This assignment is about solving different accounting problems in a systematic way and in accordance to the accounting standards.
In the first question the events are to be shown in proper journal entries and to be determined if they are adjusting or non-adjusting in the circumstance of happening after the reporting of the accounting period.
In the second question an event of public offering of shares is given in which the journal entries regarding application, allotment, calls and defaults have to take place.
In the third question the value of the deferred tax liabilities and assets and the current tax liability of the company has to be determined along with the proper journal entries of the above mentioned.
In the fourth question the assets of the company have to depreciated and the revaluation of the assets has to take place along with the journal entries.
In the fifth question the impairment loss due to the impairment of a business unit is to be determined along with the all the working and journal entries.
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Particulars |
Amount |
|
|
Debit |
Credit |
|
|
Insurer A/c Dr. |
15,00,000 |
|
|
P&L A/c Dr. |
2,50,000 |
|
|
To Night Club A/c |
17,50,000 |
|
|
Being loss booked due to fire. |
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Bank A/c Dr. |
15,00,000 |
|
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To Insurer A/c |
15,00,000 |
|
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Being insurance amount received. |
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It is a non-adjusting event as the destruction of any part of business (as night club was of Snapper Ltd.) by fire comes under non-adjusting events and moreover it didn’t affect the going concern of the company by any way and no evidence of this event was existing on the reporting date. (Para 3 of AASB 110) |
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Particulars |
Amount |
|
|
Debit |
Credit |
|
|
Investment in Prawn Ltd. A/c Dr. |
50,00,000 |
|
|
To Bank A/c |
50,00,000 |
|
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Being 500,000 shares of Prawn Ltd. purchased at $1.00 each. |
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The event mentioned above is a non-adjusting event as the major ordinary share transactions are not adjusted if happened after the reporting period and more over there was no evidence of the transaction to happen in the near future or the value of the shares increasing. (Para 3 of AASB 110 as above) |
This will be a non-adjusting event as the sale is approved after the reporting period and the monetary transaction is yet to take place. (Para 3 of AASB 110 as above)
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Particulars |
Amount |
|
|
Debit |
Credit |
|
|
P&L(Inventory written off) A/c Dr. |
15,000 |
|
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To Inventory A/c |
15,000 |
|
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Being inventory written off due to overvaluation. |
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The event is an adjusting event as the cost of the inventory was determined after the reporting period but the goods were delivered in June itself and it proves that there was an evidence of the transaction to take place in the future which means that the actual value was determined later and the cost of inventory was overvalued before that. (Para 3 of AASB 110 as above) |
|
Particulars |
Amount |
|
|
Debit |
Credit |
|
|
Bank A/c Dr. |
50,000 |
|
|
To Australian Taxation Office A/c |
50,000 |
|
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Being taxation fine reduced and entry reversed |
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This event is an adjusting event as the settlement of any court case in which the company is involved before the reporting period is considered to be an obligation for the company which it has to fulfil and as the case was of before the reporting it had the evidence that the transaction have to take place in the future. (Para 3 of AASB 110 as above) |
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Accounting for Share Issue |
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Date |
Particulars |
Debit |
Credit |
|
20-Aug-15 |
Share Application A/c Dr. |
72,00,000.00 |
|
|
To Share Capital A/C |
72,00,000.00 |
||
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Being 4,800,000 applications received. |
|||
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31-Aug-15 |
Share allotment A/c Dr. |
57,60,000.00 |
|
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To Share Capital A/C |
57,60,000.00 |
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Being shares allotted. |
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31-Aug-15 |
Bank A/c Dr. |
5,55,000.00 |
|
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To Share Application A/C |
3,00,000.00 |
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To Share Allotment A/c |
2,40,000.00 |
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To Underwriter’s Commission A/c |
15,000.00 |
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Being amount due on 200,000 application and allotment received less the commission. |
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30-Sep-15 |
Bank A/c Dr. |
55,20,000.00 |
|
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To Share Allotment A/C |
55,20,000.00 |
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Being share allotment money received. |
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31-Oct-15 |
Share Call A/c Dr. |
62,40,000.00 |
|
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To Share Capital A/C |
62,40,000.00 |
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|
Being Share call made. |
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30-Nov-15 |
Bank A/c Dr. |
61,10,000.00 |
|
|
Share Unpaid Call A/c Dr. |
1,30,000.00 |
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To Share Capital A/C |
62,40,000.00 |
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Being call money received with 100,000 defaults. |
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15-Dec-15 |
Share Capital A/c Dr. |
1,30,000.00 |
|
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To Share Call A/C |
1,30,000.00 |
||
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Being Shares forfeited. |
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15-Dec-15 |
Bank A/c Dr. |
3,60,000.00 |
|
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Discount on issue of shares A/c Dr. |
40,000.00 |
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To Share Capital A/C |
