Superannuation Fund Accounting Entries

This assignment focuses on accounting for superannuation funds. It presents a set of journal entries involving Superannuation Income Account, Bank A/c, and Superannuation Liability A/c. The total amount for each account is provided ($230,000, $1,000,000, and $1,870,000 respectively). Additionally, a list of references is included, covering relevant accounting standards (AASB 116, AASB 138) and research papers on superannuation fund management.

ACC210 - Financial Accounting
Task 2 – Major Assignment
Semester 2 - 2017
Student Name:
Student ID #:
Campus:

Table of Contents
Question 1. Ex 3.1..................................................................................................................................3
Accounting Justification:................................................................................................................3
Relevant Issues:.............................................................................................................................3
1. Determine subject of measurement..........................................................................................3
2. Determine valuation premise/method......................................................................................3
3. Determine market.....................................................................................................................3
4. Determine Valuation technique.................................................................................................3
Question 2. Ex 5.18................................................................................................................................4
Accounting Justification:................................................................................................................4
Relevant Issues:.............................................................................................................................4
1. Calculations & General Journal Entries 1/7/16 to 30/6/17:.......................................................4
2. Calculations & General Journal Entries 1/8/18:.........................................................................4
3. Calculations & General Journal Entries 30/6/18:.......................................................................4
Question 3. Ex 6.11................................................................................................................................5
Accounting Justification:................................................................................................................5
Relevant Issues:.............................................................................................................................5
1. Explain accounting issues...........................................................................................................5
2. Differences Internally Generated vs Acquired...........................................................................5
3. Reasons for Reluctance..............................................................................................................5
Question 4. Ex 9.19................................................................................................................................6
Accounting Justification:................................................................................................................6
Relevant Issues:.............................................................................................................................6
1. Deficit of Fund...........................................................................................................................6
2. Net Defined Benefit Liability......................................................................................................6
3. Net Interest................................................................................................................................6
4. Reconciliation............................................................................................................................6
5. Summary Journal.......................................................................................................................6
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Question 1. Ex 3.1
Accounting Justification:
AASB 13 deals with the provision relating to fair valuation of assets (AASB 13. Fair Value
Measurement. (2016). ASB 116 provides -specification relating to Plant , Property and
Equipment. Para 7-10 provides specification relating to recognition and provision relating to
initial cost and subsequent cost of Property, Plant and Equipment.
Relevant Issues:
In present case Maple own a factory and land on which the factory stands. Due to boom in
prices of residential property the price of land also increased as it is also part of residential
property. Thus in present scenario Para 7-10 of AASB 116 has been applied in order to
ascertain the value on which land and building should be recognized in books of accounts of
Maple Ltd.
1. Determine subject of measurement
In present case the measurement of land and office building situated on same is to be made
which was demolished and reconstructed. The valuation of building will be done after
assessing the fact that whether future economic cost of the asset can be reliably measured
or not. All the cost which is associated with the construction or incidental to renovation of
asset will be included in part of cost of asset. Further, any cost which is related to day to day
expenditure which does not enhance the quality or capability will not be included in cost of
asset.
2. Determine valuation premise/method
The asset of Maple Ltd in present scenario i.e. office building and land will be fairly valued
and recognized in books of accounts at revalue amount reduced by accumulated
depreciation and any impairment loss of asset. It is necessary for every entity to value their
asset at the end of reporting period to sure that carried value of asset is not higher in
comparison to its recoverable value (Basu and Andrews, 2014) .
3. Determine market
As per views of Zakaria and et.al. (2014) fair value of an asset is the value which is available
in the market between two parties having will to sell or buy the asset. In case if any asset is
acquired on lease than depreciation is required to be allocated on it on a fair basis. AASB
116 specifies the following disclosures to be necessarily provided relating to Plant, Property
and Equipment i.e. amount relating to contractual obligations which are due and required to
be paid in order to acquire the asset; value of expenses which are being provided in carrying
value of asset in its construction phase.
4. Determine Valuation technique
Valuation technique has been provided in AASB 116 and valuation of land and office on it will be
conducted in following manner:
Market Value of Land $1000000
Cost relating to demolishing building $1000000
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Cost of construction $780000
Total cost $2780000
Question 2. Ex 5.18
Accounting Justification:
AASB 116 specifies the provision relating to Plant, Property and Equipment. Para 31-42
provides provision relating to revaluation model to be applied in case of revaluation and
Para 43-49 specifies provision relating to depreciation to be applied to asset (AASB
116.Property Plant and Equipment, 2016).
