Financial Accounting: Provisions, Contingent Liabilities, and Contingent Assets

Financial accounting

Table of Contents
Question 1........................................................................................................................................3
i) Appropriate Accounting treatment...........................................................................................3
ii) Note Disclosures and Journal Entries for the financial statement ended on 2018 in each
situation........................................................................................................................................3
Question 2........................................................................................................................................4
Question 3........................................................................................................................................6
Question 4........................................................................................................................................7
Question 5........................................................................................................................................9
References......................................................................................................................................11

QUESTION 1
i) Appropriate Accounting treatment
Australian Accounting Standard 137 is related to Provisions, Contingent Liabilities, and
Contingent Asset. The main objective of this asset is to recognize and measure the provisions,
Contingent Assets, and Contingent Liabilities. It also states that adequate information should be
disclosed; by which user get the knowledge about timing, nature, and amount (Adhariani, Sciulli,
& Clift, 2017). Provisions are the liabilities which does not have certainty regarding the amount
and time. On the other hand, contingent liabilities are the possible obligation which depends on
the happening or non-happening of any event. Therefore it is not recognized in the books
(Hudson, 2016).
ii) Note Disclosures and Journal Entries for the financial statement ended in 2018 in each
situation
Table 1: Journal of Super Store Limited
Date Particulars Debit Credit
Situation
1
30/6/20
18 Warranty Expense Dr.
$
34,400.00
To Provision of Warranty Related
Liability
$
34,400.00
(Being Provision for Warranty at the rate
of 8%)
Situation
2 Bad Debt Dr.
$
380,000.00
Provision for Bad & Doubtful Debts Dr
$
40,000.00
To Debtors
$
420,000.00

(Being Amount recognized as Bad Debt
for the Debtors bankrupted)
Situation
3
No entry is required to be passed in this
case.
Situation
4 Repairs Dr.
$
21,000.00
To Trailer (Equipment)
$
21,000.00
$
475,400.00
$
454,400.00
The company should disclose, for every class of provision the following amount –
 The carrying amount of provision at the starting of the year (Jeyaretnam, 2017).
 Any enhancement in current provision and any additional provision made during the
year.
 Any amount charged against the provision (Tran, 2015).
QUESTION 2
Table 2 Journal of Funland Limited
Date Particulars Debit Credit
3/31/2019 Bank Dr. $ 10,400,000.00
To Preference Share Application $ 1,600,000.00
To Equity Share Application $ 8,800,000.00
(being amount received on 800000
Preference Shares at the rate of
2/Share)
4/15/2019 Preference Share Application Dr. $ 1,600,000.00
To Preference Share Paid-up Capital $ 1,600,000.00
(being Preference Share Capital
raised of $1600000)