiration levels affect the valuation of resource providers. Strategic Organization.

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