Financial Accounting Situations For Superstore Ltd, Jackson Storm Ltd, And Foodie Ltd

Share Capital for Rippa Ltd

According to “Paragraph 51 of AASB 116”, any revision in an asset’s useful life is to be considered as a change in accounting estimate, instead of accounting policy change (Aasb.gov.au, 2018). Hence, this does not mandate the need for retrospective restatement of accounts. The change would exert influence only on the financial statements of the prospective periods.

Book value as at 1^st July 2017 = ${800,000 – 2 x (800,000/10)} = $640,000

Depreciation charges per annum for the remaining six years = $640,000/6 = $106,667

Finally, a disclosure about the change in accounting estimate is to be made as financial footnotes.

The due amount of $200,000 would be shown in the form of accounts payable under the section of current liabilities in the balance sheet statement as at 30^th June 2018. Since the repairs expense belong to the period ended 30^th June 2017, it is not possible to show the same in the form of expense in the income statement for the period ended 30^th June 2018 in accordance with accounting, accrual and matching principles. Due to the closure of repairs expense account in 2017, retained earnings account would be used for adjustment that denotes the accumulated profits until date.

When an investment value falls after the reporting period, the event is stated to be non-adjusting. According to “Paragraph 21 of AASB 110”, these events need to be disclosed as notes to accounts, if they carry material amounts. In opposition, these events are required to be ignored (Aasb.gov.au, 2018). According to the provided scenario, significant fall in investments could be observed from $600,000 to $250,000 and this is extremely crucial for the financial statement users. Even though the fall in market value does not require any adjustment to the value of an asset for reporting in the 2018 balance sheet statement, disclosure needs to be made in notes to accounts. However, in 2019, there is need to write-off investments to $250,000 for which Superstore Limited has to register a loss. In that case, revenue or income statement account needs to be debited by $350,000 ($600,000 – $250,000), while investments account would be credited by $350,000.

In accordance with “Paragraph 8 of AASB 110”, a business organisation needs to account for adjusting events through adjustment of potential financial effects in the financial statements before finalisation and issuance (Aasb.gov.au, 2018). If an error or fraud is identified after the date of reporting, the event is said to be adjusting. In this scenario, the two accounts needing adjustments include Max and advertising expense.

In the Books of Superstar Limited

Statement of Profit or Loss and Other Comprehensive Income for Jackson Storm Ltd

Adjusting Journal Entries

For the year ended 2018

Date	Particulars	Debit amount	Credit amount
30-Jun-18
1	Depreciation Expense Account……………………………………Dr	$ 106,667
	To Accumulated Depreciation Account		$ 106,667

2	Retained Earnings Account………………………………………….Dr	$ 14,000
	Income Tax Refundable Account…………………………………..Dr	$ 6,000
	To Accounts Payable Account		$ 20,000

3	No journal entry needed	$ –
			$ –

4	Max Account………………………………………………………………Dr	$ 32,000
	To Advertising Expense Account		$ 32,000

In the Books of Rippa Limited

Journal Entries

For the year ended 30 June 2018

Date	Particulars	Debit amount	Credit amount
10-Aug-17	Cash Account…………………………………………………Dr	$ 15,000,000
	To Share Application Account		$ 15,000,000
	(To record receipt of application money)

10-Aug-17	Share Application Account……………………………….Dr	$ 15,000,000
	To Share Capital Account		$ 12,500,000
	To Share Allotment Account		$ 2,500,000
	(To record money transfer to share capital)

12-Aug-17	Underwriting Commission Account……………………Dr	$ 12,000
	To Cash Account		$ 12,000
	(To record underwriting commission paid)

10-Sep-17	Share Allotment Account………………………………….Dr	$ 5,000,000
	To Share Capital Account		$ 5,000,000
	(To record share allotment money due)

10-Sep-17	Cash Account………………………………………………….Dr	$ 2,500,000
	Share Application Account……………………………….Dr	$ 2,500,000
	To Share Allotment Account		$ 5,000,000
	(To record receipt of allotment money)

01-Feb-18	Share First Call Account…………………………………..Dr	$ 2,500,000
	To Share Capital Account		$ 2,500,000
	(To record share first call money due)

28-Feb-18	Cash Account…………………………………………………..Dr	$ 2,480,000
	Call-in-Arrears Account……………………………………Dr	$ 20,000
	To Share First Call Account		$ 2,500,000
	(To record receipt of money from shares)

20-Mar-18	Share Capital Account………………………………………Dr	$ 160,000
	To Share Forfeiture Account		$ 140,000
	To Call-in-Arrears Account		$ 20,000
	(To record forfeiture of shares)

20-Mar-18	Cash Account…………………………………………………..Dr	$ 128,000
	Share Forfeiture Account…………………………………..Dr	$ 32,000
	To Share Capital Account		$ 160,000
	(To record reissue of shares)

