Accounting Treatment for Various Situations - Adjustments, Errors, Events, and Disclosures

This article discusses the accounting treatment for various situations such as adjustments, errors, events, and disclosures. It covers journal entries, note disclosures, and more. The subject is accounting, and the course code is not mentioned. The course name and college/university are not mentioned.

Solution-1
Accounting treatment for given situations and their accounting entries / disclosures
Event Accounting Treatment Adjusted Financial
Statement
Note Disclosure / journal
entry
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
To Accumulated
depreciation 106,667
(To record depreciation for
the year ((800000-
80000*2)/6))
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
To Cash 20,000
(To record prior period
error)
Income tax receivable
6,000
To Retained earnings
6,000
(To record tax impact of
above adjustment)
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,
"The company's
investment value has
declnied by 350,000, due
to sudden fall in the
market. This loss will be
reflected in the next years
financial statements”
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
To Advertising expense
32,000
(To record recovery of
amount from previous
accountant)

Solution-2
Part (i) Journal Entries - In the books of Rippa Ltd
Date Account Titles
Calculation
basis Amount
31-Jul-17 Bank (6,000,000*2.50) 15,000,000
To Share Application Money (15,000,000)
(Receipt of share application money)
10-Aug-17 Share Application Money (5,000,000*2.50) 12,500,000
To Share Capital (12,500,000)
(Allotment of shares recorded)
12-Aug-17 Underwriter's Commission 12,000
To Bank (12,000)
(Underwriter's commission paid)
10-Sep-17 Share Allotment Money (5,000,000*1) 5,000,000
To Share Capital (5,000,000)
(Share allotment money due recorded)
10-Sep-17 Bank 2,500,000
Share Application Money 2,500,000
To Share Allotment Money (5,000,000)
(Receipt of share allotment money)
01-Feb-18 Share Call Money (5,000,000*0.50) 2,500,000
To Share Capital Account (2,500,000)
(Share call money due recorded)
28-Feb-18 Bank (4,960,000*0.50) 2,480,000
To Share Call Money (2,480,000)
(Receipt of share call money recorded)
20-Mar-18 Share Capital 160,000
To Share Forfeiture (140,000)
To Share Call Money (40,000*0.50) (20,000)
(40,000 share forfeiture recorded)
20-Mar-18 Bank 128,000
Share Forfeiture 32,000
To Share Capital (160,000)
(Forfeited shares reissued recorded)
20-Mar-18 Share Forfeiture 4,000
To Bank (4,000)

(Share reissue charges paid)
25-Mar-18 Share Forfeiture 104,000
To Bank (104,000)
(Excess amount after forfeiture refunded)
Part - (ii) - Explanation on amount refunded
The amount returned to shareholders is 2.60 which was after meeting all the reissue expenses and losses. This amount
is calculated as under:
Amount received on application on 40,000 shares @ 2.5 each 100,000
Amount received on allotment on 40,000 shares @ 1 40,000 140,000
Loss due to reissue of shares on 40,000 shares @ 0.80 each (4 - 3.20) (32,000)
Reissue expenses (4,000) (36,000)
Amount refunded to shareholder 104,000
Amount per share (104,000/40,000) 2.60

Solution-3
Part - (i) Determination of balances of current tax liability as at 30 June, 2018
Particulars Amount
Accounting profit before tax 555,800
Less: Expenses allowed / Incomes disallowed
Government grant (50,000)
Depreciation as per tax * (120,000)
Annual leave (4,000)
Insurance expense (25,000)
Warranty expense (2,000)
Doubtful debts written off (2,000)
Add: Expenses disallowed
Depreciation as per accounts 100,000
Annual leave 25,000
Insurance expense 18,000
Warranty expense 18,500
Doubtful debts expense 34,000
Entertainment expense 4,500
Taxable income 552,800
Current tax liability (552,800 * 30%) 165,840
Determination of balances of deferred tax assets / liability as at 30 June, 2018
Particulars As per accounting
books
As per taxation
books
Temporary
Differences
Assets
Accounts receivable 218,000 250,000 32,000
Prepaid insurance 7,000 - (7,000)
Equipment 630,000 600,000 (30,000)
Motor Vehicle 90,000 100,000 10,000
Liabilities
Provision for annual leaves 21,000 - 21,000
Provision for warranty expenses 16,500 - 16,500
Total temporary differences 42,500
Deferred tax asset @ 30% 12,750
Part - (ii) - Journal entries
Account Titles Amount

Deferred tax asset 12,750
To Income tax expense (12,750)
Income tax expense 165,840
To Income tax liability (165,840)
* Calculation of depreciation and closing value of assets
Particulars
Accounting books
Equipment Motor Vehicles Total
Cost - 1 July, 2017 700,000 120,000 820,000
Less: Depreciation for the year (70,000) (30,000) (100,000)
WDV - 30 June, 2018 630,000 90,000 720,000
Particulars
Taxation books
Equipment Motor Vehicles Total
Cost - 1 July, 2017 700,000 120,000 820,000
Less: Depreciation for the year (100,000) (20,000) (120,000)
WDV - 30 June, 2018 600,000 100,000 700,000

