Financial Accounting: Changes in Accounting Policies, Share Capital, Taxable Income, and Asset Impairment

FINANCIAL ACCOUNTING 1
FINANCIAL
ACCOUNTING

FINANCIAL ACCOUNTING 2
Contents
Answer 1:...................................................................................................................................3
Answer 2:...................................................................................................................................5
Answer 3:...................................................................................................................................9
Answer 4:.................................................................................................................................15
Answer 5:.................................................................................................................................19
References:...............................................................................................................................23

FINANCIAL ACCOUNTING 3
Answer 1:
Part 1:
As per IAS 8 which deals with the changes in the accounting policies and accounting
estimates, the change could take place prospectively. Usually, a company is encouraged to
adopt the same accounting policies, estimates in all of the years to follow but sometimes, due
to the change in the market conditions etc, the company may go for the change in the
accounting estimates.
Just like in the present case, the company has gone for the change in the useful life of the
asset. This is alright for the company to follow, but the depreciation will have to be charged
on the same, no matter what.
The value of the equipment on 01.07.2017 shall be $(800,000-160,000).
Which means if the useful life of the equipment reduces to 6, then the following would be its
entry:
Depreciation expense Dr 106,667
To Accumulated depreciation 106,667
(IAS plus, 2018).
The fact shall be disclosed in the notes to the financial statements.
Part 2:
As per the accounting standard on the change in the accounting policies, an amount may be
missed out from being reported in the financial statements and such cases, the amount shall
be reported in the financial statements but the following shall also be disclosed in them:
 The effect of that item on the financial statements

FINANCIAL ACCOUNTING 4
 The amounts of the adjustments that pertains to the previous period.
(IAS plus, 2018).
Hence, the same shall be reported in the financial statements:
The following would be its entry:
Repairs on equipment expense Dr 20,000
To Profit and Loss A/c 20,000
With regard to the notes in financial statements, the fact shall not be recorded in the notes.
Part 3:
As per IFRS 13 which deals with the fair value measurement, the standard states the fact all
of the assets and the liabilities shall be disclosed at their respective fair values which means
the fair values less the costs to sell. This applies to all except in some special circumstances.
The standard does not lay down the specific requirements which pertains to the measurement
and the disclosure for such transactions.
The standard further deals with the definition of the term “fair value” which means the
amount that the company would receive if it sells and asset or transfers its liability onto
another (IFRS, 2018).
Therefore, the shares shall also be revalued and reported at their fair values.
The following would be its entry:
Profit and Loss Dr 350,000
To Investment 350,000
This shall be disclosed in the notes to the financial statements.

FINANCIAL ACCOUNTING 5
Part 4:
This activity of the previous accountant of the company seems to be a fraudulent activity
which needs some investigation, hence the fact cannot be included in the books of account.
But since, the expense has already been charged in the financial statements, it shall be written
back through the following entry.
The following would be its entry:
Profit and Loss A/c Dr 20,000
To Advertising expense 20,000
This shall be disclosed in the notes to the financial statements.
Answer 2:
Part 1:
Date Particulars Debit Credit
31.07.2017 Bank
150,00,000.
00
To Share Application
150,00,000.
00
(being money received for the shares)
10.08.2017 Share Application
150,00,000.
00
To Share Capital
150,00,000.
00

FINANCIAL ACCOUNTING 6
(being shares applied)
12.08.2017 Shares underwriting commission
12,000.
00
To Bank
12,000.
00
(being underwriting commission paid)
10.09.2018 Bank
25,00,000.
00
To Share Capital
25,00,000.
00
(being share allotment money received)
01.02.2018 Bank
24,80,000.
00
To Share Capital
24,80,000.
00
(being final call made)
Equity share capital
1,40,000.
00
To share first call
1,00,000.
00
To share second call 40,000.