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

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