4,00,000.00 |
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Being Shares reissued at $3.60 per share. |
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15-Dec-15 |
Forfeiture Cost A/c Dr. |
2,000.00 |
|
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To Bank A/C |
2,000.00 |
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Being cost of forfeiture and reissue paid. |
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Balance of current tax liability and deferred tax assets and liabilities as at 30 June 2016 |
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Particulars |
As per Books |
As per Taxation |
DTA |
DTL |
Profits |
|
|
Relating to Temporary Difference |
Related to carried forward tax losses |
|||||
|
Opening Balance / Book Profits |
11,490.00 |
6,000.00 |
7,200.00 |
3,24,000.00 |
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|
Depreciation – Plant |
47,250.00 |
63,000.00 |
-4,725.00 |
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Depreciation – Motor Vehicle |
20,000.00 |
15,000.00 |
1,500.00 |
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|
Annual Leave Expenses |
6,000.00 |
2,400.00 |
1,080.00 |
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|
Warranty Expenses |
7,400.00 |
4,900.00 |
750.00 |
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|
Insurance Expenses |
5,000.00 |
7,000.00 |
-600.00 |
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|
Doubtful Debt Expenses |
2,800.00 |
1,000.00 |
540.00 |
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Rent Expenses |
42,000.00 |
42,000.00 |
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Entertainment Expenses |
3,500.00 |
– |
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Royalties |
7,500.00 |
– |
150.00 |
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Interest Revenue |
16,000.00 |
15,500.00 |
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Closing Balance / Taxable Profits |
10,035.00 |
6,000.00 |
7,350.00 |
3,14,650.00 |
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Current Tax Liability @30% |
|
|
|
|
|
94,395.00 |
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Journal Entries |
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Particulars |
Debit |
Credit |
|
Profit & Loss A/c Dr. |
96,000.00 |
|
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To Current Tax Liabilities A/c |
94,395.00 |
|
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To Deferred Tax Liabilities A/c |
150.00 |
|
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To Deferred Tax Assets A/c |
1,455.00 |
|
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Being current tax liabilities, deferred tax liability and deferred tax assets recognised. |
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Journal Entries |
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As at 30th June 2016 |
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|
Particulars |
Debit |
Credit |
|
Depreciation A/c Dr. |
12,500.00 |
|
|
To Motor Vehicle I A/c |
12,500.00 |
|
|
Being depreciation charged on Motor vehicle I. |
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Motor Vehicle I A/c Dr. |
10,500.00 |
|
|
To Revaluation Reserve A/c |
10,500.00 |
|
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Being Motor vehicle I is valued upward. |
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Depreciation A/c Dr. |
8,000.00 |
|
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To Motor Vehicle II A/c |
8,000.00 |
|
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Being depreciation charged on Motor vehicle II. |
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Motor Vehicle II A/c Dr. |
5,000.00 |
|
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To Revaluation Reserve A/c |
5,000.00 |
|
|
Being Motor vehicle II is valued upward. |
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As at 31st December 2016 |
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|
Depreciation A/c Dr. |
5,000.00 |
|
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To Motor vehicle II A/c |
5,000.00 |
|
|
Being Motor Vehicle II sold. |
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|
Bank A/c Dr. |
13,000.00 |
|
|
To Motor vehicle II A/c |
12,000.00 |
|
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To Profit & Loss A/c |
1,000.00 |
|
|
Being Motor Vehicle II sold and profit on sale is recognised. |
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Revaluation Reserve A/c Dr. |
5,000.00 |
|
|
To Profit & Loss A/c A/c |
5,000.00 |
|
|
Being revaluation reserve transferred to profit & loss a/c. |
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Profit & Loss A/c Dr. |
1,800.00 |
|
|
To Current Tax Liability A/c |
1,800.00 |
|
|
Being Tax Liability booked on profit of Motor Vehicle II sold. |
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As at 30th June 2017 |
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Depreciation A/c Dr. |
16,000.00 |
|
|
To Motor Vehicle I A/c |
16,000.00 |
|
|
Being depreciation charged on Motor vehicle I. |
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Revaluation reserve A/c Dr. |
2000 |
|
|
To Motor Vehicle I A/c |
2000 |
|
|
Being Motor Vehicle I is undervalued. |
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Workings |
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|
Particulars |
Motor Vehicle I |
Motor Vehicle II |
|
Opening Balance As at 30t June 2016 |
60000 |
20000 |
|
Depreciation for 2015-16 |
-12500 |
-8000 |
|
Revaluation |
10500 |
5000 |
|
Closing Balance As at 30t June 2016 |
58000 |
17000 |
|
Depreciation for 2016-17 |
-16000 |
-5000 |
|
Revaluation |
-2000 |
-5000 |
|
Closing Balance as at 31st December 2016 |
7000 |
|
|
Closing Balance as at 30th June 2017 |
40000 |
|
|
Sale Price |
13000 |
|
|
Profit |
|
6000 |
|
Tax Liability @30% |
|
1800 |
Calculation of Impairment Loss:
An asset or CGU is considered to be impaired by its recoverable cost is less than its carrying cost. The carrying amount is the amount which is shown in the books whereas the recoverable amount is the real value of an asset.
The factors which affect impairment can be external or internal factors which can be decline in the market value or change in the type of market or technology for the former and any new internal information about the adverse condition of an asset etc. for the latter.
The impairment loss is calculated by subtracting the Cash Generating unit’s recoverable amount from the cash generating unit’s carrying amount.
The recoverable amount is calculated by subtracting cost to sell from fair value.
References:
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