Financial Accounting

This document provides comprehensive study material and solved assignments on Financial Accounting. It covers topics such as financial statement disclosure, accounting for share capital, accounting for income tax, revaluation of property, plant and equipment, and impairment of assets. The document includes journal entries, computations, and explanations for each topic. It is suitable for students studying Financial Accounting in college or university.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
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Author’s Note

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FINANCIAL ACCOUNTING
Table of Contents
Question 1: Financial Statement Disclosure..............................................................................2
Requirement 1.......................................................................................................................2
Requirement 2.......................................................................................................................4
Question 2: Accounting for share capital..................................................................................7
Question 3: Accounting for income tax.....................................................................................8
Requirement i:.......................................................................................................................8
Requirement ii.......................................................................................................................8
Question 4: Revaluation of property, plant and equipment.......................................................9
Question 5: Impairment of assets............................................................................................10
Reference.................................................................................................................................14

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Question 1: Financial Statement Disclosure
Requirement 1
Situation 1
As per the information which is provided, guarantee is provided by the management of
Superstore for goods which are sold for a year from the selling date. As per past results, the
company has released a provision on warranties which was equal to 5% of the value of sales
made by the business. However, there has been an increase in the warranty costs of the business
and also a hike in sales return for the products offered by the business. This has resulted in the
change of estimate of provision from 5% to 8% which can be considered as a change in
accounting estimate.
The provisions of Paragraph 34 of AASB 108 Accounting Policies, Changes in
Accounting Estimates and Errors” that changes are needed for an accounting estimate when
there is a change in the prevailing situation under which the estimate was developed or the same
may occur due to some new developments (Aasb.gov.au. 2019). As per paragraph “Paragraph
36 of AASB 108”, in case of change in accounting estimate than the company needs to recognise
the change prospectively in the financial statements from the date changes were made.
Therefore, in the case of Superstore ltd, the management of the company needs to make
necessary adjustments to the financial accounts for the period of 2017/18 and also for future
periods as well.
Situation 2
As per the case which is provides, two major debtors of Superstore Ltd has filed for
bankruptcy in July 2018. The amount which is due from such debtors is around $ 420,000 and

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the management of the company portrays a provision of doubtful debts for $ 40,000. This
situation of filing for bankruptcy was filed after the reporting period. This also puts some doubts
on the recoverability of the receivables of the business.
As per the provisions which is provided in “AASB 110 Events after Reporting Date”,
events which takes place after reporting period are classified as adjusting and non-adjusting
events (Aasb.gov.au. 2019). Adjusting events are those events whose occurrence evidence would
be present at the reporting date, While Non-adjusting events are those events whose occurrence
is not probable or estimated at the reporting date. The case which is provided shows that the
nature of the event could be estimated on reporting date and thus the same is a adjusting event
which needs to be recorded in the financial statements. Therefore, the management of the
company needs to make necessary changes in the financial records.
Situation 3
The situation which is presented in this case falls under the events occurring after
reporting date, especially the changes in tax rate. As per AASB 110, events which occur after
reporting date are classified as adjusting and non-adjusting events. Adjusting events are those
events whose occurrence evidence would be present at the reporting date, While Non-adjusting
events are those events whose occurrence is not probable or estimated at the reporting date. The
case shows an instance of non-adjusting events since it is not probable that the tax rate would
change after reporting dare.
Situation 4
The situation which is stated can be related with identification of errors in prior year
adjustments in terms of record of repair expenses under asset along with charges of depreciation

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on the same. As per the provisions of “Paragraph 42 of AASB 108”, it is necessary for an
organization to rectify the material errors of the previous period in a retrospectively manner and
in the case of the following:
 Restatement in the amounts for the period before where the error took place.
 In case, the error, happened during the earliest presented previous year, the opening
balances of equities, assets and liabilities needs to be adjusted.
The case which is provided falls under the above-mentioned criteria, which requires rectification.
Hence, the financial statements of 2017/18 and figures of 2016/17 needs to be adjusted by the
management of the company.
Requirement 2
Situation 1
At present, the company has maintained a provision of warranty at $ 19,000 while it has a
realised revenue of $ 430,000 in 2018. Therefore, the adjusting Journal entry would be as shown
below:
Warranty Expense Account............................................................Dr $15,400
To Provision for Warranty Account $15,400
(Record of warranty expense)
Particulars Details Units
Sales for the period A $430,000
Provision to be made @8% B=Ax8% $34,400
Less: Provision already made C ($19,000)