20-Mar-18	Share Reissue Cost Account………………………………Dr	$ 4,000
	To Cash Account		$ 4,000

25-Mar-18	Share Forfeiture Account…………………………………..Dr	$ 108,000
	To Share Reissue Cost Account		$ 4,000
	To Shareholders Account		$ 104,000
	(To record amount to be refunded to the shareholders)

25-Mar-18	Shareholders Account………………………………………..Dr	$ 104,000
	To Cash Account		$ 104,000
	(To record amount refunded)

Working Note:-

Shares applied, allotted, cash received related to application and excess cash received

Number of shares applied for (A)	Number of shares allotted (B)	Total cash received (C) = (A) x $2.50	Cash received related to application (D) = (B) x $2.50	Excess cash received from application (E) = (C) – (D)
6,000,000	5,000,000	$ 15,000,000	$ 12,500,000	$ 2,500,000

The refunded amount was not identical to $3.50, as per the demand of one shareholder, since the individual has failed to make timely payment. As a result, there was forfeiture of shares and the organisation has to spend an excess of $4,000 for reissuance of the same. After reissuance of shares, only $3.20 would be obtained, instead of $4. Due to this, Rippa Limited has to suffer a loss of $0.80 ($4 – $3.20) along with reissuance cost of $0.10 ($4,000/40,000). Therefore, the shareholders have to bear the overall loss of $0.90 ($0.80 + $0.10). As a result, the shareholders would receive $2.60 per share, instead of $3.50 per share.

Statement of Financial Position for Jackson Storm Ltd

Calculation of Current Tax Liability:-

Particulars	Amount
Revenue	$ 2,150,000
Government grant	$ –
Total revenue	$ 2,150,000
Expenses:
Cost of sales	$ 925,000
Advertising	$ 59,000
Annual leave	$ 4,000
Depreciation- Equipment	$ 100,000
Depreciation- Motor Vehicles	$ 20,000
Doubtful debts expense	$ 34,000
Entertainment	$ –
Insurance	$ 25,000
Rent	$ 78,000
Salaries	$ 335,000
Warranty expenses	$ 2,000
Other expenses	$ 47,200
Total expenses	$ 1,629,200
Profit before tax	$ 520,800
Tax @30%	$ 156,240
Profit after tax	$ 364,560

Calculation of Deferred Tax Assets and Deferred Tax liabilities:-

Particulars	Carrying amount	Tax base	Difference	Asset/(Liability)
Assets:
Cash	$ 40,000	$ 40,000	$ –
Inventory	$ 162,900	$ 162,900	$ –
Accounts receivable (net of allowance)	$ 218,000	$ 216,000	$ 2,000	$ -600
Prepaid insurance	$ 7,000	$ 7,000	$ –
Equipment cost (net)	$ 630,000	$ 600,000	$ 30,000	$ -9,000
Motor vehicles (net)	$ 90,000	$ 100,000	$ -10,000	$ 3,000
Liabilities:
Accounts payable	$ 54,600	$ 54,600	$ –
Loan	$ 200,000	$ 200,000	$ –
Provision for annual leave	$ 21,000	$ 4,000	$ 17,000	$ 5,100
Provision for warranties	$ 16,500	$ 2,000	$ 14,500	$ 4,350
Deferred tax assets	$ 12,450
Deferred tax liabilities	$ 9,600

In the Books of Jackson Storm Limited

Journal Entries

For the year ended 30 June 2018

Serial Number	Particulars	Debit amount	Credit amount
1	Tax Expense Account………………………………………………..Dr	$ 156,240
	To Current Tax Liability Account		$ 156,240
	(To record current tax liability)

2	Deferred Tax Expense Account…………………………………..Dr	$ 600
	To Deferred Tax Liability Account		$ 600
	(To record deferred tax liability on temporary difference between carrying amount and tax base of accounts receivable)

3	Deferred Tax Expense Account…………………………………..Dr	$ 9,000
	To Deferred Tax Liability Account		$ 9,000
	(To record deferred tax liability on temporary difference between carrying amount and tax base of equipment)

4	Deferred Tax Asset Account……………………………………….Dr	$ 3,000
	To Deferred Tax Income Account		$ 3,000
	(To record deferred tax asset on temporary difference between carrying amount and tax base of motor vehicles)

5	Deferred Tax Asset Account……………………………………….Dr	$ 5,100
	To Deferred Tax Income Account		$ 5,100
	(To record deferred tax asset on temporary difference between carrying amount and tax base of provision for leave)

6	Deferred Tax Asset Account……………………………………….Dr	$ 4,350
	To Deferred Tax Income Account		$ 4,350
	(To record deferred tax asset on temporary difference between carrying amount and tax base of provision for warranties)