Relevant Issues:
In present case revaluation of assets are being done at the end of each year and impairment
loss in accordance with specified provision has been applied in order to recognize asset at
appropriate value in books of accounts.
1. Calculations & General Journal Entries 1/7/16 to
30/6/17:
Calculations
Working Note 1
Depreciation
Machine A
Cost of Machine / No .of expected years
$100000/5
=$20000
Machine B
Cost of Machine / No .of expected years
$60000/3
=$20000
Working Note 2
Revaluation Surplus
Machine A
Fair Value – Book Value
$84000- $80000
$4000
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Machine B
Fair Value – Book Value
$38000 -$40000
=$-2000
(Amount in $000)
Date Account Debit Credit
1st July 2016 Machine A A/c 100
To Bank A/C 100
1st July 2016 Machine B A/c 60
To Bank A/c 60
30th July
2017
Depreciation A/c (working note) 20
To Machine A A/c Cr. 20
30th July
2017
Depreciation A/c (working note 1) 20
To Machine B A/c 20
30th July
2017
Machine A A/c Dr 4
To Revaluation Surplus (working note 2) 4
30th July
2017
Revaluation Surplus A/c (working note 2) 2
To Machine B A/c 2
2. Calculations & General Journal Entries 1/8/18:
(Amount in $)
Date Account Debit Credit
1st August
2018
Bank Account 29
Revaluation A/c 2
Profit & Loss A/c 7
To Machine B A/c 38
1st August
2018
Cash A/c 80
TO Machine C A/c 80
1st August General reserve A/c 8
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2018
Revaluation Surplus A/c 2
TO Share Capital A/c 10
2. Calculations & General Journal Entries 30/6/18:
Calculations
Working Note 1
Depreciation
Machine A
Revalue amount / No of remaining years (Davies, 2014)
$84000/ 4
= $21000
Machine C
= $80000/4
= $ 20000 p.a.and the same will be divided by 2
= $10000 for six months
Working Note 2
Impairment loss
Machine A
Fair Value – Carried Value (Capalbo, 2013)
$61000 - $63000 ($84000-$21000)
$2000
Machine C
$68500-$70000 ($80000-$10000)
$ 1500
(Amount in $)
Date Account DR CR
30th June
2018
Depreciation A/c (working note 1) 21
To Machine A A/c 21
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30th June
2018
Depreciation A/c (working note 1) 20
TO Machine C A/c 20
30th June
2018
Impairment loss A/c(working note 2) 3.5
To Machine A A/c 2
To Machine C A/c 1.5
Question 3. Ex 6.11
Accounting Justification:
Accounting treatment and disclosure of intangible assets is covered under provisions of
AASB 138. This standard primarily covers two phases of generation of asset first is research
phase and second is development phase(Cheung and Lau, 2016). Para 54-62 of this standard
states that value of asset will be comprise of only those expenses which are occurred in
development phase as that only eligible for capitalisation. This phase is said to be started if
following conditions are satisfied:
 Asset must be usable or saleable with the completion of development phase.
 Business entity must intend to use or sell the asset
 Future economic benefits must be attainable from the asset
 Business entity should have appropriate resources for the completion of development
phase
 Incurred and proposed expenditure in this phase must be measurable.
Relevant Issues:
1. Explain accounting issues
Issue is to determine difference between accounting of acquired and internally generated
intangible assets and reason of reluctance by companies for the changes in accounting
processin AASB 138/IAS 38 regarding the need of supplementary acknowledgement of
intangible assets which are generated internally.
2. Differences Internally Generated vs Acquired
Intangibles are obtained during a business merger or are either generated internally. In the
event of acquisition in business mergers, these assets are recognized and recorded by
considering their value, but if they are generated internally then these assets are recorded at
the cost incurred in the phase of development (AASB 138.Intangible Assets, 2016). In
regards to the internally developed intangible assets, two phases are taken into consideration
first is research phase and second is development phase. Research phase covers each and
every activity and the incurred cost, prior to the asset’s feasibility on commercial basis. On
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the other hand, development phase is inclusive of each and every activity and incurred cost,
after the asset’s feasibility on commercial basis. All the incurred cost held in the phase of
research are expensed in the period where as the cost in the development phase are
capitalized.
3. Reasons for Reluctance
The reason behind reluctance in both the aspects of accounting is that during the acquiring of
intangibles due to business merger or other method, estimated useful life and benefits are capable of
being certain. Therefore, it is easy to compute the fair value. According to the viewpoint of (); in case
there is internal generation of asset it not be easy to mask separation of cost at the phase of research,
estimated useful life might also be complex to compute. Further systematic process of acquisition of
such assess is subjective in nature and changes may increasing the complexity of accounting process.
