Table of Contents INTRODUCTION...........................................................................................................................1 MAIN BODY...................................................................................................................................1 QUESTION 1...................................................................................................................................1 QUESTION 2..................................................................................................................................2 QUESTION 3...................................................................................................................................4 QUESTION 4...................................................................................................................................6 QUESTION 5...................................................................................................................................8 CONCLUSION..............................................................................................................................10 REFERENCES..............................................................................................................................11
INTRODUCTION Financing is the major source of funding which help the business to run their operational activities in order to fulfil their financial needs. There are various financial institutes available which provide funding such as banks, investors and other non commercial institutes for source of funding (Finance for organization,2019). It help the organization to purchase product, further investments etc. This report is all about generating funds with the help of various activities. It includes different methods of techniques which help the organization to generate money which is beneficial for the businessman to smoothly run their business and further invest for for more profit. This report cover various practice questions which required to solve with the help of various accounting standards and principles. MAIN BODY QUESTION 1 DateParticularsDebit ($)Credit ($) 02/08/19Damage for loss profit Accounts To Cloud service provider (Grace Ltd’s has to face major disruptions due to cloud service down and it impact business operations) 300000 300000 20/08/19Fixed assets To Revaluation (Increase in the value of fixed assets) 800000 800000 25/08/19Capital Account To Manager's Accounts (Purchasecarforhispersonaluseand recognize as company's assets) 38000 38000 20/07/19Grace Ltd's shares To Revaluation Accounts (Major decline in Grace Ltd's shares) 250000 250000 1
Total13880001388000 a.Company bear the loss because of cloud service provider and its services down for the 14 days in the month of July 2019. It majorly impact the business operation of Grace Ltd and they take legal action against cloud service provider. Company seeking $ 300000 for lost profit due to damage. Here company follow their legal rights where business can claim for their damages to the another party. b.Grace Ltd wasplaning to subdivide the area into residential block or airport for landing or take off(Darrough, Guler and Wang, 2014). Company revise the and value on 20 August 2019 but after government announcement land was valued at $ 800000. it will be less than the amount which listed in financial statement on 30thJune, 2019. c.On 25thAugust 2019, At the time of auditing company find thefraudulent activity where manager use $ 38000 amount from company's fund. It will be used for personal purpose and this car recognise as business assets in the financial statement of the company. Director of the company met with manager and said to repay $ 38000amount by 30thSeptember 2019. d.Grace Ltd owns shares of public listed company which had a market value of $ 500,000 on 30 June 2019 and will decline $ 250,000 on 20 July 2019. It will be recorded in the financial statement of the company. QUESTION 2 DateParticularsDebit ($)Credit ($) 01/02/19Bank account (200000 * 3) To Share application account (200000 * 3) (Being share application amount received) 600000 600000 01/02/19Cost of issue account To Commission account (Being underwritten commission of $ 12000 ) 12000 12000 2
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28/02/19Share application account (180000 * 1.5) To Share capital (180000 * 1.5) ( Being application amount transfer to the share capital ) 270000 270000 10/03/19Share allotment account ( 180000 * 1) To share capital ( 180000 * 1) (Allotmentamounttransfertotheshare capital account ) 180000 180000 10/04/19Bank account ((180000 * 1) - 12000) To share allotment money ((180000 * 1)- 12000) (Allotment money received after deducting commission) 180000 180000 15/04/19Cost of share issue To Bank account ( Cost of issuing share will be paid ) 5000 5000 01/05/19Share call amount account (180000 * .5) To share capital account (180000 * .5) ( Call amount transfer to the share capital account ) 90000 90000 01/05/19Bank Call in Arrears 80000 10000 3
