Financial Accounting: Answers to Assessment Questions

This article provides answers to assessment questions related to financial accounting. It covers topics such as change in accounting estimate, adjustment entries, shares forfeiture, current tax liability, deferred tax, revaluation gain/loss, and impairment loss.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student:
Name of the University:
Author’s Note:

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FINANCIAL ACCOUNTING
Table of Contents
Assessment 2...................................................................................................................................2
Answer to Question 1......................................................................................................................2
Requirement 1..............................................................................................................................2
Requirement 2..............................................................................................................................2
Requirement 3..............................................................................................................................3
Requirement 4..............................................................................................................................3
Answer to Question 2......................................................................................................................4
Requirement i...............................................................................................................................4
Requirement ii.............................................................................................................................5
Answer to Question 3......................................................................................................................6
Answer to Question 4......................................................................................................................8
Answer to Question 5....................................................................................................................10
Reference.......................................................................................................................................12

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FINANCIAL ACCOUNTING
Assessment 2
Answer to Question 1
Requirement 1
The case which is given in the question shows that the management of Superstore ltd
wants to revise the useful life of a manufacturing equipment which was depreciated on a straight-
line basis. A change in the useful life of the asset is treated as a change in accounting estimate
and International Accounting Standard (IAS) 8, states that any change in accounting estimate is
to be treated with prospective effect which means the accounting estimate will be applicable in
for the current period and future periods but past records are not to be changed (Shalev, Zhang &
Zhang, 2013). Therefore, the director needs to revise the depreciation amount based on new
useful life of asset. The directors do not need to make changes in past records of 2016 and 2017
and only needs to change the depreciation amount which is shown in annual reports.\
Requirement 2
In this case, the management of the company has missed out to record an invoice of $
20,000 which is for repair of equipment. The management of the company needs to record the
same in the books of accounts for which appropriate adjustment entry is to be passed which is
shown below:
Retained Earnings A/c……………………………Dr 14,000
Deferred Tax Assets A/c…………………………Dr 6,000
To Account Payable A/c 20,000
(Being invoice relating to repair expenses recorded)

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FINANCIAL ACCOUNTING
Requirement 3
The case shows that there is a fall in the shares prices of ABC ltd in which Superstore ltd
has holdings. The shares price of ABC ltd which was shown in the books of accounts of
Superstore ltd as on 30th June is $ 6,00,000 which had declined to $ 2,50,000 in 10th July 2018.
The management needs to make appropriate changes in books of accounts by passing the
following journal entry:
Unrealized Holding Loss A/c……………………………Dr 3,50,000
To Shares in ABC ltd 3,50,000
(Being changes in shares prices of ABC Ltd recorded in Books of Superstore ltd)
Requirement 4
The case which is given in the question shows that the accountant of Superstore ltd has
recorded personal expenses of the accountant as advertisement expenses of the business which
needs to be adjusted. The management needs to reverse the advertisement entry and pass
necessary Journal entry in this respect. The Journal entries are shown below:
Cash A/c …………………………………………………Dr $ 32,000
To Advertisement A/c $ 32,000
(Being advertisement entry reversed)
Advertisement A/c ………………………………..……….Dr $ 32,000
To Max A/c $
32,000

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FINANCIAL ACCOUNTING
(Being appropriate adjustment entry passed)

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FINANCIAL ACCOUNTING
Answer to Question 2
Requirement i
Date L.F Debit Credit
31/07/2017 Bank A/c. 15,000,000
Share Application A/c. 15,000,000
10/08/2017 Share Application A/c. 15,000,000
Share Allotment A/c. 2,500,000
Share Capital A/c. 12,500,000
Share Allotment A/c. 5,000,000
Share Capital A/c. 5,000,000
12/08/2017 Underwritting Commission A/c. 12,000
Bank A/c. 12,000
10/09/2017 Bank A/c. 2,500,000
Share Allotment A/c. 2,500,000
1/02/2018 Share Call A/c. 2,500,000
Share Capital A/c. 2,500,000
28/02/2018 Bank A/c. 2,480,000
Calls-in-Arrear A/c. 20,000
Share Call A/c. 2,500,000
20/03/2018 Share Capital A/c. 160,000
Calls-in-Arrear A/c. 20,000
Share Forfeiture A/c. 140,000
Bank A/c. 128,000
Share Forfeiture A/c. 32,000
Share Capital A/c. 160,000
Re-issuance Cost of Shares A/c. 4,000
Bank A/c. 4,000
25/03/2018 Share Forfeiture A/c. 108,000
Share Re-Issuing Cost A/c. 4,000
Bank A/c. 104,000
In the books of Rippa Ltd.
Journal Entries
(Application money for 6,000,000 shares received @$2.50 per share))
(Amount, left in Share Forfeiture fund returned to defaulter shareholders)
(Share re-issuance cost duly paid)
(Forfeited shares re-issued @$3.20 per share)
(Receipts from partly paid 40,000 shares forfeited)
(Call money duly received for 4,960,000 shares and call money for balance 40,000
shares remain unpaid)
(Call money for 5,000,000 shares @$0.50 per share credited to Share Capital)
(Balance allotment money for 2,50,000 shares received @$1.00 per share)
(Underwritting commission paid)
(Allotment money for 5,000,000 shares @$1.00 per share credited to Share Capital)
(Application money for 5,000,000 shares transferred to Share Capital and balance fund
transferred to Allotment fund)
Particulars

