Fair value accounting can be applied to those assets which have no market available by considering the values available for the similar assets in the market and these assets can also be measured using some other methods. As per AASB 13 Para 27 the assets which have no commercial use and which have no market available are exchanged between willing seller and willing buyers only (Barr and McClellan, 2018). They are to be called as specialised assets which are to be valued on the basis of the future income that can be generated from those assets or the exchange value received for those assets, ideally they are not valued at fair value as we will be unable to identify their fair value without having active market for that asset (Hodder, Hopkins and Schipper, 2014). As per AASB 13 Para 22 We can also estimate their value from the similar assets available in the market and which have some market value or we can say fair value available as they are marketable so there must be their fair value or market value of those assets and with the help of these values we can arrive at the nearby fair value of the assets which are not marketable or which have no active market. If we value those assets at the fair value then the assumptions need to be taken by the experts for the valuation of those assets (Machado, Martins and Carvalho, 2015). The assets which have no active market can either be valued on the basis of the similar assets or by taking some assumptions only if the fair value method of accounting is used for their valuation.
|
Part (i) |
|
|
01-Jul-15 |
|
|
Cost of Printing Machine |
$39,800 |
|
Installation Cost |
$ 4,200 |
|
Residual Value |
$ 1,800 |
|
Useful Life |
10 |
|
Straight line Method of Depreciation |
|
|
Depreciation |
$ 4220 |
|
30-Jun-17 |
|
|
Useful Life |
5 |
|
Residual Value |
$ 1,200 |
|
Cost of Machine |
$ 39,780 |
|
Depreciation |
$ 7,716 |
|
Journal Entries |
|||||
|
Date |
Particulars |
Amount ($) |
Amount ($) |
||
|
30-Jun-16 |
Depreciation A/C |
Dr |
4220 |
||
|
To Machine |
4220 |
||||
|
(Being depreciation charged on machine) |
|||||
|
30-Jun-16 |
Profit & Loss A/C |
Dr |
|||
|
To Depreciation |
|||||
|
(Being depreciation transferred to P & L A/C) |
|||||
|
30-Jun-17 |
Depreciation A/C |
Dr |
7716 |
||
|
To Machine |
7716 |
||||
|
(Being depreciation charged on machine) |
|||||
|
30-Jun-17 |
Profit & Loss A/C |
Dr |
7716 |
||
|
To Depreciation |
7716 |
||||
|
(Being depreciation transferred to P & L A/C) |
|
Part (ii) |
|
|
30-Jun-17 |
|
|
Fair Value |
$ 30,000 |
|
Cost of Machine |
$ 32,064 |
|
Downward Revaluation |
$ 2,064 |
|
Depreciation |
$ 7,500 |
|
30-Jun-18 |
|
|
Fair Value |
$ 16,000 |
|
Cost of Machine |
$ 22,500 |
|
Downward Revaluation |
$ 6,500 |
|
Depreciation |
$ 5,333 |
|
30-Sep-18 |
|
|
Cost |
$ 14,667 |
|
Sale Value |
$ 10,500 |
|
Loss |
$ 4,167 |
Journal Entries
|
Date |
Particulars |
Amount ($) |
Amount ($) |
||
|
30-Jun-17 |
Revaluation A/C |
Dr |
2064 |
||
|
To Machine |
2064 |
||||
|
(Being machine revaluated) |
|||||
|
30-Jun-18 |
Depreciation A/C |
Dr |
7500 |
||
|
To Machine |
7500 |
||||
|
(Being depreciation charged on machine) |
|||||
|
30-Jun-18 |
P & L A/C |
Dr |
7500 |
||
|
To Depreciation |
7500 |
||||
|
(Being depreciation transferred to P & L A/C) |
|||||
|
30-Jun-18 |
Revaluation A/C |
Dr |
6500 |
||
|
To Machine |
6500 |
||||
|
(Being machine revaluated) |
