Advance Financial Accounting For Technique Of Balancing

Asset Revaluation

Discuss about the Advance Financial Accounting for Technique of Balancing.

Asset revaluation serves as a technique of balancing the assets carrying value if any vital changes take place in of the fixed asset’s fair market value. Variations taking place in several factors such as time value of money and inflation rate might result in changes in the book value and market value of the assets. This can result in preparation of unreliable financial statements. Revaluation of assets is done to address such variations in market value and book value of assets to prepare accurate financial statements.

As per AASB 116 of Australian Accounting Standard, revaluation of the assets including plant, property and equipment fair value of those is reliably measured and carried at a revealed amount. This is in consideration that its fair value at its revaluation date deducted from any accumulated impairment losses. Revaluation of these assets is done with adequate regularity for making sure that the amount carried is not materially different from that, which is calculated using fair value at the reporting period end. When a plant, property and equipment are revalued, any type of accumulated depreciation is anticipated on the revaluation date against the asset’s net and gross carrying amount. This is further restated to the revalued amount of assets. 

In the asset revaluation, each part of a property, plant and equipment with is cost which is significant in accordance to the items total cost is separately depreciated. The net revaluation method is documented in several inclusive incomes to the level of the credit balance prevalent in any excess revaluation in accordance of same asset class.

In the Books of Anderson Pvt. Ltd. Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
Journal Entry
			Dr.	Cr.
Date	Particulars	Amount	Amount
			($)	($)
	Land (NSW) A/c.	Dr.	50,000
	To,	Revaluation Surplus A/c.		50,000
	(Being the book value of Land(NSW) revalued as per its Current Fair Value)
	Buildings (NSW) A/c.	Dr.	10000
	Accumulated Depreciation A/c.	Dr.	20000
	To,	Revaluation Surplus A/c.		30000
	(Being the book value of Building (NSW) revalued as per its Current Fair Value after adjusting with the related accumulated depreciation)
	Loss on Revaluation  A/c.	Dr.	30000
	To,	Land (Qld.) A/c.		30000
	(Being the book value of Land (Qld) revalued as per its Current Fair Value)
	Loss on Revaluation A/c.	Dr.	10000
	Accumulated Depreciation A/c.	Dr.	45000
	To,	Buildings (Qld.) A/c.		55000
	(Being the book value of Building (NSW) revalued as per its Current Fair Value after adjusting with the related accumulated depreciation)
	Revaluation Surplus A/c.	Dr.	80000
	To,	Loss on Revaluation A/c.		40000
	To,	Income Statement A/c.		40000
	(Being the excess surplus in Revaluation A/c. transferred to Income Statement)

Ascertainment of Fair-Value of Debentures:-

Formula = C x [{1-1/(1+y)ⁿ}/y] + [V/(1+y)ⁿ]

Where, C = Coupon Payment

            y = Semi-Annual Yield Rate

            n = No. of Coupon Payments

            V = Book Value of Debentures

Book Value of Debentures ($)	100000
Coupon Rate p.a.	6%
Semi Annual Coupon Rate	0.03
Coupon Payment ($)	3000
Yield Rate	4%
Semi Annual Yield Rate	0.02
Total Period (in Years)	6
No. of Coupon Payments	12
Fair Value of Debentures	110575.

i) In the Books of Kruger Ltd.
Journal Entry
			Dr.	Cr.
Date	Particulars	Amount	Amount
			($)	($)
1st July,2015	Cash A/c.	Dr.	110575
	To,	Debenture A/c.		100000
	To,	Security Premium A/c.		10575
	(Being debentures issued at premium with a coupon rate of 6% p.a.)

 

ii) In the Books of Kruger Ltd.
Journal Entry
31st Dec,2015	6% Debenture Interest A/c.	Dr.	3000
	To,	6% Debenture Holders A/c.		2100
	To,	Income Tax Payable A/c.		900
	(Being interest due for 6 months on 6% debentures and 30% tax deducted at source)
31st Dec,2015	6% Debenture Holders A/c.	Dr.	2100
	To,	Cash A/c.		2010
	(Being semi-annual interest paid to 6% debenture holders)

