Financial Accounting Process for Desklib

This article discusses the financial accounting process for ChiHerbal Ltd including scenarios on financing company operations, property, plant & equipment, lease and intangible assets. It explains the provisions of AASB 138 Intangible assets and how the development costs incurred by the business can be capitalized. The article concludes by stating that the capitalized costs should be amortized over the useful life of the asset and should be reviewed for impairment on a regular basis.

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

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FINANCIAL ACCOUNTING PROCESS
Table of Contents
Scenario 1 Financing Company Operations....................................................................................2
Scenario 2 Property, plant & equipment..........................................................................................4
Scenario 3: Lease.............................................................................................................................6
Requirement a:.............................................................................................................................6
Requirement b:.............................................................................................................................7
Scenario 4 Intangible Assets............................................................................................................7
Introduction..................................................................................................................................7
Discussion....................................................................................................................................8
Conclusion...................................................................................................................................9
Reference.......................................................................................................................................11

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FINANCIAL ACCOUNTING PROCESS
Scenario 1 Financing Company Operations
Dr. Cr.
Date Amount Amount
01-08-2017 Bank A/c. Dr. $23,00,000
To, Share Application A/c. $23,00,000
15-08-2017 Share Application A/c. Dr. $15,00,000
To, Share Capital A/c. $15,00,000
Cost of Stamp Duty A/c. Dr. $29,000
Legal Fees A/c. Dr. $7,000
To, Bank A/c. $36,000
Share Allotment A/c. Dr. $12,50,000
To, Share Capital A/c. $12,50,000
30-08-2017 Bank A/c. Dr. $7,00,000
Share Application A/c. Dr. $5,50,000
To, Share Allotment A/c. $12,50,000
01-05-2018 Share 1st Call A/c. Dr. $7,50,000
To, Share Capital A/c. $7,50,000
15-06-2018 Bank A/c. Dr. $5,77,500
Share Application A/c. Dr. $1,50,000
Calls-in-Arrear A/c. Dr. $22,500
To, Share 1st Call A/c. $7,50,000
01-07-2018 Share 2nd Call A/c. Dr. $5,00,000
To, Share Capital A/c. $5,00,000
In the books of ChiHerbal Ltd.
Journal Entries
(Being 1st call money due for 5,00,000 shares @ $1.5 per share)
(Being all the due call money received except 15,000 shares and
the balance amount transferred from share application fund)
(Being 2nd call money due for 5,00,000 shares @ $1 per share)
Particulars
(Being application money received for 1,00,000 shares @$8.00
shares and for 5,00,000 shares @$3.00 per share)
(Being application money for 5,00,000 shares @$3.00 shares
transferred to share capital and balance amount alloted on pro-
rata basis)
(Being cost of stamp duty and legal fees paid)
(Being allotment money due for 5,00,000 shares @ $2.5 per share)
(Being the balance allotment money for all shares received duly
and the balance transferred from share application fund)

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FINANCIAL ACCOUNTING PROCESS
30-07-2018 Bank A/c. Dr. $3,85,000
Share Application A/c. Dr. $1,00,000
Calls-in-Arrear A/c. Dr. $15,000
To, Share 2nd Call A/c. $5,00,000
01-09-2018 Share Capital A/c. Dr. $1,20,000
To, Calls-in-Arrear A/c. $37,500
To, Share Forfeiture A/c. $82,500
15-09-2018 Bank A/c. Dr. $90,000
Share Forfeiture A/c. Dr. $30,000
To, Share Capital A/c. $1,20,000
Brokerage Fees A/c. Dr. $4,000
To, Bank A/c. $4,000
30-09-2018 Share Forfeiture A/c. Dr. $52,500
To, Brokerage Fees A/c. $4,000
To, Bank A/c. $48,500
(Being brokerage fees paid for reissue of shares)
(Being the balance of forfeited shares returned to the former
shareholders)
(Being all the due call money received except 15,000 shares and
the balance amount transferred from share application fund)
(Being 15,000 shares forfeited duly)
(Being 15,000 shares forfeited shares re-issued at $6 per share)
Particulars Total 100000 shares Balance Shares
Total Money Received on Application $23,00,000 $8,00,000 $15,00,000
Share Application $15,00,000 $3,00,000 $12,00,000
Share Allotment $5,50,000 $2,50,000 $3,00,000
Share 1st Call $1,50,000 $1,50,000
Share 2nd Call $1,00,000 $1,00,000
Total Share Capital $23,00,000 $8,00,000 $15,00,000