|||||
|
30-Sep-18 |
Depreciation A/C |
Dr |
1333 |
||
|
To Machine |
1333 |
||||
|
(Being depreciation charged on machine) |
|||||
|
30-Sep-18 |
Cash A/C |
Dr |
10500 |
||
|
Loss on Sale |
Dr |
4167 |
|||
|
To Machine |
14667 |
||||
|
(Being machine sold and the amount of loss recorded) |
(Titman, Keown and Martin, 2017)
Surplus or Deficit of CHL’s defined benefit plan at 30 June 2017
|
Present value of DBO (30-June-2017) |
1,07,50,000 |
|
Fair Value of plan asset (30-June-17) |
1,00,47,500 |
|
Deficit |
7,02,500 |
Net defined benefit asset or liability that should be recognised by CHL at 30 June 2017
|
Calculation of pension expense |
($) |
|
Interest Cost |
900000 |
|
Service cost |
11,50,000 |
|
Actual return on plan assets |
-7,47,500 |
|
Pension expense |
13,02,500 |
|
Calculation of pension Asset or liability |
($) |
|
Pension Expense |
13,02,500 |
|
Cash |
10,00,000 |
|
Pension Liability |
3,02,500 |
|
Calculation of net Interest |
($) |
|
Present value of DBO (01-Jul-2016) |
1,00,00,000 |
|
Interest cost |
9,00,000 |
The actuarial gain or loss
|
Calculation of Actuarial Gain/ Loss ($) |
|
|
Balance 30 June 2017 |
1,07,50,000 |
|
Balance 1 July 2016 |
1,00,00,000 |
|
Net interest |
9,00,000 |
|
Service cost |
11,50,000 |
|
Contributions paid to the fund |
10,00,000 |
|
Benefits paid by fund |
12,00,000 |
|
Actuarial loss on DBO |
15,00,000 |
|
Calculation of Return on Plan asset ($) |
|
|
Fair Value of plan asset (01-Jul-2016) |
95,00,000 |
|
Contributions paid by CHL to the fund during the year |
10,00,000 |
|
Benefits paid by the fund during the year |
12,00,000 |
|
Fair Value of plan asset (30-June-17) |
1,00,47,500 |
|
Return on Plan asset |
7,47,500 |
|
Reconciliation |
Net defined benefit liability |
Defined benefit obligation |
Plan assets |
|
$ |
$ |
$ |
|
|
Balance 1 July 2017 |
1,00,00,000 |
95,00,000 |
|
|
Interest |
9,00,000 |
9,00,000 |
|
|
Current service cost |
11,50,000 |
11,50,000 |
|
|
Contributions received by fund |
10,00,000 |
10,00,000 |
10,00,000 |
|
Benefits paid by fund |
12,00,000 |
12,00,000 |
12,00,000 |
|
Return on plan assets excluding interest recognised * |
7,47,500 |
||
|
Actuarial loss on re-measurement of DBO |
15,00,000 |
||
|
Balance 30 June 2017 |
1,07,50,000 |
1,00,47,500 |
|
Summary Journal |
Profit or Loss |
Other comprehensive Income |
Bank |
Net DBL(A) |
|
Balance 1 July 2016 |
||||
|
Net interest |
9,00,000 (Dr.) |
|||
|
Service cost |
11,50,000 (Dr.) |
|||
|
Contributions paid to the fund |
10,00,000 (Cr.) |
|||
|
Gain/Loss on plan assets (ex. interest) |
7,47,500 (Cr.) |
|||
|
Actuarial loss on DBO |
15,00,000 (Cr.) |
|||
|
Journal entry |
13,02,500 (Dr.) |
15,00,000 (Cr.) |
10,00,000 (Cr.) |
|
|
Balance 30 June 2017 |
302500 (Cr.) |
References:
Barr, M.J. and McClellan, G.S., 2018. Budgets and financial management in higher education. John Wiley & Sons.
Hodder, L., Hopkins, P. and Schipper, K., 2014. Fair value measurement in financial reporting. Foundations and Trends® in Accounting, 8(3-4), pp.143-270.
Machado, M.J.D.C., Martins, E.A. and Carvalho, L.N., 2015. Reliability in fair value of assets without an active market. Advances in Scientific and Applied Accounting, 7(3), pp.319-338.
Titman, S., Keown, A.J. and Martin, J.D., 2017. Financial management: Principles and applications. Pearson.
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