Superannuation Expense and Contributions Accounting

This assignment focuses on the accounting treatment of superannuation expense and contributions. It presents a journal entry recording a debit to Bank A/c and credits to both Superannuation Liability A/c and Superannuation Expense A/c. The explanation states that this entry accounts for the payment of superannuation contributions and the corresponding expense recognized. The assignment also includes references to relevant accounting standards (AASB 116, AASB 138, AASB 136, AASB 119) and academic literature on superannuation fund management and fair value accounting.

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

Table of Contents
Question 1. Ex 3.1......................................................................................................................4
Accounting Justification:....................................................................................................4
Relevant Issues:..................................................................................................................4
Determine subject of measurement:...................................................................................4
2. Determine valuation premise/method.............................................................................4
3. Determine market...........................................................................................................4
4. Determine Valuation technique......................................................................................4
Question 2. Ex 5.18....................................................................................................................5
Accounting Justification:....................................................................................................5
Relevant Issues:..................................................................................................................5
1.Calculations & General Journal Entries 1/7/16 to 30/6/17:.............................................5
Working Note: A................................................................................................................5
Working Note: B.................................................................................................................5
Working Note: C.................................................................................................................6
Working Note: D................................................................................................................6
2. Calculations & General Journal Entries 1/8/18:..........................................................7
3. Calculations & General Journal Entries 30/6/18:........................................................7
Question 3. Ex 6.11....................................................................................................................9
Accounting Justification:....................................................................................................9
Relevant Issues:..................................................................................................................9
Explain accounting issues...................................................................................................9
2. Differences Internally Generated v/s Acquired............................................................10
3. Reasons for Reluctance.................................................................................................10
Question 4. Ex 9.19..................................................................................................................11
Accounting Justification:..................................................................................................11
Relevant Issues:................................................................................................................11
1. Deficit of Fund..........................................................................................................11
Calculation........................................................................................................................11
2. Net Defined Benefit Liability.......................................................................................11
3. Net Interest................................................................................................................11
4. Reconciliation............................................................................................................11
5. Summary Journal.......................................................................................................12
References................................................................................................................................14
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Question 1. Ex 3.1
Accounting Justification:
Conceptual framework: Para 6.22-6.33
AASB: 116 Para 15
For the measurement of fair value of property, plant and equipment, it is important to
consider the applicable standard provided by the AASB. The applicable standard under this
case will be AASB 116. This standard outlines the accounting treatment for property, plant
and equipment (AASB 116.Property Plant and Equipment, 2016).
Relevant Issues:
In this case, Maple Ltd acquired a land in 2007 for $200 000 and the cost of building
the factory was $520 000. Thus, as per the above provision, the total cost of factory will be
the sum of $ 20 000 00 + $520 000 = 25 20 000. The carrying value the factory at 30 June
2017 was 10 00 000. The accumulated impairment of the factory as per the standard would be
15 00 000.
Determine subject of measurement:
The subject matter of the valuation in this case will be the land which was previously
acquired for factory. However, due to its residential location the factory needed to be
demolished at a certain cost for making it fit for residences.
2. Determine valuation premise/method
AASB 16 does not lay down any specific unit of measure for recognition as to what
constitutes property, plant, and equipment. However, if we use the cost model for valuation
each part of the physical asset must be depreciated separately that is in significant relation to
the total cost of the asset. The standard also recognises that some parts physical asset may
require to be replaced at regular intervals by inspections for any faults. The carrying amount
will also comprise of cost of replacing and inspecting the part of such an asset.
3. Determine market
Revaluations of the asset must be regularly carried out based on market projection.
The carrying amount of an asset must not materially differ from its fair value at the balance
sheet. The market for such asset will be any market participant which can make use of the
asset better than its present use. ( AASB 13. Fair Value Measurement, 2016).
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4. Determine Valuation technique
These non-current assets are initially measured at the cost of acquiring the asset and
all the cost associated with bringing the asset into workable condition. Subsequently, these
types of assets are measured by either the cost method or the revaluation model, and are
amortized depreciated in a way so that the depreciable amount is allocated over asset’s
estimated useful life systematically on regular basis. The impairment losses arising due to the
reduction in its fair value, is recognized separately in the profit and loss statement.
Question 2. Ex 5.18
Accounting Justification:
Conceptual framework: CF 6.6
AASB: 136
The specified account deals with Impairment of assets. Para 5 of the standard specifies that as
per provision of other accounting standard as revaluation model of AASB 116 Property, Plant
and equipment; impairment is assessed in accordance with the fair value. In sub point b of
Para it has been provided that after applying revaluation requirement; an organization will
apply this standard for ascertaining whether asset is impaired or not (AASB 136. Impairment
of Assets, 2016). Further Para 58 to 64 deals with measurement and accounting of
impairment loss.
Relevant Issues:
In present case Peewee Ltd has acquired two assets A & B and further sold asset C. The
company has revalued the asset at the end of year 2017 and 2018. Thus, it has been assessed
that whether the assets are impaired or not and journal entry relating to same have been
provided below.
1. Calculations & General Journal Entries 1/7/16 to
30/6/17:
Calculations:
Working Note: A
Depreciation of Machine A
= Cost of Machine / Expected useful life
= $100000/5
=$20000
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Working Note: B
Depreciation of Machine B
= $60000/3
= $20000
Working Note: C
Revaluation Surplus on Machine A
Fair value - Book Value (after depreciation) (Zakaria and et.al.2014)
= $84000 -$80000
$4000
Working Note: D
Impairment loss on Machine B
Fair value of Machine - Fair value - Book Value (after depreciation)
= $38000 -$40000
=-$2000
(Amount in $00)
Date Account DR CR
1st June
2016
Machine A A/c Dr. 1000
Bank A/C 1000
1st June
2016
Machine B A/c Dr. 600
Bank A/c Cr. 600
30th June
2017
Depreciation A/c Dr (working note A) 200
Machine A A/c Cr. 200
30th June
2017
Depreciation A/c Dr (working note B) 200
Machine B A/c Cr. 200
30th
June2017
Machine A A/c Dr (working note C) 40
Revaluation Surplus Cr 40
30th June
2017
Revaluation Surplus A/c Dr (working note
D)
20
Machine B A/c Cr. 20
Page 5 of 15

