Finance and Accounting Question Answer 2022

Running head: FINANCE AND ACCOUNTING
Finance and Accounting
Name of the Student
Name of the University
Author Note

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FINANCE AND ACCOUNTING
Table of Contents
Answer to Question 1...................................................................................................................2
Answer to Question 2...................................................................................................................2
Answer to Question 3...................................................................................................................2
Answer to Question 4...................................................................................................................3
Bibliography.................................................................................................................................4

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FINANCE AND ACCOUNTING
Answer to Question 1
a.
Particulars Amount
Carrying Value of
Buildings
$
500,000
Carrying Value of
Equipment
$
300,000
Inventory $
25,000
Land $
250,000
Receivables $
150,000
Total carrying amount $
1,225,000
Less: Value in Use $
515,000
Total Impairment Loss $
710,000
b.
Assets Carrying Amount Proportio Loss Adjusted

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FINANCE AND ACCOUNTING
n allocated Carrying amount
Buildings $
500,000
0.41 $
289,795.
92
$
210,204.08
Equipment $
300,000
0.24 $
173,877.
55
$
126,122.45
Inventory $
25,000
0.02 $
14,489.8
0
$
10,510.20
Land $
250,000
0.20 $
144,897.
96
$
105,102.04
Receivables $
150,000
0.12 $
86,938.7
8
$
63,061.22
Totals $
1,225,000
$
1
$
710,000
$
515,000.00
c.
Date Details Debit Credit
30.6.2020 Loss on Impairment $

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FINANCE AND ACCOUNTING
289,796
To Accumulated Depreciation on
Buildings
$
289,796
(To Record the amount of impairment
loss)
30.6.2020 Loss on Impairment $
173,877.55
To Accumlated Depreciation on
Equipment
$
173,877.55
(Loss on equipment)
30.6.2020 Loss on Impairment $
14,489.80
Inventory $
14,489.80
(Reduction in Inventory Value)
30.6.2020 Loss on Impairment $
144,897.96
Land $
144,897.96
(Impairment of Land)

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FINANCE AND ACCOUNTING
30.6.2020 Loss on Impairment $
86,938.78
Receivables $
86,938.78
(Loss on Receivables)
Answer to Question 2
Date Details Debit
($)
Credit
($)
31.12.2019 Revaluation of Plant 300000
Plant 300000
(Revaluation of the amount of plant)
31.12.2019 Revaluation Reserve 60000
Income Statement 90000
Plant (loss on revaluation) 150000
(Revaluation loss written off against the
plant)
Answer to Question 3
Date Details Debit
($)
Credit
($)

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FINANCE AND ACCOUNTING
31.8.2019 Bank a/c 2800000
Share Application a/c 2800000
(Money received on share application)
3.9.2019 Share Application a/c 300000
Bank a/c 300000
(Refund of money to rejected applicants)
4.9.2019 Share Allotment 1000000
To Share Capital 1000000
(Amount of share capital allotted)
25.9.2019 Bank 1002000
Share Allotment 1000000
Issue and Legal Costs 2000
(Allotment money received)
30.9.2019 Share Call 1500000
Share Capital 1500000
(Amount of share capital called)
31.10.2019 Bank 1440000
Share Call 1440000
(Amount received on 48000 shares)

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FINANCE AND ACCOUNTING
31.12.2019 Bank a/c 160000
Discount on reissue of shares 40000
Reissue of Shares 200000
(Reissue of shares to Investment
company)
31.12.2019 Cost of Issue 1500
Bank 1500
(Costs Incurred on Re-issue of shares)
30.4.2020 Forfeited Share Capital 200000
Bank 200000
(Amount refunded on forfeiture)
Issue 1
AASB 116 suggests that a decrease in the carrying amount of an asset up to its fair value
as a ‘revaluation decrement’. However, as per AASB 116, a reduction in the value of an asset up
to its recoverable amount is known as an ‘impairment losses’ of an asset. With regards to
revaluation of an asset, the requirements of AASB 136 are first required to be applied for an
asset before the requirements of AASB 116 are applied. Hence, the revaluation of an asset occurs
on the basis of the changes in the market conditions related to the asset. This may again change
in the future when there is an upward revaluation of the asset and the amount of asset goes up
again. Whereas, the amount of impairment loss is permanent and the loss written off against an
asset suggests that the amount from the asset cannot be recovered again. As per AASB 1041, the

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FINANCE AND ACCOUNTING
amount of revaluation decrement must be recognised immediately and as an expense in the Profit
and Loss Statement. However, any amount remaining as a surplus in the balance sheet also needs
to be written off against the asset. In case of an impairment loss, the amount of loss needs to be
checked on a timely basis when there are any signs related to the impairment of an asset. These
are then reduced from the asset according to the guidelines of AASB 136.
Issue 2
The cost model is one where the asset is recorded at the amount for which it was
purchased on the date of acquisition. Any depreciation charged against the asset is transferred to
the accumulated depreciation account. This is adjusted against the asset when the overall useful
life of the asset comes to an end. Until then, the asset continues to be recorded at the cost in the
books of accounts. This is in stark contrast to the revaluation model where there is a constant
reassessment of the fair value of the asset. The amount recorded at the end of the year is the fair
value of the asset. The revaluation of the asset is done on the basis of the conditions existing in
the market. In the Balance Sheet, the asset is recorded at cost in the year end. The amount of
accumulated depreciation is then deducted at the year end to show the written down value of the
asset. Similarly, the amount of depreciation is charged as an expense in the Income Statement.
The changes caused to the amount of retained earnings is shown as the difference in the
statement of equity. In case of revaluation model, the changes occurring in the fair value of the
asset are adjusted in the statement of comprehensive income. These are then transferred to the
statement of equity. In the balance sheet, the assets are recorded at the amount of fair value. The
cost model is fairly easy to implement as it only requires the maintenance of records related to
the asset. The revaluation model, however, is more costly to implement as it requires additional
experts to accurately determine the fair value of an asset at the end of the year.

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FINANCE AND ACCOUNTING
In conclusion, it can be suggested that it is better to implement the revaluation model in
the business. This is because the nature of the modern day business is dynamic and the
conditions prevailing in the modern day operating environment tend to change constantly.
Hence, any differences occurring in the valuation of the assets needs to be reflected in the
financial statements. As the company is in its growth stage, this model provides the business
with required information about the correct valuation of the assets. Any changes to the valuation
should be known in advance to ensure the company purchases new assets when required.

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FINANCE AND ACCOUNTING
Bibliography
(2020). Aasb.gov.au. Retrieved 17 April 2020, from
https://www.aasb.gov.au/admin/file/content102/c3/AASB1041_07-01.pdf
IFRS Policy Option: Cost Model Vs. Revaluation Model . (2018). Linkedin.com. Retrieved 17
April 2020, from https://www.linkedin.com/pulse/ifrs-policy-option-cost-model-vs-
revaluation-daniel-hailegiorgis

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Bibliography