Journal Entries And Accounting Policies In Dartmouth Ltd | AASB 108, AASB 116, AASB 137, And AASB 138

1. A change in accounting estimates and errors is permitted under AASB 108 and entities are allowed for a voluntary change in the accounting policy when the board does not include specific provision for the transactions occurred, events or conditions. The management is lieu of the accounting guidelines select the accounting policy which is among the recent announcements of different standard setting bodies. The accounting policy chosen must be using a similar conceptual framework for developing the accounting standards. The management in these cases can choose voluntary change in the accounting policy (AASB 108, 2018).
2. 1) The change from cost model to revaluation model would be accounted by the company by revaluing the asset on the revaluation date that is 30^thJune 2014. The actual amount for the asset on 30^th June 2014 is around 500,000 (Appendix 1) while the revaluation or the fair value of the asset was around 530,000. The extra 30,000 would be accounted as revaluation surplus in the Other Comprehensive Income, which is a part of the shareholder’s equity. The same profit or loss could be recognized in the profit or loss account to the extent of the profit or loss recognized earlier in the income statement relating to the same asset previously. The carrying value of the asset would be recorded as the fair market value that is 530,000 as Machinery under the Asset side of the balance sheet (Carrol & Laing, 2016).

2) The changes to the machine useful life and residual value on 30^th June 2016 will be accounted under the AASB 108 if the estimates differs from the previous estimates in regarding to the residual value and useful life of an asset. Depreciation will be recognized and accounted in the balance sheet of the company as the residual value of the asset does not increase with the carrying value of the asset. The change in the residual value of the asset on that date will be recorded as revaluation surplus or loss in the comprehensive income statement. The asset value on 30^th June 2016 is around 350,000 where the asset residual value is initialized at zero and the asset life cycle is reduced to two years. The depreciation for the remaining two years is distributed equally making the assets cost at 30^th June 2018 as zero (AASB 116, 2015).

3) Journal entries in the books of Dartmouth Ltd as on 30^th June 2018.

1. The warranty obligations would be classified as a provisions under the AASB 137 as it is a probability case where the company would have to pay or the outflow of the resources may be required in order to settle the obligations, which may arise. The situation for the company may be defined as the present obligations scenario where a past event is said to have taken place and a present obligation may arise at the end of the reporting period (AASB 137, 2010).

1. The requirement to determine the amount which is to be paid by Raleigh Construction Ltd under the head provisions, contingent liabilities and assets as there is a contingent liability, which may arise in the due course of the business. The probability of the amount of resources flowing out for the economic benefits to settle the obligations must be backed up by a probable event. In this case the probability of the outflow of resources is mentioned according to the scenario analysis presented. The discount rate used for determining the present value of the arising liability must be a risk free rate which adjusts the future cash flow estimates. The amount of the expenditure, which is expected to be paid by the company depends on the probability of scenario presented and the same amount shall be the present value, which is done in our case.

1. The copyrights or the assets of the company satisfies the definitions of intangible assets of the companies in respect to the AASB 138 section. The section states that the assets should be identifiable, the entity must have a control over the resource or the asset acquired and finally there should be evidence and flow of economic benefits from the assets should be clear. Thus the copyright satisfies all the criteria and under the section 138 of AASB be regarded as an Intangible Asset. As the company John Riley & Sons is a book publishing company and copyright of books could enhance the prosperity of increase revenue and growth for the company acting as a future economic benefits for the company (AASB 138, 2014).
2. The requirements of AASB 138 Intangible assets are:

• Identification of Asset
• Control or Ownership of Asset
• Flow of Economic Benefits from the Asset.

The appropriate accounting method to be used can be the probability approach or scenario analysis of assets returns under various scenarios and accounting the same cash flows. The first Copyright which is developed internally by the company, which costs around $25,000 could be amortized using the straight line method over the useful life of five years of asset life. The amortization expenses to be reported in this case will be $5000 every year. Whereas in the second case the acquired copyright by the company from Adelaide University at $ 15,000 will be at the balance sheet of the company at the acquisition cost and impairment of the same will be done annually to check the economic benefits or the potential of the assets (Handley, Wright and Evans, 2018).

References

Australian Accounting Standards Board. (2010). AASB 137 [Ebook]. Australia. Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-04_COMPoct10_01-11.pdf

Australian Accounting Standards Board. (2014). AASB 138 [Ebook]. Australia. Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB138_07-04_COMPjun14_07-14.pdf

Australian Accounting Standards Board. (2015). AASB 116 [Ebook]. Australia. Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB116_08-15_COMPoct15_01-18.pdf

Australian Accounting Standards Board. (2018). AASB 108 [Ebook]. Australia. Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB108_07-04_COMPjan15_07-15 pdf

Carrol, A., & Laing, G. (2016). Manipulation of Earnings through Correction of Prior Period Errors (AASB108): An Empirical Test. e-Journal of Social & Behavioural Research in Business, 7(1).

Handley, K., Wright, S. and Evans, E., 2018. SME Reporting in Australia: Where to Now for Decision?usefulness?. Australian Accounting Review.