Accounting Topics: Financial Statements, Equity Transactions, Taxation, And Revaluation Of Equipment
1.
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Accounting treatment for given situations and their accounting entries / disclosures |
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Event |
Accounting Treatment |
Adjusted Financial Statement |
Note Disclosure / journal entry |
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Change in accounting estimate (AASB 108 “Accounting Policies, Changes in Accounting Estimates and Errors “) |
As per para 36 of AASB 108, any change in accounting estimate should be recognised prospectively in P&L from the date of change. |
FY 2017-18 |
Depreciation 106,667 |
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Prior period errors (AASB 108 “Accounting Policies, Changes in Accounting Estimates and Errors “) |
As per para 42 of AASB 108, it is a prior period error, and should be corrected retrospectively in the first set of financial statements authorized for issue after their discovery by restating the comparative amounts and corresponding amounts. |
FY 2017-18 and comparative numbers of FY 2016-17 |
Retained earnings 20,000 |
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Sudden decline in value of Investment after reporting date (AASB 110 “Events after the reporting period”) |
In accordance with AASB 110, it is an non-adjusting event, since, as there are no evidences of fall in the value of investment as on reporting date, hence no adjustment is required. |
– |
As per para 21 of AASB 110, the following disclosure is required, |
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Fraudulent activity (AASB 110 “Events after the reporting period”) |
In accordance with AASB 110, it is an adjusting event, hence as per para 8 of AASB 110, the company should adjust the amounts in its current financial statements to reflect adjusting events after the reporting period. |
FY 2017-18 |
Recoverable from Max Dr. 32,000 |
2.
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Part (i) |
Journal Entries – In the books of Rippa Ltd |
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Date |
Account Titles |
Calculation basis |
Amount |
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31-Jul-17 |
Bank |
(6,000,000*2.50) |
15,000,000 |
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To Share Application Money |
(15,000,000) |
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(Receipt of share application money) |
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10-Aug-17 |
Share Application Money |
(5,000,000*2.50) |
12,500,000 |
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To Share Capital |
(12,500,000) |
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(Allotment of shares recorded) |
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12-Aug-17 |
Underwriter’s Commission |
12,000 |
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To Bank |
(12,000) |
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(Underwriter’s commission paid) |
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10-Sep-17 |
Share Allotment Money |
(5,000,000*1) |
5,000,000 |
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To Share Capital |
(5,000,000) |
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(Share allotment money due recorded) |
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10-Sep-17 |
Bank |
2,500,000 |
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Share Application Money |
2,500,000 |
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To Share Allotment Money |
(5,000,000) |
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(Receipt of share allotment money) |
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01-Feb-18 |
Share Call Money |
(5,000,000*0.50) |
2,500,000 |
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To Share Capital Account |
(2,500,000) |
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(Share call money due recorded) |
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28-Feb-18 |
Bank |
(4,960,000*0.50) |
2,480,000 |
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To Share Call Money |
(2,480,000) |
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(Receipt of share call money recorded) |
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20-Mar-18 |
Share Capital |
160,000 |
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To Share Forfeiture |
(140,000) |
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To Share Call Money |
(40,000*0.50) |
(20,000) |
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(40,000 share forfeiture recorded) |
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20-Mar-18 |
Bank |
128,000 |
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Share Forfeiture |
32,000 |
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To Share Capital |
(160,000) |
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(Forfeited shares reissued recorded) |
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20-Mar-18 |
Share Forfeiture |
4,000 |
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To Bank |
(4,000) |
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(Share reissue charges paid) |
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25-Mar-18 |
Share Forfeiture |
104,000 |
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To Bank |
(104,000) |
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(Excess amount after forfeiture refunded) |
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Part – (ii) – Explanation on amount refunded |
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The amount returned to shareholders is 2.60 which was after meeting all the reissue expenses and losses. This amount is calculated as under: |
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Amount received on application on 40,000 shares @ 2.5 each |
100,000 |
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Amount received on allotment on 40,000 shares @ 1 |
40,000 |
140,000 |
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Loss due to reissue of shares on 40,000 shares @ 0.80 each (4 – 3.20) |
(32,000) |
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Reissue expenses |
(4,000) |
(36,000) |
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Amount refunded to shareholder |
104,000 |
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Amount per share (104,000/40,000) |
2.60 |
3.
