Advance Financial Accounting For Technique Of Balancing

Asset Revaluation

Discuss about the Advance Financial Accounting for Technique of Balancing.

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Asset revaluation serves as a technique of balancing the assets carrying value if any vital changes take place in of the fixed asset’s fair market value. Variations taking place in several factors such as time value of money and inflation rate might result in changes in the book value and market value of the assets. This can result in preparation of unreliable financial statements. Revaluation of assets is done to address such variations in market value and book value of assets to prepare accurate financial statements.

As per AASB 116 of Australian Accounting Standard, revaluation of the assets including plant, property and equipment fair value of those is reliably measured and carried at a revealed amount. This is in consideration that its fair value at its revaluation date deducted from any accumulated impairment losses. Revaluation of these assets is done with adequate regularity for making sure that the amount carried is not materially different from that, which is calculated using fair value at the reporting period end. When a plant, property and equipment are revalued, any type of accumulated depreciation is anticipated on the revaluation date against the asset’s net and gross carrying amount. This is further restated to the revalued amount of assets. 

In the asset revaluation, each part of a property, plant and equipment with is cost which is significant in accordance to the items total cost is separately depreciated. The net revaluation method is documented in several inclusive incomes to the level of the credit balance prevalent in any excess revaluation in accordance of same asset class.

In the Books of Anderson Pvt. Ltd.

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Journal Entry

     

Dr.

Cr.

Date

Particulars

Amount

Amount

($)

($)

Land (NSW) A/c.

Dr.

50,000

To,

Revaluation Surplus A/c.

50,000

(Being the book value of Land(NSW) revalued as per its Current Fair Value)

Buildings (NSW) A/c.

Dr.

10000

Accumulated Depreciation A/c.

Dr.

20000

To,

Revaluation Surplus A/c.

30000

(Being the book value of Building (NSW) revalued as per its Current Fair Value after adjusting with the related accumulated depreciation)

Loss on Revaluation  A/c.

Dr.

30000

To,

Land (Qld.) A/c.

30000

(Being the book value of Land (Qld) revalued as per its Current Fair Value)

Loss on Revaluation A/c.

Dr.

10000

Accumulated Depreciation A/c.

Dr.

45000

To,

Buildings (Qld.) A/c.

55000

(Being the book value of Building (NSW) revalued as per its Current Fair Value after adjusting with the related accumulated depreciation)

Revaluation Surplus A/c.

Dr.

80000

To,

Loss on Revaluation A/c.

40000

To,

Income Statement A/c.

40000

(Being the excess surplus in Revaluation A/c. transferred to Income Statement)

Ascertainment of Fair-Value of Debentures:-

Formula = C x [{1-1/(1+y)n}/y] + [V/(1+y)n]

Where, C = Coupon Payment

            y = Semi-Annual Yield Rate

            n = No. of Coupon Payments

            V = Book Value of Debentures

Book Value of Debentures ($)

100000

Coupon Rate p.a.

6%

Semi Annual Coupon Rate

0.03

Coupon Payment ($)

3000

Yield Rate

4%

Semi Annual Yield Rate

0.02

Total Period (in Years)

6

No. of Coupon Payments

12

Fair Value of Debentures

110575.

i) In the Books of Kruger Ltd.

Journal Entry

     

Dr.

Cr.

Date

Particulars

Amount

Amount

($)

($)

1st July,2015

Cash A/c.

Dr.

110575

To,

Debenture A/c.

100000

To,

Security Premium A/c.

10575

(Being debentures issued at premium with a coupon rate of 6% p.a.)

 

ii) In the Books of Kruger Ltd.

Journal Entry

31st Dec,2015

6% Debenture Interest A/c.

Dr.

3000

To,

6% Debenture Holders A/c.

2100

To,

Income Tax Payable A/c.

900

(Being interest due for 6 months on 6% debentures and 30% tax deducted at source)

31st Dec,2015

6% Debenture Holders A/c.

Dr.

2100

To,

Cash A/c.

2010

(Being semi-annual interest paid to 6% debenture holders)

 

iii) In the Books of Kruger Ltd.

Journal Entry

30th June ,2016

6% Debenture Interest A/c.

Dr.

3000

To,

6% Debenture Holders A/c.

2100

To,

Income Tax Payable A/c.

900

(Being interest due for 6 months on 6% debentures and 30% tax deducted at source)

30th June ,2016

6% Debenture Holders A/c.

Dr.

2100

To,

Cash A/c.

2010

(Being semi-annual interest paid to 6% debenture holders)

30th June ,2016

Income Tax Payable A/c.

Dr.

1800

To,

Cash A/c.

1800

(Being tax deducted on interest paid)

30th June ,2016

Income Statement A/c.

Dr.

4020

To,

6% Debenture Interest A/c.