Solution-4
Journal Entries - In the books of Superstar Ltd
Date Account Titles Amount
30-Jun-17 Dep expense - Equipment 1 12,500
To Acc. Dep - Equipment 1 (12,500)
(Depreciation expense recorded)
30-Jun-17 Dep expense - Equipment 2 ((20000 - 4000) / 4) 4,000
To Acc. Dep - Equipment 2 (4,000)
(Depreciation expense recorded)
30-Jun-17 Acc. Dep - Equipment 1 12,500
To Equipment 1 (5,000)
To Revaluation gain (7,500)
(Revaluation of equipment -1)
30-Jun-17 Acc. Dep - Equipment 2 4,000
To Equipment 2 (2,000)
To Revaluation gain (WN) (2,000)
(Revaluation of equipment -2)
31-Dec-17 Dep expense - Equipment 2 ((18000 - 6000) / 3)/2 2,000
To Acc. Dep - Equipment 2 (2,000)
(Depreciation expense recorded till date of sale)
31-Dec-17 Acc. Dep - Equipment 2 2,000
Bank 13,000
Loss on sale 3,000
To Equipment 2 (WN) (18,000)
(Sale of equipment -2 recorded)
30-Jun-18 Dep expense - Equipment 1 ((55000 - 10000) / 3) 15,000
To Acc. Dep - Equipment 1 (15,000)
(Depreciation expense recorded)
30-Jun-18 Acc. Dep - Equipment 1 15,000
To Equipment 1 (11,000)
To Revaluation gain (WN) (4,000)
(Revaluation of equipment -1)
WN: Revaluation gain / loss on sale on equipment’s:
Equipment 1 - as on 30 June, 2017
Fair valued amount 55,000
Carrying amount as on 30 June, 2017 (60,000-12,500) 47,500

Gain on revaluation 7,500
Equipment 1 - as on 30 June, 2018
Fair valued amount 44,000
Carrying amount as on 30 June, 2018 (55,000-15,000) 40,000
Gain on revaluation 4,000
Equipment 2 - as on 30 June, 2017
Fair valued amount 18,000
Carrying amount as on 30 June, 2017 (20,000-4,000) 16,000
Gain on revaluation 2,000
Equipment 2 - as on 30 June, 2018
Carrying amount as on 31 Dec, 2017 (18,000-2,000) 16,000
Proceeds from sale 13,000
Loss on sale 3,000

Solution-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.
1
Determination of impairment
loss
Particulars Fizzy Drinks Ice creamery
Carrying value 872,000 268,000
Recoverable amount
(Higher of fair value less costs to
sell ot value in use)
810,000 260,000
Impairment loss 62,000 8,000
Allocation of impairment loss to the assets
As per para 104 of AASB 136, allocation of impairment loss is made to the assets is made as per
following steps:
I. FIZZY DRINKS
1: Allocation to respective assets to which loss belongs
- Fizzy Drinks
Particulars Carrying value Loss Allocation Balance
Land and buildings 625,000 5,000 620,000
Patent 25,000 5,000 20,000
650,000 10,000 640,000
2: The balance impairment loss of 52,000 (62,000-10,000) is allocated to goodwill.
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.

Particulars Balance Loss Allocation Balance
Fixtures and fittings 20,000 1,846 18,154
Equipment 110,000 10,154 99,846
130,000 12,000 118,000
II. ICE CREAMERY
Allocation to respective assets to which loss belongs - Ice Creamery
Particulars Carrying value Loss Allocation Balance
Land and buildings 179,000 4,000 175,000
179,000 4,000 175,000
The remaining impairment loss of 4,000 (8,000-4,000) is allocated to goodwill.
The new carrying amount of CGUs are as below:
Fizzy Drinks Ice Creamery
Particulars Old carrying
value
Impairment
loss
New
carrying
value
Old
carrying
value
Impairment
loss
New carrying
value
Cash 18,000 - 18,000 14,000 - 14,000
Inventory 34,000 - 34,000 25,000 - 25,000
Fixtures and fittings 20,000 1,846 18,154 25,000 - 25,000
Equipment 110,000 10,154 99,846 10,000 - 10,000
Land and buildings 625,000 5,000 620,000 179,000 4,000 175,000
Patent 25,000 5,000 20,000 -
Goodwill 40,000 40,000 - 15,000 4,000 11,000
872,000 62,000 810,000 268,000 8,000 260,000

Journal Entry as on 30 June, 2018
Account Titles Amount
Fizzy Drinks
Impairment Loss 62,000
Fixtures and fittings (1,846)
Equipment (10,154)
Land and buildings (5,000)
Patent (5,000)
Goodwill (40,000)
Ice creamery
Impairment Loss 8,000
Land and buildings (4,000)
Goodwill (4,000)

References:
http://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
http://www.aasb.gov.au/admin/file/content105/c9/AASB108_07-04_COMPjan15_07-15.pdf