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Part – (i) Determination of balances of current tax liability as at 30 June, 2018 |
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Particulars |
Amount |
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Accounting profit before tax |
555,800 |
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Less: Expenses allowed / Incomes disallowed |
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Government grant |
(50,000) |
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Depreciation as per tax * |
(120,000) |
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Annual leave |
(4,000) |
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Insurance expense |
(25,000) |
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Warranty expense |
(2,000) |
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Doubtful debts written off |
(2,000) |
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Add: Expenses disallowed |
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Depreciation as per accounts |
100,000 |
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Annual leave |
25,000 |
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Insurance expense |
18,000 |
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Warranty expense |
18,500 |
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Doubtful debts expense |
34,000 |
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Entertainment expense |
4,500 |
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Taxable income |
552,800 |
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Current tax liability (552,800 * 30%) |
165,840 |
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Determination of balances of deferred tax assets / liability as at 30 June, 2018 |
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Particulars |
As per accounting books |
As per taxation books |
Temporary Differences |
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Assets |
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Accounts receivable |
218,000 |
250,000 |
32,000 |
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Prepaid insurance |
7,000 |
– |
(7,000) |
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Equipment |
630,000 |
600,000 |
(30,000) |
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Motor Vehicle |
90,000 |
100,000 |
10,000 |
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Liabilities |
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Provision for annual leaves |
21,000 |
– |
21,000 |
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Provision for warranty expenses |
16,500 |
– |
16,500 |
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Total temporary differences |
42,500 |
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Deferred tax asset @ 30% |
12,750 |
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Part – (ii) – Journal entries |
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Account Titles |
Amount |
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Deferred tax asset |
12,750 |
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To Income tax expense |
(12,750) |
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Income tax expense |
165,840 |
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To Income tax liability |
(165,840) |
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* Calculation of depreciation and closing value of assets |
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Particulars |
Accounting books |
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Equipment |
Motor Vehicles |
Total |
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Cost – 1 July, 2017 |
700,000 |
120,000 |
820,000 |
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Less: Depreciation for the year |
(70,000) |
(30,000) |
(100,000) |
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WDV – 30 June, 2018 |
630,000 |
90,000 |
720,000 |
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Particulars |
Taxation books |
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Equipment |
Motor Vehicles |
Total |
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Cost – 1 July, 2017 |
700,000 |
120,000 |
820,000 |
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Less: Depreciation for the year |
(100,000) |
(20,000) |
(120,000) |
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WDV – 30 June, 2018 |
600,000 |
100,000 |
700,000 |
4.
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Journal Entries – In the books of Superstar Ltd |
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Date |
Account Titles |
Amount |
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30-Jun-17 |
Dep expense – Equipment 1 |
12,500 |
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To Acc. Dep – Equipment 1 |
(12,500) |
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(Depreciation expense recorded) |
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30-Jun-17 |
Dep expense – Equipment 2 ((20000 – 4000) / 4) |
4,000 |
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To Acc. Dep – Equipment 2 |
(4,000) |
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(Depreciation expense recorded) |
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30-Jun-17 |
Acc. Dep – Equipment 1 |
12,500 |
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To Equipment 1 |
(5,000) |
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To Revaluation gain |
(7,500) |
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(Revaluation of equipment -1) |
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30-Jun-17 |
Acc. Dep – Equipment 2 |
4,000 |
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To Equipment 2 |
(2,000) |
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To Revaluation gain (WN) |
(2,000) |
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(Revaluation of equipment -2) |
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31-Dec-17 |
Dep expense – Equipment 2 ((18000 – 6000) / 3)/2 |
2,000 |
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To Acc. Dep – Equipment 2 |
(2,000) |
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(Depreciation expense recorded till date of sale) |
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31-Dec-17 |
Acc. Dep – Equipment 2 |
2,000 |
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Bank |
13,000 |
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Loss on sale |
3,000 |
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To Equipment 2 (WN) |
(18,000) |
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(Sale of equipment -2 recorded) |
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30-Jun-18 |
Dep expense – Equipment 1 ((55000 – 10000) / 3) |
15,000 |
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To Acc. Dep – Equipment 1 |
(15,000) |
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(Depreciation expense recorded) |
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30-Jun-18 |
Acc. Dep – Equipment 1 |
15,000 |
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To Equipment 1 |
(11,000) |
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To Revaluation gain (WN) |
(4,000) |
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(Revaluation of equipment -1) |
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WN: Revaluation gain / loss on sale on equipment’s: |
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Equipment 1 – as on 30 June, 2017 |
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Fair valued amount |
55,000 |
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Carrying amount as on 30 June, 2017 (60,000-12,500) |
47,500 |
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Gain on revaluation |
7,500 |
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Equipment 1 – as on 30 June, 2018 |
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Fair valued amount |
44,000 |
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Carrying amount as on 30 June, 2018 (55,000-15,000) |
40,000 |
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Gain on revaluation |
4,000 |
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Equipment 2 – as on 30 June, 2017 |
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Fair valued amount |
18,000 |
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Carrying amount as on 30 June, 2017 (20,000-4,000) |
16,000 |
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Gain on revaluation |
2,000 |
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Equipment 2 – as on 30 June, 2018 |
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Carrying amount as on 31 Dec, 2017 (18,000-2,000) |
16,000 |
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Proceeds from sale |
13,000 |
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Loss on sale |
3,000 |
5.The impairment loss is defined as excess of assets carrying value over its market value known as recoverable amount. Recoverable amount is calculated as higher of assets fair value less costs to sell and value in use. Carrying amount is the amount shown in the accounting books. As per AASB 136, the company needs to reflect their assets at fair value, hence the need for impairment arises.