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FINANCIAL ACCOUNTING
Requirement ii
As per the case which is provided, the management has forfeited the shares of
shareholders who have not paid the call moneys and paid up to allotment. One of the
shareholders whose share was forfeited claims to have received lesser amount of share money as
the shareholder had paid application and call money which was in total $ 3.50 per share. The
management has to incur cost of reissue of shares and cost which is related to forfeiture of share
(Libby, 2017). These costs have been transferred to the shareholders as it is the fault of the
shareholder that such costs have been incurred by the management in the first place. The original
costs of shares were $ 4 per share and the management had to sell the shares at $ 3.20 per shares
and therefore a loss is incurred. In addition to this, $ 4000 shares are incurred during the year.

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FINANCIAL ACCOUNTING
Answer to Question 3
Particulars Amount Amount
Accounting profit before tax 555,800
Add:
Doubtful Debt Expense 34,000
Entertainment 4,500
Annual Leave 25,000
Warranty Expense 18,500
Depreciation on Equipment for accounting purpose 70,000
Depreciation on Motor Vehicle for accounting
purpose
30,000
Insurance 18,000 200,000
755,800
Less:
Government Grant 50,000
Bad debt expense 2,000
Annual Leave Paid 4,000
Insurance Paid 25,000
Warranty Expense Paid 2,000
Depreciation on Equipment for Tax purpose 100,000
Depreciation on Motor Vehicle for Tax Purpose 20,000 203,000
Taxable income 552,800
Tax on taxable income @30% 165,840
Less: 30% Tax paid on Sales Revenue 645,000
Income Tax Refundable -479,160
Worksheet for Curret Tax Liability/(Refundable):

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FINANCIAL ACCOUNTING
Particulars Carrying Amount Tax Base Taxable
Temp’y Diffs
Deductible
Temp’y Diffs
$ $ $ $
Assets
Cash 40,000 40,000
Accounts Receivables 250,000 250,000
Allowance for Doubtful Debts -32,000 0 32,000
Inventories 162,900 162,900
Prepaid Insurance 7,000 7,000
Motor Vehicles 120,000 120,000
Accumulated Depreciation -30,000 -20,000 10,000
Equipment 700,000 700,000
Accumulated Depreciation -70,000 -100,000 -30,000
Liabilities
Accounts Payables 54,600 54,600
Provision for Warranties 16,500 16,500
Provision for Annual Leave 21,000 21,000
Loan Payable 200,000 200,000
Total Temporary differences 7,000 49,500
Deferred tax liability (30%) 2,100
Deferred tax asset (30%) 14,850
Deferred Tax Worksheet:

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FINANCIAL ACCOUNTING
Dr. Cr.
Date Particulars Amount Amount
30/06/2018 Income Tax Expense A/c. 165,840
Tax Receivables A/c. 479,160
Tax paid in advance A/c 645,000
(Income tax expenses adjusterd with advance tax
paid and income tax refundable recorded)
Deferred Tax Assets A/c. 14,850
Deferred Tax Liability A/c. 2,100
Income Tax Expense A/c. 12,750
(Deferred tax assets and deferred tax liabilities
recorded)
Profit & loss A/c. 163,740
Income Tax Expense A/c. 163,740
(Income tax expense transferred to P/L A/c.)
Answer to Question 4
Year
Opening
Balance
Estimated
Life (in
years)
Residual
Value
Depreciation
p.a.
Closing
Balance
Fair
Value
Gain/(Loss) in
revaluation/sale
Tax
Expenses
42,916 60,000 4 10,000 12,500 47,500 55,000 7,500 2,250
43,281 55,000 3 10,000 15,000 40,000 44,000 4,000 1,200
42,916 20,000 4 4,000 4,000 16,000 18,000 2,000 600
43,100 18,000 3 6,000 2,000 16,000 13,000 -3,000
Equipment 1:
Equipment 2:
Computation of Revaluation Gain/(Loss) & Deferred Tax:

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FINANCIAL ACCOUNTING
Dr. Cr
Date Particulars Amount Amount
42,916 Depreciation Expense A/c. 16,500
Accumulated Depreciation- Equipment 1 A/c. 12,500
Accumulated Depreciation- Equipment 2 A/c. 4,000
(Depre ciation charged on equipment 1 and equipment
2)
Accumulated Depreciation- Equipment 1 A/c. 12,500
Revaluation Gain A/c. 7,500
Equipment 1 A/c. 5,000
(Equipment 1 re valued at fair value and gain on
revaluation recorded)
Accumulated Depreciation- Equipment 2 A/c. 4,000
Revaluation Gain A/c. 2,000
Equipment 2 A/c. 2,000
(Equipment 2 re valued at fair value and gain on
revaluation recorded)
Revaluation Gain A/c. 9,500
Asset Revaluation Reserve A/c. 9,500
(Gain on revaluation transferred to asset revaluation
rese rve)
Deferred Tax Assets A/c. 3,450
Income Tax Expense A/c. 3,450
(Deferred tax re corded for the asset revaluation)
43,100 Depreciation Expense A/c. 2,000
Accumulated Depreciation- Equipment 2 A/c. 2,000
(Depre ciation charged on Equipment 2)
Bank A/c. 13,000
Accumulated Depreciation- Equipment 2 A/c. 2,000
Loss on Sale of Equipment A/c. 3,000
Equipment 2 A/c. 18,000
(Equipment 2 sold at loss)
43,281 Depreciation Expense A/c. 15,000
Accumulated Depreciation- Equipment 1 A/c. 15,000
(Depre ciation charged on equipment 1)
Accumulated Depreciation- Equipment 1 A/c. 15,000
Revaluation Gain A/c. 4,000
Equipment 1 A/c. 11,000
(Equipment 1 re valued at fair value and gain on
revaluation recorded)
Deferred Tax Assets A/c. 1,200
Income Tax Expense A/c. 1,200
(Deferred tax re corded for the asset revaluation)
Journal Entries
In the books of Superstar Ltd.

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FINANCIAL ACCOUNTING
Answer to Question 5
Particulars Fizzy Drinks Ice Creamery
Fair Value,less, Cost to Sell 750,000 260,000
Value in Use 810,000 240,000
Recoverable Amount 810,000 260,000
(Higher of Fair Value & Value in use)
Less: Carrying Amount of CGU 872,000 268,000
Total Impairment Gain/(Loss) -62,000 -8,000
Calculation of Impairment Loss:
Particulars
Carrying
Amount Fair Value
Impairment
Loss
Carrying
Amount Fair Value
Impairment
Loss TOTAL
Total Impairment Loss 62,000 8,000 0
Less:
Goodwill 40,000 0 40,000 15,000 7,000 8,000 48,000
Patent 25,000 20,000 5,000 32,000 5,000
Land & Buildings 625,000 620,000 5,000 600,000 5,000
Balance Impairment Loss 12,000 0
Allocation of Specified Impairment Loss:
Fizzy Drinks Ice Creamery

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FINANCIAL ACCOUNTING
Particulars
Carrying
Amount
Net Carrying
Amount Weightage
Impairment
Loss
Balance Impairment Loss 12,000
Fixture & Fittings 25,000
Less: Accum. Depreciation -5,000 20,000 0 1,846
Equipment 165,000
Less: Accum. Depreciation -55,000 110,000 1 10,154
Total 130,000 130,000 1 12,000
Impairment Loss Allocation as per Weightage:
Dr. Cr.
Date Particulars Amount Amount
43,281 Loss on Impairment A/c. 70,000
Goodwill A/c. 48,000
Patent A/c. 5,000
Land & Buildings A/c. 5,000
Fixture & Fittings A/c. 1,846
Equipment A/c. 10,154
(Being assets under the specific cash
generating unit impaired)
Profit & Loss A/c. 70,000
Loss on Impairment A/c. 70,000
(Being impairment loss transferred to P/L A/c.)
In the books of Foodie Ltd.
Journal Entries

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FINANCIAL ACCOUNTING
Reference
Libby, R. (2017). Accounting and human information processing. In The Routledge Companion
to Behavioural Accounting Research (pp. 42-54). Routledge.
Shalev, R. O. N., Zhang, I. X., & Zhang, Y. (2013). CEO compensation and fair value
accounting: Evidence from purchase price allocation. Journal of Accounting
Research, 51(4), 819-854.