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FINANCIAL ACCOUNTING PROCESS
Scenario 2 Property, plant & equipment
Dr. Cr.
Date Amount Amount
01-04-2017 Truck A A/c. $90,000
Cash A/c. $90,000
30-06-2017 Depreciation A/c. $4,000
Accum. Dep. - Truck A A/c. $4,000
Equipment A/c. $1,40,000
Cash A/c. $1,40,000
31-08-2017 Motor Vehicle Expenses A/c. 2500
Cash A/c. 2500
01-09-2017 Depreciation A/c. $2,333
Accum. Dep. - Equipment A/c. $2,333
Accum. Dep. - Equipment A/c. $2,333
Equipment A/c. $2,333
Loss on Revaluation (OCI) A/c. $22,667
Equipment A/c. $22,667
01-03-2018 Depreciation A/c. $10,667
Accum. Dep. - Truck A A/c. $10,667
(Being accumulated depreciation depreciation written off)
(Being depreciation charged on Truck A)
(Being value of equipment decreased)
Particulars
(Being Truck A purchased on cash)
(Being depreciation charged on Truck A)
(Being equipment purchased on cash)
(Being cash paid for truck A's transmission reapirs and oil change)
(Being depreciation charged on equipment)

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FINANCIAL ACCOUNTING PROCESS
Accum. Dep. - Truck A A/c. $14,667
Truck A A/c. $14,667
Cash A/c. 59000
Loss on Sale of Asset A/c. $16,333
Truck A A/c. $75,333
30-06-2018 Depreciation A/c. $11,979
Accum. Dep. - Equipment A/c. $11,979
Accum. Dep. - Equipment A/c. $11,979
Equipment A/c. $11,979
Equipment A/c. $16,979
Gain on Revaluation (OCI) A/c. $16,979
Asset Revaluation Surplus A/c. $5,687
OCI Summary A/c. $5,687
(Being accumulated depreciation depreciation written off)
(Being value of equipment increased)
(Being net loss on revaluation transferred to equity reserve)
(Being accumulated depreciation on truck A written off)
(Being truck A sold for cash)
(Being depreciation charged on equipment)
Depreciation Schedule for Truck A:
Date
Opening
Value
Useful
Life
Residual
Value
Depreciation
p.a. Period p.a.
Total
Depreciation
Closing
Balance
Fair
Value/Selling
Price Gain/Loss
(in months)
01-04-2017 $90,000 5 $10,000 $16,000 0 $0 $90,000 $0
30-06-2017 $90,000 5 $10,000 $16,000 3 $4,000 $86,000 $0
01-03-2018 $86,000 5 $10,000 $16,000 8 $10,667 $75,333 $59,000 -$16,333
Depreciation Schedule for Equipment:
Date
Opening
Value
Useful
Life
Residual
Value
Depreciation
p.a. Period p.a.
Total
Depreciation
Closing
Balance
Fair
Value/Selling
Price
Gain/Loss on
Revaluation
(in months)
30-06-2017 $1,40,000 10 $0 $14,000 0 $0 $1,40,000 $0 $0
01-09-2017 $1,40,000 10 $0 $14,000 2 $2,333 $1,37,667 $1,15,000 -$22,667
30-06-2018 $1,15,000 8 $0 $14,375 10 $11,979 $1,03,021 $1,20,000 $16,979

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FINANCIAL ACCOUNTING PROCESS
Scenario 3: Lease
Requirement a:
Date
Annual
Payment
Interest
Expense
Liability
Reduction
Liability
Balance
01-07-2017 $32,521
01-07-2017 $8,000 $8,000 $24,521
01-07-2018 $8,000 $2,206.92 $5,793.08 $18,728.31
01-07-2019 $8,000 $1,685.55 $6,314.45 $12,413.86
01-07-2020 $8,000 $1,117.25 $6,882.75 $5,531.10
01-07-2021 $6,029 $497.80 $5,531.10 $0.00
Dr. Cr.
Date Amount Amount
01-07-2017 Lease Liability A/c. Dr. $8,000
To, Cash A/c. $8,000
30-06-2018 Depreciation Expense A/c. Dr. $6,072
To, Accum. Depreciation A/c. $6,072
01-07-2018 Lease Liability A/c. Dr. $5,793
Interest Expense A/c. Dr. $2,207
To, Cash A/c. $8,000
30-06-2019 Depreciation Expense A/c. Dr. $6,072
To, Accum. Depreciation A/c. $6,072
Particulars
In the books of Chi Herbal Ltd.
Journal Entries

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Requirement b:
Date
Annual
Payment
Interest
Income
Asset
Reduction
Asset
Balance
01-07-2017 $35,322
01-07-2017 $8,000 $8,000 $27,322
01-07-2018 $8,000 $2,458.98 $5,541.02 $21,780.98
01-07-2019 $8,000 $1,960.29 $6,039.71 $15,741.27
01-07-2020 $8,000 $1,416.71 $6,583.29 $9,157.98
01-07-2021 $9,982 $824.22 $9,157.98 $0.00
Dr. Cr.
Date Amount Amount
01-07-2017 Cash A/c. Dr. $8,000
To, Lease Asset A/c. $8,000
30-06-2018 Depreciation Expense A/c. Dr. $4,617
To, Accum. Depreciation A/c. $4,617
01-07-2018 Cash A/c. Dr. $8,000
To, Interest Income A/c. $2,459
To, Lease Asset A/c. $5,541
30-06-2019 Depreciation Expense A/c. Dr. $4,617
To, Accum. Depreciation A/c. $4,617
In the books of Cessnock Ltd.
Journal Entries
Particulars
Scenario 4 Intangible Assets
Introduction
The main purpose of this assessment is to analyze the business of ChiHerbal Ltd which is
in the process of developing an online sales team which can project holographic images of the
products which the customers wants to buy. The project has been delayed a bit but the same is