2. Calculations & General Journal Entries 1/8/18:
(Amount in $)
Date Account DR CR
1st Aug.
2018
Cash A/c Dr. 29000
Revaluation A/c Dr 2000
Profit & Loss A/c Dr. 7000
Machine B A/c Cr. 38000
(Loss incurred on sale of machine)
1st Aug.
2018
Bank A/c Dr 80000
Machine C A/c Cr. 80000
(Being machine purchased for cash)
1st Aug.
2018
General reserve A/c Dr. 8000
Revaluation Surplus A/c Dr. 2000
Share Capital A/c Cr. 10000
(Being bonus share issued)
3. Calculations & General Journal Entries 30/6/18:
Page 6 of 15

Calculations
Working Note A
Depreciation after revaluation
$ 84000/4
¿ $ 21000
Working Note B
$ 20000 p . a .
¿ $ 10000 for six months
Working Note C
Impairment loss
Fair value – Carrying value
$ 61000−$ 63000($ 84000−$ 21000)
$ 2000
Working Note D
Impairment loss
$ 68500−$ 70000($ 80000−$ 10000)
$ 1500
Date Account DR CR
30th June
2018
Depreciation A/c Dr. (working note A) 21000
Machine A A/c Cr 21000
30th June
2018
Depreciation A/c Dr. (working note B) 20000
Machine C A/c Cr. 20000
30th June
2018
Impairment loss A/c Dr (Working note C
& D )
3500
Machine A Cr. 2000
Machine C A/c Cr. 1500
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Page 8 of 15