( 20000 * .5 ) To Share call ( 180000 * .5 ) (20,000 shares who did not pay the call) 90000 10/06/19Equity share capital (20000 * 3) To Call in Arrears ( 20000 * .5 ) To share forfeited (20000 * 2.5) ( Company forfeited 20,000 shares ) 60000 10000 50000 20/06/19Bank account Shareforfeited To Share capital ( 20000 * 2.70 ) ( Being forfeited shares were reissued as fully paid ) 4000 50000 54000 QUESTION 3 Current Tax Worksheet For the year ended 30 June 2019 ParticularsDetailsAmount Revenue Add: Interest Expenses Rent expenses Depreciation on equipments Depreciation on motor vehicle Doubtful debts Entertainment expenses Less: Depreciation on Equipment ( (400000 – 120000) / 5 ) 17000 87000 35000 20000 14000 2000 56000 1430000 4
Depreciation on Motor vehicle ( (150000 – 30000) / 8 ) Annual leave expenses Warrantee expenses Insurance expenses Taxable profit Current tax liability @ 30% 15000 24000 18000 14000 1478000 443400 Deferred Tax Worksheet Deferred income tax related to assets: DetailsAmountTaxable difference Deductible difference Account receivable181000(181000- 14000)= 167000 Equipment Less: Acc. Depreciation 400000 (35000)365000 365000 Motor vehicles Less: Acc. Depreciation 150000 (20000)130000 130000 Deferred income tax related to liabilities: Provision for annual leave2200022000 Provision for warranties1500015000 Total temporary difference495000204000 Deferred tax liability @ 30%148500 Deferred tax assets @ 30%61200 5
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Journal Entries For the year ended on 30 June 2019 DateParticularsDebitCredit 30/06/19Current Income tax expenses To Current tax liability ( Being recognition on current tax ) $ 443400 $ 443400 30/06/19Income tax expense (deferred) To Deferred tax liability ( Being adjusted deferred tax liability ) $148500 $ 148500 30/06/19Deferred tax assets To Income tax expenses ( Being adjusted deferred tax assets) $ 61200 $ 61200 Deferred tax: It is a future executed tax which can be related to the assets as well as for liability(Dayan and Berridge, 2014). Tex was due but not paid in the current financial period and it will be recorded in the financial statement of the company as deferred tax assets of liability. Deferred tax refer to the tax which generated in the accounting period but paid more then it actual value than additional tax amount will be recorded in the financial statement as a name of deferred tax assets and it will be evaluating in the next year. QUESTION 4 Revaluation Model: This model gives a option to the business to carry fixed assets and its revalued amount. In the revaluation amount accumulated depreciation was less and accumulate the impairment losses. This model used for the property, plant & equipment and measure carrying amount. This measurement include the depreciation and impairment losses. It include the tangible item for valuation that used in production or supply of goods or services(Harris, Jermakowicz and Epstein, 2014). It is expected to be used for more than one period. Because there is high chances of providing economic benefits which related to the flow of the business. In the initial stage property, plant or equipment will be measured and it include various cost such as purchase price, import duties, trade discount, non refundable purchase taxes, rebates etc. 6
Key aspects of Revaluation Model: Each and every item will be depreciated separately which impact the total cost of assets. Everly assets has significant useful life which required to calculate total cost of property, plant and equipment. Depreciation will be charged for each period and it will be recognize in profit and loss account and carrying out for another assets. Depreciation amount will be allocated on systematic basis and over its life value. According to Australian Accounting Standard Board (AASB) 116, cost of individual item such as property, plant & equipment and it will be recognise as assets of the company. On different time period, value of an assets or liability will revalued which required to estimate because it further impact the financial position of the company(Jalbert, Fleischman and Jalbert, 2014). In context of Star Freight Ltd,company will shift on three trucks and for revaluation of assets value company use cost model to account their trucks along with