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Provision to be created in the existing year D=B+C $15,400
Situation 2
In this case, the adjusting journal entry which would be passed is stated below:
Doubtful Debt Expense Account...........................................Dr $380,000
To Allowance for Doubtful Debt Account $380,000
(Allowance for doubtful debt recorded) $420,000 - $40,000
Situation 3
“Paragraph 21 of AASB 110” states that the management of the company needs to make
appropriate disclosures relating to the nature of the event and its financial effect (Banker, Basu,
& Byzalov, 2016). The management of the company needs to record the statement in the notes to
account section of the financial reports.
Situation 4
The adjusting entry which is required to be passed in this case would be:
Retained Earnings Account..........................................Dr $21,000
Accumulated Depreciation Account.............................Dr $1,000
To Assets Account $22,000
(Rectifying errors made in previous year)

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Income Tax Receivable Account..................................Dr $6,300
To Retained Earnings Account $6,300
(Tax Reversal recorded)

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Question 2: Accounting for share capital
Date Particulars Debit ($) Credit ($)
31-Mar-19 Bank A/c 10,400,000
Share Application Money A/c - Preference shares 1,600,000
Share Application Money A/c - Ordinary shares 8,800,000
(Receipt of share application money recorded)
15-Apr-19 Share Application Money A/c - Preference shares 1,600,000
Share Application Money A/c - Ordinary shares 8,800,000
Share Capital A/c - Preference shares 1,600,000
Share Capital A/c - Ordinary shares 8,000,000
Share Allotment Money A/c - Ordinary shares 800,000
(Allotment of shares recorded and excess money credited to allotment account)
30-Apr-19 Share Allotment Money A/c - Ordinary shares 3,000,000
Share Capital A/c - Ordinary shares 3,000,000
(Share allotment money due)
15-May-19 Bank A/c 2,200,000
Share Allotment Money A/c - Ordinary shares 2,200,000
(Receipt of share allotment money recorded)
01-Aug-19 Share Call Money A/c - Ordinary shares 1,000,000
Share Capital A/c - Ordinary shares 1,000,000
(Call money due)
01-Sep-19 Bank A/c 980,000
Share Call Money A/c - Ordinary shares 980,000
(Receipt of share allotment money recorded on 1,960,000 shares)
15-Sep-19 Share Capital A/c - Ordinary shares 240,000
Share Forfeiture A/c 220,000
Share Call Money A/c - Ordinary shares 20,000
(40,000 shares forfeited for non-payment of call money)
15-Sep-19 Bank A/c 224,000
Share Forfeiture A/c 16,000
Share Capital A/c - Ordinary shares 240,000
(Forfeited shares reissued)
15-Sep-19 Share Forfeiture A/c 7,000
Bank A/c 7,000
(Share reissue charges paid)
30-Sep-19 Share Forfeiture A/c (refer WN-2) 197,000
Bank A/c 197,000
(Excess amount refunded to shareholders)
Journal Entries in the Books of Funland Limited

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Question 3: Accounting for income tax
Requirement i:
Requirement ii

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Question 4: Revaluation of property, plant and equipment

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Question 5: Impairment of assets
Working Note 1: Computation of impairment loss and revised carrying amounts of assets
In accordance with AASB 136, an organization is needed to gauge their assets at fair
values. This requires the need of organization to compare the assets with the recoverable amount
and make comparison with the recoverable amount which would be treated as impairment loss
which is computed as follows:

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Allocation of impairment loss
The loss could be allocated directly to the assets and effectively assigned to respective
assets and goodwill in the books.
“Paragraph 104 of AASB 136” states that the impairment amount to losses of $ 51,000 is
apportioned to goodwill and the remainder of the loss would be assigned to assets which are
leftover in proportion of carrying value.

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Carrying amounts of assets:
Working Note 2: Computation of impairment loss and revised carrying amounts of assets

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The above impairment loss reversal is assigned to the asset depending on the carrying
amounts of the same. Therefore, the above-stated impairment loss reversal is assigned to plant
and equipment.

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Reference
Aasb.gov.au. (2019). Retrieved 7 May 2019, from
https://www.aasb.gov.au/admin/file/content105/c9/AASB108_07-04_COMPjan15_07-
15.pdf
Aasb.gov.au. (2019). Retrieved 7 May 2019, from
https://www.aasb.gov.au/admin/file/content105/c9/AASB110_07-04_COMPjan15_07-
15.pdf
Banker, R. D., Basu, S., & Byzalov, D. (2016). Implications of Impairment Decisions and
Assets' Cash-Flow Horizons for Conservatism Research. The Accounting Review, 92(2),
41-67.