4020

(Being interest on debenture transferred to Income Statement)

Calculation for Yearly Gross Profit:-

       

2015

2016

2017

Cost for the year

10

18

12

Total Estimated Cost of the Contract

40

40

40

Percentage of Completion

25.00%

45.00%

30.00%

Total Contract Value

50

50

50

Revenue Recognized

12.5

22.5

15

Gross Profit

2.5

4.5

3

In the Books of Sun City Ltd.

 Journal Entry

     

Dr.

Cr.

Date

Particulars

Amount

Amount

($)

($)

2015

Construction in Process A/c.

Dr.

2.5

Construction Expenses A/c.

Dr.

10

To,

Construction Revenue A/c.

12.5

Pretoria Limited A/c.

Dr.

12

To,

Billings A/c.

12

Cash A/c.

Dr.

11

To,

Pretoria Limited A/c.

11

In the Books of Sun City Ltd.

 Journal Entry

     

Dr.

Cr.

Date

Particulars

Amount

Amount

($)

($)

2015

Construction in Process A/c.

Dr.

2

Construction Expenses A/c.

Dr.

10

To,

Construction Revenue A/c.

12

Pretoria Limited A/c.

Dr.

12

To,

Billings A/c.

12

Cash A/c.

Dr.

11

To,

Pretoria Limited A/c.

11

Asset revaluation serves as a technique of balancing the assets carrying value if any vital changes take place in of the fixed asset’s fair market value. Variations taking place in several factors such as time value of money and inflation rate might result in changes in the book value and market value of the assets. This can result in preparation of unreliable financial statements. Revaluation of assets is done to address such variations in market value and book value of assets to prepare accurate financial statements.

As per AASB 116 of Australian Accounting Standard, revaluation of the assets including plant, property and equipment fair value of those is reliably measured and carried at a revealed amount. This is in consideration that its fair value at its revaluation date deducted from any accumulated impairment losses. Revaluation of these assets is done with adequate regularity for making sure that the amount carried is not materially different from that, which is calculated using fair value at the reporting period end. When a plant, property and equipment are revalued, any type of accumulated depreciation is anticipated on the revaluation date against the asset’s net and gross carrying amount. This is further restated to the revalued amount of assets. 

In the asset revaluation, each part of a property, plant and equipment with is cost which is significant in accordance to the items total cost is separately depreciated. The net revaluation method is documented in several inclusive incomes to the level of the credit balance prevalent in any excess revaluation in accordance of same asset class.

In the Books of AD Pvt. Ltd.

Journal Entry

     

Dr.

Cr.

Date

Particulars

Amount

Amount

($)

($)

Land (NSW) A/c.

Dr.

50,000

To,

Revaluation Surplus A/c.

50,000

(Being the book value of Land(NSW) revalued as per its Current Fair Value)

Buildings (NSW) A/c.

Dr.

10000

Accumulated Depreciation A/c.

Dr.

20000

To,

Revaluation Surplus A/c.

30000

(Being the book value of Building (NSW) revalued as per its Current Fair Value after adjusting with the related accumulated depreciation)

Loss on Revaluation  A/c.

Dr.

30000

To,

Land (Qld.) A/c.

30000

(Being the book value of Land (Qld) revalued as per its Current Fair Value)

Loss on Revaluation A/c.

Dr.

10000

Accumulated Depreciation A/c.

Dr.

45000

To,

Buildings (Qld.) A/c.

55000

(Being the book value of Building (NSW) revalued as per its Current Fair Value after adjusting with the related accumulated depreciation)

Revaluation Surplus A/c.

Dr.

80000

To,

Loss on Revaluation A/c.

40000

To,

Income Statement A/c.

40000

(Being the excess surplus in Revaluation A/c. transferred to Income Statement)

Deegan, C., (2013). Financial accounting theory. Australia: McGraw-Hill Education.

Horngren, C.T., Sundem, G.L., Schatzberg, J.O. and Burgstahler, D., (2013).Introduction to management accounting. London: Pearson Higher Ed

Jakob, K., (2016). BFIN 429.02: Financial Management I-Theory and Analysis. Berlin: PHI Learning.

Kaplan, R.S. & Atkinson, A.A., (2015). Advanced management accounting. Berlin: PHI Learning.

Neely Jr, P. & Muhammad, R., (2016). Fair Value Accounting on the Housing Crisis. Business and Management Studies, 2(3), 1-8.

Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y. & Salvi, A., (2014).Corporate finance: theory and practice. New Jersey: John Wiley & Sons.

Weil, R.L., Schipper, K. & Francis, J., (2013). Financial accounting: an introduction to concepts, methods and uses. London: Cengage Learning.

Yao, D.F.T., Percy, M. & Hu, F., (2015). Fair value accounting for non-current assets and audit fees: evidence from Australian companies. Journal of Contemporary Accounting & Economics, 11(1), 31-45.

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