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Question 4. Ex 9.19
Accounting Justification:
Accounting treatment of employee benefits is covered under provisions of AASB 119 in para
26-30(Bova, Dou and Hope, 2015).
Relevant Issues:
1. Deficit of Fund
Carried valueof benefit obligation as on 31 st−Dec−2016 – Fair value of plan assets
$ 23,000,000.00−$ 20,130,000.00
¿ $ 28,700,000
2. Net Defined Benefit Liability
Same as deficit of fund
3. Net Interest
Particular Amount
A. Interest cost (Carried value of defined
obligation + Past service)
*10%
$20000000+$2000000
*10%
$2200000.00
B. Interest Income $19000000*10% $1900000.00
A-
B
Interest cost - Interest
Income
$2200000.00 -
$1900000.00
$300000.00
4. Reconciliation
Liability of Net
Defined Benefit
Obligation of Defined
Benefit
Plan Assets
Balance as on 1/1/16 $1,000,000 $120,000,000 $19,000,000
Cost of Past service $2,000,000
Adjusted Balance $22,000,000
10% interest $2,200,000 $1,900,000
Cost of Present service $800,000
Fund Contributions
received
$1,000,000
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Funds’ paid Benefits ($2,100,000) ($2,100,000)
Return on Plan Assets
excluding Interest
$330,000
Remeasured Actual
loss of Defined Benefit
Obligation
$100,000
Balance as 31st
December 2016
$2,870,000 $23,000,000 $20,130,000
Return on plan asset excluding interest
Value as on 31.12.06 $20,130,000
Less Opening balance -$19,000,000
Less Contribution -$1,000,000
Less Paid benefits -$1,900,000
Add Interest income $2,100,000 $19,800,000
Return on plan asset excluding interest $330,000
5. Summary Journal
Profit or Loss Other
comprehens
ive Income
Bank Net DBL(A)
Opening
balance
$1,000,000
Past service
cost
$2,000,000
Net interest $300,000
Service cost $800,000
Contributio
ns paid to
the fund
$1,000,000
Gain on
plan assets
(ex. interest)
$330,000
Actuarial
loss on
DBO
-$100,000
Journal
entry
$3,100,000 $230,000 $1,000,000 $1,870,000
Debit Credit Credit Credit
Closing $2,870,000
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balance
2016 Particular Debit Credit
31st Dec Superannuation Expenses (P/L) Dr $3,100,000
Superannuation Income Account Cr $230,000
Bank A/c Cr $1,000,000
Superannuation liability A/c Cr $1,870,000
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References
Books and Journal
AASB 138.Intangible Assets. 2016. [PDF]. Available through <
http://www.aasb.gov.au/admin/file/content105/c9/AASB138_07-04_COMPjun14_07-
14.pdf> [Accessed on9th October 2017]
Basu, A. and Andrews, S., 2014. Asset allocation policy, returns and expenses of
superannuation funds: recent evidence based on default options. Australian Economic
Review, 47(1), pp.63-77.
Bova, F., Dou, Y. and Hope, O.K., 2015. Employee ownership and firm
disclosure. Contemporary Accounting Research, 32(2), pp.639-673.
Capalbo, F., 2013. Impairment of Assets
Cheung, E. and Lau, J., 2016. Readability of Notes to the Financial Statements and the
Adoption of IFRS. Australian Accounting Review, 26(2), pp.162-176.
Davies, B., 2014. Defined Benefit vs Defined Contribution or is There a Third Way? Defined
Ambition Schemes: An Alternative Approach to Risk Sharing.
Zakaria, A., Edwards, D.J., Holt, G.D. and Ramachandran, V., 2014. A Review of Property,
Plant and Equipment Asset Revaluation Decision Making in Indonesia: Development of a
Conceptual Model. Mindanao Journal of Science and Technology, 12(1), pp.1-1.
Online
AASB 116.Property Plant and Equipment. (2016). (PDF). Available through <
http://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04_COMPjun09_07-
09.pdf>. [Accessed on 30th September 2017.]
AASB 13. Fair Value Measurement. (2016). (PDF). Available through <
http://www.aasb.gov.au/admin/file/content105/c9/AASB13_09-11.pdf>. [Accessed on 30th
September 2017.]
AASB 138.Intangible Assets. 2016. [PDF]. Available through <
http://www.aasb.gov.au/admin/file/content105/c9/AASB138_07-04_COMPjun14_07-
14.pdf> [Accessed on9th October 2017]
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