Financial Accounting: Answers to Questions with Examples

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

1FINANCIAL ACCOUNTING
Table of Contents
Answer to Question 1:.....................................................................................................................2
Part i:............................................................................................................................................2
Part ii:...........................................................................................................................................4
Answer to Question 2:.....................................................................................................................5
Part i:............................................................................................................................................5
Part ii:...........................................................................................................................................6
Answer to Question 3:.....................................................................................................................7
Part i:............................................................................................................................................7
Part ii:...........................................................................................................................................8
Answer to Question 4:.....................................................................................................................9
Answer to Question 5:...................................................................................................................10
References:....................................................................................................................................12

2FINANCIAL ACCOUNTING
Answer to Question 1:
Part i:
Situation 1:
In accordance with AASB 116, revising an asset’s economic life would automatically
result in a change in accounting estimate with no change needed in accounting policy. Hence, no
retrospection is required for restatement of accounts (Aasb.gov.au, 2018). Thus, the financial
statements of the prospective years only would be affected by such change. In this situation, it is
necessary to carry out the following calculations:
Book value on 1st July 2017 = ${800,000 – 2 x (800,000/10)} = $640,000
Depreciation expense to be incurred per year for the leftover six years = $640,000/6 = $106,667
Thus, when an accounting estimate change is obvious, disclosure in the form of notes to
accounts is required.
Situation 2:
The accounts payable would be used for recording the due amount of $20,000, which
would fall under the head of current liabilities in the balance sheet statement of Superstore
Limited on June 30, 2018. However, as this expense has been incurred in 2018, it is restricted by
accounting, matching and accrual accounting principles to disclose repairs cost as an expense in
the books of accounts of the organisation for the year 2017. Moreover, as this account n longer
exists after 2017, there is need of readjusting the retained earnings account depicting the
accumulated profits after dividend payments to the shareholders (Dagwell, Wines & Lambert,
2015).

3FINANCIAL ACCOUNTING
Situation 3:
If an investment value declines after the completion of the accounting period, the event is
deemed to be non-adjusting. Therefore, as per AASB 110, the events are to be disclosed as
financial footnotes, if sufficient evidences are obtained that these events contain material
amounts (Aasb.gov.au, 2018). As per the provided situation, massive decline could be found in
the value of an investment to $250,000 from $600,000, which is matter of concern for the users
of the financial statements of Superstore Limited, particularly the investors and the shareholders.
Despite there is no need of asset valuation due to decline in market value, financial footnotes
need to be used for disclosure in the 2018 annual report of the organisation. On the other hand,
the effect would be inherent in the 2019 financial statements, in which investment is needed to
be written down to $250,000 resulting in loss for the organisation. Hence, in this case, income
statement account needs to be debited and the investment account needs to be credited and the
amount for both the accounts would be $350,000.
Situation 4:
It is necessary for an organisation to adjust events through adjustment of the likely
financial effects in the financial reports before issuance and finalisation (Hoskin, Fizzell &
Cherry, 2014). When there is detection of error or fraud at the time of reporting, the event is
needed to be adjusted. Hence, advertising cost and Max are the accounts needing adjustments.