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expected to earn significant revenues for the business. Th assessment requires identification of
the development costs incurred by the business as per the provisions of AASB 138 Intangible
assets (Russell, 2017). The assessment will be analysing the provisions which are stated in the
standard relating to intangible assets.
Discussion
In the case which is provided in the question, ChiHerbal Ltd has developed a technology
which can help the business to generate more sales revenues. As per AASB 138, in order to
identify an intangible asset one of the two criteria should be met. The first one being the asset
should be separable from the entity which means that it must be capable of being sold, rented,
licensed etc and the other condition is that it should arise from contractual or some legal right
(Steenkamp & Steenkamp, 2016). Moreover, the asset should be non-physical in nature. In the
above case, the technology is not physical in nature and the same is capable of being rented or
sold in the market, therefore the same can be considered to be an intangible asset (Vetoshkina &
Tukhvatullin, 2015).
As per AASB 138, intangible assets of the business should be recognized if the economic
benefits from the use of the asset is probable and will flow to the entity and the cost related to the
asset can be measured accurately (Johnwiley.com.au. 2018). The management of ChiHerbal Ltd
has developed the technology for the new product which the management of the company wants
to introduce in the market. As per para 8 of AASB 138, Development is defined the application
of research findings or knowledge to a plan or design for the production of new or sustainable
improved materials, devices, products before the start of commercial production or use (Niebel,
O’Mahony & Saam, 2013). In the case of ChiHerbal Ltd, the management has developed the

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FINANCIAL ACCOUNTING PROCESS
new technology which is expected to generate revenues. The initial recognition of the
development and the treatment for the same will be done as per the provisions stated in AASB
138 (Ivanov & Mayorova, 2015).
As per the provisions of AASB 138, selective Capitalization approach is considered for
initial recognition of development cost incurred by the business. In this approach some costs are
recognized as intangible assets while the other costs incurred are treated as expenses of the
business (Bianchi, 2017). Development costs which meets certain stringent conditions are
capitalized and on the other hand intangible assets arising from research and development are
measured initially at cost (Evers, Miller & Spengel, 2015).
As per the disclosure requirement of AASB 138, the aggregate amount of research and
development expenditure which is undertaken by the business needs to be recognized as
expenses for the business (Yallwe & Buscemi, 2014). In the case of ChiHerbals ltd, the software
development expenses should be treated as intangible assets of the business as per the provision
of AASB 138 (Corrado et al., 2013). The development expenses which are incurred by the
management should be recognized as intangible assets of the business.
Conclusion
Thus, from the analysis of the above discussion, it is clear that the developmental
expenditure which is incurred by the ChiHerbals Ltd should be treated as intangible assets of the
business. This is to be done as the expenses satisfies the provisions of AASB 138 Intangible
assets. In addition to this, the above discussion also clarifies the identification requirements of
intangible assets of the business and also the necessary treatment for the same. In addition to this,
the discussion part also clarifies about the disclosure requirement which the management needs

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to adhere while accounting for the intangible assets of the business. Thus it can be concluded that
the expenses is to be treated as intangible assets of the business.

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Reference
Bianchi, P. (2017). The economic importance of intangible assets. Routledge.
Corrado, C., Haskel, J., Jona-Lasinio, C., & Iommi, M. (2013). Innovation and intangible
investment in Europe, Japan, and the United States. Oxford Review of Economic
Policy, 29(2), 261-286.
Evers, L., Miller, H., & Spengel, C. (2015). Intellectual property box regimes: effective tax rates
and tax policy considerations. International Tax and Public Finance, 22(3), 502-530.
Ivanov, G., & Mayorova, E. (2015). Intangible assets and competitive advantage in retail: case
study from Russia. Asian Social Science, 11(12), 38.
Johnwiley.com.au. (2018). [online] Available at:
http://www.johnwiley.com.au/highered/aas2e/content029/fact_sheets/AASB138_ch11.pdf
[Accessed 22 Jul. 2018].
Niebel, T., O’Mahony, M., & Saam, M. (2013). The contribution of intangible assets to sectoral
productivity growth in the EU.
Russell, M. (2017). Management incentives to recognise intangible assets. Accounting &
Finance, 57, 211-234.
Steenkamp, N., & Steenkamp, S. (2016). AASB 138: catalyst for managerial decisions reducing
R&D spending?. Journal of Financial Reporting and Accounting, 14(1), 116-130.
Vetoshkina, E. Y., & Tukhvatullin, R. S. (2015). Economic efficiency estimation of intangible
assets use. Mediterranean Journal of Social Sciences, 6(1 S3), 440.

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Yallwe, A. H., & Buscemi, A. (2014). An era of intangible assets. Journal of Applied Finance
and Banking, 4(5), 17.