Accounting Journal Entry Analysis 2016
Added on 2020-03-16
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ACC510 - Financial ReportingTask 2 – Major AssignmentSemester 2 - 2017Student Name:Student ID #:Campus:
Table of ContentsQuestion 1.Case Study 3.1.....................................................................................................................3Accounting Justification:................................................................................................................3Relevant Issues:.............................................................................................................................31.Highest & Best Use................................................................................................................32.Application to aged care home..............................................................................................33.Two possible uses..................................................................................................................3Question 2. Ex 7.14................................................................................................................................4Accounting Justification:................................................................................................................4Relevant Issues:.............................................................................................................................41.Impairment Test 31/12/16....................................................................................................4a.Calculations:.......................................................................................................................4b.General Journal Entries 31/12/16:.....................................................................................52.Impairment Test 31/12/17....................................................................................................5a.Calculations........................................................................................................................5b.General Journal Entries 31/12/17:.....................................................................................6Question 3.Case Study 6.1.....................................................................................................................7Accounting Justification:................................................................................................................7Relevant Issues:.............................................................................................................................71.Difference between two phases:...........................................................................................72.Accounting for Research & Development:.............................................................................73.Decision / Conclusion / Reasons and Justification:................................................................8Question 4. Ex 9.19................................................................................................................................8Accounting Justification:................................................................................................................8Relevant Issues:.............................................................................................................................81.Deficit of Fund.......................................................................................................................82.Net Defined Benefit Liability..................................................................................................83.Net Interest............................................................................................................................84.Reconciliation........................................................................................................................95.Summary Journal.................................................................................................................10References...........................................................................................................................................11Page 2 of 11
Question 1.Case Study 3.1Accounting Justification:AASB 116 outlines the accounting treatment for property, plant and equipment. For themeasurement of fair value of these tangible asset this standards lays down provisions for recognitionand measurement of fair value (AASB 116.Property Plant and Equipment, 2016). The initial cost ofacquiring the asset and the subsequent cost for repairs and maintenance are included in the cost ofthe asset for the measurement of fair value. The measurement of any item of plant, property andequipment is done at cost. The cost of an item will be the cash price paid. For the purpose ofrecognition the entity can use the revaluation model or cost model provided by the standard. As perthe cost model the cost of the asset less its accumulated depreciation would be the book value. Therevaluation model measures fair value of any asset at a particular date after considering the marketparticipants interest in the property. Relevant Issues:1.Highest & Best UseThe concept of highest and best use reflects an assumption upon which the fair valueof the asset is based. For the purpose of determining most probable selling price it maybe appropriate to reflect highest and best use. Determination of highest and best useinvolves recognizing the motivations of market participants. These motivations arebased up on expectations of benefits that will accrue to property owner. 2.Application to aged care homeWhen not for profit entities acquire an asset as result of charity, then the cost of theitem will be its fair value measured at the date of acquiring the asset (Collings, 2015). Theinitial recognition is done at fair value. For the Not- For- profit entities it is reasonable tovaluate an asset at the cost model, after the initial recognition. The fair value is generallymeasured by the market evidence undertaken by professional. 3.Two possible usesThus, two possible uses of any asset will be its current use and the highest and the best use.The physical assets of old aged home are not put to their best use. If the asset is sold to anymarket participant, he will use the asset to generate profit. This creates discrepancy inmeasuring the fair value. Page 3 of 11
Question 2. Ex 7.14Accounting Justification:AASB 136 provides provision relating to impairment of assets. Para 58 to 64 of the specified standard provides specification relating to recognition and measurement of impairment losson assets.Relevant Issues:Para 104-108 specifies the provision relating to impairment of loss on cash generated unit. Same provision have been applied in present case in order the ascertain capital loss on cash generating unit.1.Impairment Test 31/12/16a.Calculations:Impairment loss of TimeTotal carried value of Time - Recoverable value of Time = Impairment loss (Liang and Riedl, 2013)$1244 -$1044=$200Allocation of impairment loss to specified asset:GoodwillImpairment loss will be provided to goodwill till its value becomes zero (Capalbo, 2013); thus out of $200, $25 will be allocated to goodwill.PatentAs fair value of patent at the end of year is individually available i.e. $220; thus the same will recorded at books at this value. The amount of loss allocated to patent will be $240- $220 i.e.$20PlantThe remaining amount of impairment loss will be allocated to plant i.e. ($ 200 -$25 -$20) $155. Thus,the amount at which plant will be recorded in books of accounts will be ($850- $155) i.e. $ 695.Impairment loss of LeisureTotal carried value of Time - Recoverable value of Time = Impairment loss=$1002 -$990=$12Allocation of impairment loss to specified asset:Page 4 of 11
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