In the Books of Superstar Limited

Journal Entries

For the years ended 30 June 2017 and 30 June 2018

Date	Particulars	Debit amount	Credit amount
30-Jun-17	Depreciation Expense Account……………………………………………………..Dr	$ 12,500
	To Accumulated Depreciation- Equipment 1 Account		$ 12,500

30-Jun-17	Equipment 1 Account…………………………………………………………………..Dr	$ 7,500
	To Gain on Revaluation of Equipment 1 Account		$ 7,500

30-Jun-17	Gain on Revaluation of Equipment 1 Account………………………………….Dr	$ 7,500
	To Asset Revaluation Reserve Account		$ 7,500

30-Jun-17	Depreciation Expense Account……………………………………………………..Dr	4,000
	To Accumulated Depreciation- Equipment 2 Account		4,000

30-Jun-17	Equipment 2 Account…………………………………………………………………..Dr	$ 2,000
	To Gain on Revaluation of Equipment 2 Account		$ 2,000

30-Jun-17	Gain on Revaluation of Equipment 2 Account………………………………….Dr	$ 2,000
	To Asset Revaluation Reserve Account		$ 2,000

31-Dec-17	Depreciation Expense Account……………………………………………………..Dr	$ 2,000
	To Accumulated Depreciation- Equipment 2 Account		$ 2,000

31-Dec-17	Cash Account……………………………………………………………………………..Dr	$ 13,000
	Loss on Sale of Equipment 2 Account…………………………………………….Dr	$ 3,000
	To Equipment 2 Account		$ 16,000

30-Jun-18	Depreciation Expense Account……………………………………………………..Dr	$ 15,000
	To Accumulated Depreciation- Equipment 1 Account		$ 15,000

30-Jun-18	Equipment 1 Account…………………………………………………………………..Dr	$ 4,000
	To Gain on Revaluation of Equipment 1 Account		$ 4,000

30-Jun-18	Gain on Revaluation of Equipment 1 Account………………………………….Dr	$ 4,000
	To Asset Revaluation Reserve Account		$ 4,000

Equipment 1:

Particulars	Units
Revalued amount on 30 June 2016	$ 60,000
Residual value	$ 10,000
Useful life (in years)	4
Depreciation per year	$ 12,500
Carrying amount	$ 47,500
Fair value on 30 June 2017	$ 55,000
Revaluation gain	$ 7,500
At 30 Jume 2018:
Revalued amount on 30 June 2017	$ 55,000
Residual value	$ 10,000
Useful life (in years)	3
Depreciation per year	$ 15,000
Carrying amount	$ 40,000
Fair value on 30 June 2018	$ 44,000
Revaluation gain	$ 4,000

Equipment 2:

Particulars	Units
Revalued amount	$ 20,000
Residual value	$ 4,000
Useful life (in years)	4
Depreciation per year	4,000
Carrying amount	$ 16,000
Fair value on 30 June 2017	$ 18,000
Revaluation gain	$ 2,000
Revalued amount on 30 June 2017	$ 18,000
Less: Accumulated depreciation	$ 2,000
Carrying amount	$ 16,000
Less: Cash proceeds from sale	$ 13,000
Loss on sale	$ 3,000

Particulars	Fizzy Drinks	Ice Creamery
Fair value	$ 750,000	$ 260,000
Value in use	$ 810,000	$ 240,000
Recoverable amount	$ 810,000	$ 260,000
Carrying amount	$ 872,000	$ 268,000
Impairment loss	$ 62,000	$ 8,000

Apportionment of Impairment Loss for Fizzy Drinks:-

Particulars	Carrying amount (in $)	Pro-rata	Impairment Loss Allocated (in $)
Goodwill	40,000		40,000

Fixtures and Fittings	20,000	2.60%	571
Equipment	110,000	14.29%	3,143
Land and Building	620,000	80.52%	17,714
Patent	20,000	2.60%	571
Total	770,000	100%	62,000

In the books of Superstar Limited

Journal Entries

For the year ended as on 30 June 2018

Date	Particulars	Debit	Credit
Amount (in $)	Amount (in $)
30-Jun-18	Impairment Loss Account……………Dr	70,000
	To Goodwill- Ice Creamery Account		8,000
	To Goodwill- Fizzy Drinks Account		40,000
	To Fixtures and Fittings- Fizzy Drinks Account		571
	To Equipment-Fizzy Drinks Account		3,143
	To Land and Building- Fizzy Drinks Account		17,714
	To Patent- Fizzy Drinks Account		571
	(To record impairment loss)

30-Jun-15	Income Statement Account………………..Dr	70,000
	To Impairment Loss Account		70,000
	(Value of impairment loss reallocated to the income statement)