depreciation amount by using straight line method. Application of Revaluation Model: Journal Entries of revaluation of fixed assets on 1stJuly 2018 DateParticularsDebit ( $ )Credit ( $ ) 01/07/18Truck 1 accountDr.. To Revaluation account (Being increase in the value of assets ) 10000 10000 01/07/18Truck 2 accountDr.. To Revaluation account (Being increase in the value of fixed assets ) 20000 20000 01/07/18Revaluation accountDr.. To Truck 3 account ( Being decrease in the price value of assets ) 30000 30000 Above journal entries represent that value of fixed assets such as truck will be changes. On 1stJuly 2018, value of truck 1 will be increase by $ 10000, $ 20000 for truck two and $ 30000 value will be decrease for truck three. Journal Entries of revaluation of fixed assets on30thJune 2019 7
DateParticularsDebit ( $ )Credit ( $ ) 30/06/19Revaluation accountDr.. To Truck 1 account ( Being decrease in the value of fixed assets ) 30000 30000 30/06/19Revaluation accountDr.. To Truck 2 account ( Being decrease in the value of fixed assets ) 25000 25000 30/06/19Truck 3 accountDr.. To Revaluation account (Being increase in the value of assets ) 10000 10000 On 30thJune 2019, value of truck 1 will be decreased by $ 30000 same as for truck 2 where its value reduce by $ 25000(Miller, Miller and Tolin, 2016). On the other hand, value of truck 3 were increase by $ 10000. QUESTION 5 ParticularsFresh Juice BarFresh Salads Fixtures and fittings500050000 Equipments3500060000 Motor vehicle1200018000 Goodwill ( Intangible assets )1000020000 Carrying cost62000148000 *Working Notes: ItemsFresh Juice BarFresh Salads Fixture & fittings (Less Acc. depreciation) =5000(50000 – 5000)= 50000 (65000 – 15000) Equipments (Less Acc. depreciation)= 35000 (65000 - 30000)= 60000 (90000 – 30000) Motor vehicle (Less Acc. depreciation) = 12000 (25000 - 13000)= 18000 (26000 - 8000) 8
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To: Directors of Fresh Ltd Subject: Regarding impairment loss Calculation of impairment loss recoverable amount of assets: There are two basic steps to calculate recoverable amount where first based on disposable income less from fair value of assets (Whichever fare value is high). In the second one is recoverable assets compare with carrying amount (Impairment Loss,2010). Rules of impairment test: Step 1: Recoverable Amount = Fare value – Cost of disposal value Step 2: Recoverable amount compare with carrying amount(Wilkins, 2015). If, recoverable amount higher than carrying amount than there is no need to carry out test. If, recoverable amount is lower than the carrying amount than test will be carried out (Financial reporting,2019). From: XYZ. Recoverable assets forFresh Juice Bar & Fresh Salads: Fresh Juice BarFresh Salads Carrying amount62000148000 Recoverable assets58000180000 Impairment Loss-400032000 Test will be carried outNo need to carry out the test From the above mention table represent that Fresh juice bar need to carry out the test because carrying amount is higher than recoverable amount(Picker and et.al., 2019). In case of carried out test, need to calculate impairment loss and allocate the losses with effective implementation with the help of impairment test. Allocation of impairment losses: Fresh Juice Bar Carrying amount62000 9
Less: Goodwill-10000 Remaining52000 Impairment loss4000 Loss will be divided on pro rate basis (1: 7: 2.4) Fixture & fittings ( 125 ) Equipments ( 875 ) Motor vehicle ( 3000 ) 125 875 3000 Impairment loss will be adjusted from the assets on prorate basis excluding goodwill because of intangible assets(Tomblin and et.al., 2014). Loss will be adjusted from various assets such as fixtures & fitting, equipment and motor vehicle of $ 125, $ 875, $ 3000 respectively. Journal Entry For the year of 30thJune 2019 DateParticularsDebit ($)Credit ($) 30/06/19Impairment loss accountDr.. To Accumulated impairment loss ( Being recognition of impairment loss) 4000 4000 30/06/19Fixture & fitting Equipments Motor vehicle To Impairment loss ( Being allocation of impairment loss with assets) 125 875 3000 4000 CONCLUSION From the above discussion it has been consulted that every accounting standard used for specific purpose where accountant have to pass journal entry to better clarity in their accounts. As well as whenever company required money in their organization to run their operational activities they generally issued shares through inviting applicants. Along with this, revaluation model helps in estimating depreciation amount and how it will impact the overall business. In 10
addition, impairment loss used to calculate and it will be allocated with the help of other business assets. 11