Problems Related To Preparation Of Statement Of Financial Position

Assessment of an organization’s ability to continue operating

This memo is aimed at providing the problems that is related to the problems in preparation of statement of financial position. At the time of preparing financial reports, the management must make the assessment of the organisations ability to continue operating as going concern. Financial reports must be prepared based on the going concern basis unless the manager either intends to liquidate the organisation or cease the trading or has no realistic options but to do so. When the management is aware of making assessment or material uncertainties associated with the events or conditions which might case significant doubt on the organisations ability to continue in the form of going concern, hence those uncertainties must be disclosed. When the monetary reports is not prepared on the going concern that facts must be disclosed together with the fundamentals on which the monetary reports is prepared. The organisation must also disclose the entity why the organisation is not regarded as the going concern.

DL Vision Ltd
Statement of financial position for the year ending 30 June 2016
Assets	Amount ($) Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
Current Assets
Cash at bank	5000
Cash on deposits, at call	37500
Trade debtors	1,85,000
Other debtors	38,500
Inventories	310750
Total Current Assets	576750
Non-Current Assets
Investment in associates	108750
Machinery	91250
Land and building	290000
Goodwill	362500
Total Non-current Assets	852500
Total Assets	1429250
Liabilities
Current Liabilities
Trade creditors	205000
Short term bank loans	6250
Loans repayable in 1 year	1,00,000
Loans to employee	12,500
Provision for employee benefits	27500
Provision for restructuring	15500
Current tax liabilities	7500
Provision for warranty	10000
Total Current Liabilities	384250
Non-current liabilities
Bank loans	21500
Other loans	202500
Deferred tax liabilities	25000
Loans to employee	52,500
Provision for employee benefits	10750
Total Non-Current Liabilities	312250
Total Liabilities	696500
Net Assets	732750
Equity
Equity attributable to owners
share capital	730000
Retained earnings	190000
Revaluation reserve	3750
Profit for the year	70500
Total Shareholders’ funds	994250

	In the Books of T. Padroni Ltd
	Journal Entries
Date	Particulars	Amount ($)	Amount ($)
01-May	Bank A/c ………………………………………………….Dr	5760000
	To Share Application ………………………………A/c		5760000
	(Amount of share application received for 2000000 shares at $4.80 per share)
01-May	Share Application A/c ………………………….…Dr	5760000
	To Share Capital ……………………………………..A/c		4800000
	To Share Allotment ……………………………….A/c		960000
	(Share application money transferred to share capital)
15-Jun	Share Allotment A/c……………………………….Dr	2400000
	To Share Capital …………………………………….A/c		2400000
	Allotment money due on 2000000 shares at $1.20 per share)

15-Jul	Bank A/c……………………………………………….Dr	2400000
	To Share Allotment …………………………….A/c		2400000
	(Allotment money received on 2400000 shares)
01-10-2016	Share First & Final call A/c…………………Dr	2880000
	To Share Capital ……………………………….A/c		2880000
	(Call money made due on 2400000 shares at 1.20 per share)
01-10-2016	Bank A/c ……………………………………………….Dr	2760000
	Calls-In-Arrears …………………………………..A/c	120000
	To Share Capital A/c …………………………….A/c		2880000
	(Call money received and arrears on 100000 shares)
10-10-2016	Share Capital A/c ………………………………..Dr	480000
	To Share first & final call ………………………………A/c		120000
	To Forfeited Share …………………………….A/c		360000
	(100000 shares forfeited for non payment of first call money)
20-10-2016	Bank A/c……………………………………………..Dr	400000
	Share reissue cost A/c ……………………….Dr	10000
	To Share Capital ………………………………..A/c		410000

Workings:
Number of shares applied
Total No. of shares applied × shares allotted	2400000
Total No. of shares allotted	2000000	X 100000	120000
Excess Application received =	120000-100000	20000
Excess Application Amount received =	48000
Amount Due on first and final call	120000

Journal Entry
Particulars	Amount ($)	Amount ($)
Car A/c………………………………………..Dr	14000
Accumulated Depreciation A/c….Dr	32500
To Revaluation gain A/c		46500
Truck Accumulation A/c………………Dr	18000
Revaluation loss A/c…………………..Dr	22000
To Truck A/c		40000

Working of Car
	Comparing cost and Fair Value
	130000-116000	14000
	Accumulated Depreciation	32500
	Carrying value =	Cost – Accumulated depreciation
	130000 – 32500	97500
Revaluation gain	116000-32500	83500
	Working of Truck
	Fair Market Value – Net Book Value
Revaluation Loss	18000 – 40000	-22000

Revaluation of fixed assets can be defined as the process of increase or decrease in profit from their carrying amount due to the major changes in the fair value of the fixed asset. Upward revaluation is not regarded as the normal gain and not is not even recorded in the income statement instead it is directly credited to the equity account which is known as revaluation surplus. Revaluation of surplus holds the upward revaluation of an organisation assets until those assets are disposed of.

For instance on 31-12-2015 xyz ltd re-values the building again to discover that the fair value must be 1$160,000. Carrying amount on December 2016 is 190000 after subtracting depreciation of two years of $22,352 that amounts to $167,648. The carrying amount is in excess of the fair value by $7,648 hence the account balance must be reduced by that amount.

Revaluation Surplus	7,648
Building Account		7,648

Journal ENTRY:
Particulars	Amount ($)	Amount ($)
Impairment expense A/c……………………..Dr	1,16,000
To Goodwill …………………………..A/c		1,16,000
Impairment expense A/c……………………Dr	2,00,000
To Machinery…………………………A/c		6,00,000
Impairment expense A/c……………………Dr	3,64,000
To Building ………………………………A/c		8,36,000

Computation of Impairment Loss
			Amount ($)
Fair value of reporting unit			19,40,000
NBV of reporting unit			26,00,000
INCLUDING GOODWILL OF	80,000
BALANCE SHEET	BOOKS	Impairments	FAIR VALUE
Cash	2,00,000		2,00,000
Inventory	3,20,000		3,04,000
Machinery	8,00,000	2,00,000	6,00,000
Building	12,00,000	3,64,000	8,36,000
Goodwill	80,000		N/A
Equity	26,00,000		19,40,000
Fair value of reporting unit			19,40,000
Fair value of net assets, excluding g will			19,40,000
Implied goodwill			–
Goodwill on books			80,000
IMPAIRMENT Loss			(80,000)

Reporting Unit Balance Sheet		Amount ($)	Amount ($)
Cash		2,00,000
Building		8,36,000
Inventory		3,20,000
Machinery		6,00,000
Goodwill		80,000
Net assets of reporting unit		20,36,000
Computation of “implied fair value of goodwill”
Net assets of reporting unit, excluding goodwill			19,56,000
Fair value of reporting unit net assets, excluding g. will			19,20,000
	Implied fair value of goodwill		(36,000)

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