Question 3. Ex 6.11
Accounting Justification:
Conceptual framework: BC5.12
AASB: 138 Para 48 to 50
The AASB 138 states that the internally generated goodwill must not be treated as an
asset. There are certain cases where, the expenditure incurred for generating future economic
benefits, does not result in any creation of intangible asset which fully meet the criteria of
recognition provided in this Standard. It has been specified in Para 48 to 50 that such
expenditure is often described as contributing to internally generated goodwill. The reason
behind this provision is that the internally generated goodwill is not a separately identifiable
resource.
Relevant Issues:
The main issue in this case is that when intangible assets are treated as internally
generated rather than being accounted as acquired, a lot of differences arise in its cost and
impairment value.
Explain accounting issues
Para 65 to 67 specifies the provisions relating to cost of internally generated
intangible asset. Though, sometimes it is difficult to ascertain that whether an intangible asset
that is internally generated qualifies for recognition due to
(a) Difficulty in identifying the future economic benefits provided by the asset and
(b) Complexity in determination of cost of the asset as the cost of internally generating an
intangible asset is not separable from the cost of maintaining the internally generated
goodwill of the entity or from the cost of day-to-day operations.
Therefore, apart from conforming to the general requirements for the assets’ recognition
and initial measurement, the entity also applies other requirements and guidance provided by
the standards to all intangible assets generated internally. For assessing whether the asset
meets the criteria to be recognized as an internally generated intangible asset, an entity has to
classify the generation of the asset into two phases-
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A research phase- There is no recognition to any intangible asset that arises from the
research phase of an internal project. Expenditure on any research activity is recognised as an
expense in the year when it is incurred (Yao and et.al.2015). This is because during this phase
an entity cannot exhibit that the intangible asset will make economic benefits in the future.
A development phase- The asset arising from the developmental phase can be recognized
only when there is a surety of it being completed for further use and will deliver some king of
economic benefit to the entity.
2. Differences Internally Generated v/s Acquired
In accordance with AASB 3, Business Combinations, if intangible assets like any
goodwill or patents are acquired through a business combination, its fair values serves as the
cost at the date of acquisition. This fair value reflects expectations of market participants
about the possibility of future economic benefits that the asset will offer to the entity at the
acquisition date. On the other hand, the fair value of internally generated intangible asset are
considered only after the asset meets some criteria at the development stage and is cost is
capable of being separated from other expenses. The fair value in the latter case would be the
expectations of market participants if the liability of the asset is transferred (AASB
138.Intangible Assets, 2016).
3. Reasons for Reluctance
The main reason for reluctance in both the accounting treatment is that when an
intangible asset is acquired to due to business combination or any other specified method, its
useful life and future economic benefit are capable of being certain. Thus, the fair value can
be calculated easily. As per views of Hoyle, Schaefer and Doupnik, (2015) on the other hand,
if the asset is generated internally it may not be possible to separate the cost at the research
phase; moreover, the useful life of asset may be difficult to calculate.
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Page 11 of 15

Question 4. Ex 9.19
Accounting Justification:
Conceptual framework: BC4.54
AASB: 119 Para 26 -31 and 66
AASB 119 deals with provision relating to employee benefits. Further, provisions relating to
defined benefit plans have been specified in Para 26 -31and recognition relating to same has
been explained in Para 66 (AASB 119. Employee Benefit, 2016).
Relevant Issues:
1. Deficit of Fund
Calculation
Particular Amount in $
Balance of benefit obligation as on 31.12.16 23000000
Fair Value of plan assets 20130000
Deficit 28700000
Deficit of fund = $28700000
2. Net Defined Benefit Liability
The amount is equal to deficit of fund i.e. $28700000.
3. Net Interest
Calculation (Amount in $)
Carried forward balance of defined benefit obligation + Past service cost *10%
=20000000+2000000 *10% =2200000
Interest Income
$19000000 *10% =$1900000
Net Interest
$2200000- $1900000
=$300000
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4. Reconciliation
Calculation of return on plan asset
Fair value of Plan asset as on 31.12.2016 - Opening balance – Income from interest –
contributions – payment of benefit
= $20130000 -$19000000 -$1900000 -$1000000- (2100000)
= $330000
(Amount in $000)
Liability of Net
Defined Benefit
Obligation of
Defined Benefit
Plan Assets
Balance as on 1st Jan
2016
1,000 20000 19000
Cost of Past service 2000
Adjusted Balance 22000
10% interest 2200 1900
Cost of Present service 800
Fund Contributions
received
1000
Funds’ paid Benefits (2100) (2100)
Return on Plan Assets
excluding Interest
330
Remeasured Actual loss
of Defined Benefit
Obligation
100
Balance as 31st
December 2016
2870 23000 20130
5. Summary Journal
(Amount in $000)
Date Particular Dr. Cr.
31st December
2016
Expense related to
Superannuation (P/L)
Dr
3 100
Page 13 of 15

Superannuation
Income Account Cr
230
Bank A/c Cr 1 000
Superannuation
liability A/c Cr
1 870
(being Superannuation
expense and
contributions
accounted)
Page 14 of 15

References
Books and Journal
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.
Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
Yao, D.F.T., Percy, M. and Hu, F., 2015. Fair value accounting for non-current assets and
audit fees: Evidence from Australian companies. Journal of Contemporary Accounting &
Economics, 11(1), pp.31-45.
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 6th October 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 6th
October 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 on 6th October 2017.]
AASB 136. Impairment of Assets. (2016). (PDF). Available through <
http://www.aasb.gov.au/admin/file/content105/c9/AASB138_07-04_COMPjun14_07-
14.pdf>. [Accessed on 6th October 2017.]
AASB 119. Employee Benefit. (2016). (PDF). Available through <
http://www.aasb.gov.au/admin/file/content105/c9/AASB119_09-11.pdf>. [Accessed on 6th
October 2017.]
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