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1 |
Determination of impairment loss |
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Particulars |
Fizzy Drinks |
Ice creamery |
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Carrying value |
872,000 |
268,000 |
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Recoverable amount |
810,000 |
260,000 |
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Impairment loss |
62,000 |
8,000 |
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Allocation of impairment loss to the assets |
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As per para 104 of AASB 136, allocation of impairment loss is made to the assets is made as per following steps: |
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I. |
FIZZY DRINKS |
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1: Allocation to respective assets to which loss belongs – Fizzy Drinks |
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Particulars |
Carrying value |
Loss Allocation |
Balance |
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Land and buildings |
625,000 |
5,000 |
620,000 |
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Patent |
25,000 |
5,000 |
20,000 |
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650,000 |
10,000 |
640,000 |
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2: The balance impairment loss of 52,000 (62,000-10,000) is allocated to goodwill. |
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3: After goodwill, the remaining loss of 12,000 (52,000-40,000) is allocated to the remaining assets in the proportion of their carrying amount. |
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Particulars |
Balance |
Loss Allocation |
Balance |
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Fixtures and fittings |
20,000 |
1,846 |
18,154 |
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Equipment |
110,000 |
10,154 |
99,846 |
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130,000 |
12,000 |
118,000 |
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II. |
ICE CREAMERY |
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Allocation to respective assets to which loss belongs – Ice Creamery |
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Particulars |
Carrying value |
Loss Allocation |
Balance |
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Land and buildings |
179,000 |
4,000 |
175,000 |
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179,000 |
4,000 |
175,000 |
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The remaining impairment loss of 4,000 (8,000-4,000) is allocated to goodwill. |
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The new carrying amount of CGUs are as below: |
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Fizzy Drinks |
Ice Creamery |
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Particulars |
Old carrying value |
Impairment loss |
New carrying value |
Old carrying value |
Impairment loss |
New carrying value |
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Cash |
18,000 |
– |
18,000 |
14,000 |
– |
14,000 |
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Inventory |
34,000 |
– |
34,000 |
25,000 |
– |
25,000 |
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Fixtures and fittings |
20,000 |
1,846 |
18,154 |
25,000 |
– |
25,000 |
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Equipment |
110,000 |
10,154 |
99,846 |
10,000 |
– |
10,000 |
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Land and buildings |
625,000 |
5,000 |
620,000 |
179,000 |
4,000 |
175,000 |
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Patent |
25,000 |
5,000 |
20,000 |
– |
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Goodwill |
40,000 |
40,000 |
– |
15,000 |
4,000 |
11,000 |
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872,000 |
62,000 |
810,000 |
268,000 |
8,000 |
260,000 |
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Journal Entry as on 30 June, 2018 |
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Account Titles |
Amount |
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Fizzy Drinks |
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Impairment Loss |
62,000 |
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Fixtures and fittings |
(1,846) |
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Equipment |
(10,154) |
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Land and buildings |
(5,000) |
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Patent |
(5,000) |
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Goodwill |
(40,000) |
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Ice creamery |
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Impairment Loss |
8,000 |
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Land and buildings |
(4,000) |
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Goodwill |
(4,000) |
References:
https://www.aasb.gov.au/admin/file/content105/c9/AASB110_08-15.pdf
https://www.aasb.gov.au/admin/file/content102/c3/AASB136_07-04_ERDRjun10_07-09.pdf
https://www.aasb.gov.au/admin/file/content105/c9/AASB108_07-04_COMPjan15_07-15.pd