 

iii) In the Books of Kruger Ltd.
Journal Entry
30th June ,2016	6% Debenture Interest A/c.	Dr.	3000
	To,	6% Debenture Holders A/c.		2100
	To,	Income Tax Payable A/c.		900
	(Being interest due for 6 months on 6% debentures and 30% tax deducted at source)
30th June ,2016	6% Debenture Holders A/c.	Dr.	2100
	To,	Cash A/c.		2010
	(Being semi-annual interest paid to 6% debenture holders)
30th June ,2016	Income Tax Payable A/c.	Dr.	1800
	To,	Cash A/c.		1800
	(Being tax deducted on interest paid)
30th June ,2016	Income Statement A/c.	Dr.	4020
	To,	6% Debenture Interest A/c.		4020
	(Being interest on debenture transferred to Income Statement)

Calculation for Yearly Gross Profit:-
	2015	2016	2017
Cost for the year	10	18	12
Total Estimated Cost of the Contract	40	40	40
Percentage of Completion	25.00%	45.00%	30.00%
Total Contract Value	50	50	50
Revenue Recognized	12.5	22.5	15
Gross Profit	2.5	4.5	3

In the Books of Sun City Ltd.
Journal Entry
			Dr.	Cr.
Date	Particulars	Amount	Amount
			($)	($)
2015	Construction in Process A/c.	Dr.	2.5
	Construction Expenses A/c.	Dr.	10
	To,	Construction Revenue A/c.		12.5
	Pretoria Limited A/c.	Dr.	12
	To,	Billings A/c.		12
	Cash A/c.	Dr.	11
	To,	Pretoria Limited A/c.		11

In the Books of Sun City Ltd.
Journal Entry
			Dr.	Cr.
Date	Particulars	Amount	Amount
			($)	($)
2015	Construction in Process A/c.	Dr.	2
	Construction Expenses A/c.	Dr.	10
	To,	Construction Revenue A/c.		12
	Pretoria Limited A/c.	Dr.	12
	To,	Billings A/c.		12
	Cash A/c.	Dr.	11
	To,	Pretoria Limited A/c.		11

Asset revaluation serves as a technique of balancing the assets carrying value if any vital changes take place in of the fixed asset’s fair market value. Variations taking place in several factors such as time value of money and inflation rate might result in changes in the book value and market value of the assets. This can result in preparation of unreliable financial statements. Revaluation of assets is done to address such variations in market value and book value of assets to prepare accurate financial statements.

As per AASB 116 of Australian Accounting Standard, revaluation of the assets including plant, property and equipment fair value of those is reliably measured and carried at a revealed amount. This is in consideration that its fair value at its revaluation date deducted from any accumulated impairment losses. Revaluation of these assets is done with adequate regularity for making sure that the amount carried is not materially different from that, which is calculated using fair value at the reporting period end. When a plant, property and equipment are revalued, any type of accumulated depreciation is anticipated on the revaluation date against the asset’s net and gross carrying amount. This is further restated to the revalued amount of assets. 

In the asset revaluation, each part of a property, plant and equipment with is cost which is significant in accordance to the items total cost is separately depreciated. The net revaluation method is documented in several inclusive incomes to the level of the credit balance prevalent in any excess revaluation in accordance of same asset class.

In the Books of AD Pvt. Ltd.
Journal Entry
			Dr.	Cr.
Date	Particulars	Amount	Amount
			($)	($)
	Land (NSW) A/c.	Dr.	50,000
	To,	Revaluation Surplus A/c.		50,000
	(Being the book value of Land(NSW) revalued as per its Current Fair Value)
	Buildings (NSW) A/c.	Dr.	10000
	Accumulated Depreciation A/c.	Dr.	20000
	To,	Revaluation Surplus A/c.		30000
	(Being the book value of Building (NSW) revalued as per its Current Fair Value after adjusting with the related accumulated depreciation)
	Loss on Revaluation  A/c.	Dr.	30000
	To,	Land (Qld.) A/c.		30000
	(Being the book value of Land (Qld) revalued as per its Current Fair Value)
	Loss on Revaluation A/c.	Dr.	10000
	Accumulated Depreciation A/c.	Dr.	45000
	To,	Buildings (Qld.) A/c.		55000
	(Being the book value of Building (NSW) revalued as per its Current Fair Value after adjusting with the related accumulated depreciation)
	Revaluation Surplus A/c.	Dr.	80000
	To,	Loss on Revaluation A/c.		40000
	To,	Income Statement A/c.		40000
	(Being the excess surplus in Revaluation A/c. transferred to Income Statement)

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