Financial Accounting Process

This document provides study material on the financial accounting process, including scenarios related to financing company operations, property, plant and equipment, lease, and intangible assets. It also includes requirements and references.

Running head: FINANCIAL ACCOUNTING PROCESS
Financial Accounting Process
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1FINANCIAL ACCOUNTING PROCESS
Table of Contents
Scenario 1: Financing Company Operations..............................................................................2
Scenario 2: Property, Plant and Equipment...............................................................................3
Scenario 3: Lease.......................................................................................................................4
Requirement a:.......................................................................................................................5
Requirement b:.......................................................................................................................6
Scenario 4: Intangible Assets.....................................................................................................6
References:.................................................................................................................................9

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Scenario 1: Financing Company Operations

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Scenario 2: Property, Plant and Equipment

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Scenario 3: Lease

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Requirement a:
Date Opening balance
Interest
expenses Payment
Principal
repayment
Closing
balance
01-Jul-17 $35,322 $0 $8,000 $8,000 $27,322
01-Jul-18 $27,322 $2,459 $8,000 $5,541 $21,781
01-Jul-19 $21,781 $1,960 $8,000 $6,040 $15,741
01-Jul-20 $15,741 $1,417 $8,000 $6,583 $9,157
01-Jul-21 $9,157 $824 $8,000 $7,176 $1,982
30-Jun-22 $1,982 $178 $2,160 $1,982 $0
Lease Payments Schedule

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Requirement b:
Scenario 4: Intangible Assets
From the provided information, it has been identified that Chi Herbal Limited has
undertaken a project so that it could develop an online sales team. In this project, there is
involvement of all sales representatives equipped with hologram-projecting equipment that

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has the ability of estimating a correct image of all the stock items, which have been ordered
by the customers.
In the research stage of an internal project, it is not possible for an organisation to
demonstrate the existence of an intangible asset expected to provide future economic
benefits. Hence, this expenditure needs to be treated in the form of expense at the time it is
incurred (Osinski et al. 2017). According to “Paragraph 59 of AASB 138”, some instances
of development activities include the following:
 Construction, design and testing of pre-use prototypes and models
 Design of jigs, tools, dies and moulds that include new technology
Development cost signifies the development cost or the cost involved to make the
asset having the potential of bringing future economic value to an organisation (Yallwe and
Buscemi 2014). According to “Paragraph 57 of AASB 138”, the assets under development
need to be recognised in the form of assets, if they fulfil certain criteria, which are listed
down as follows:
 The assets need to be technically viable and they have to be available for usage or sale
on completion
 The intention of the organisation to sell or utilise the asset under development
 Present of adequate amount of resources for completing the asset development
(Aasb.gov.au 2019)
 The assets, which are under development, would ensure future economic benefits to
the organisation
 The development expenditure could be gauged reliably

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Based on the provided facts, there are certain costs that Chi Herbal Limited has
incurred, out of which the following falls under the above-mentioned criteria:
Costs Amount (in $)
Depreciation of Computer Equipment ($500,000/5 years) 100,000
Software Development 380,000
Consultants’ Fees 620,000
Total costs 1,100,000
“Paragraph 97 of AASB 138” states that the depreciable value of an intangible asset
with a finite useful life needs to be allocated systematically over its economic life.
Amortisation would start at the time the asset is available for use, which implies the time it is
in the condition and location crucial for it to be able to operate in the intended manner
(Sinclair and Keller 2014). In addition, the asset under development, which is the hologram-
projecting equipment, is an asset that would ensure future economic benefits to the
organisation. According to “Paragraph 21 of AASB 138”, it could be stated that the asset
would provide future economic benefits to the organisation and the cost associated with the
asset could be measured with precision. The cost could be gauged reliability and thus, it
meets the criteria laid out in the above-stated paragraph. Hence, it is necessary for Chi Herbal
Limited to capitalise the development expenditure.

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References:
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-18.pdf
[Accessed 17 Apr. 2019].
Osinski, M., Selig, P.M., Matos, F. and Roman, D.J., 2017. Methods of evaluation of
intangible assets and intellectual capital. Journal of Intellectual Capital, 18(3), pp.470-485.
Sinclair, R.N. and Keller, K.L., 2014. A case for brands as assets: Acquired and internally
developed. Journal of Brand Management, 21(4), pp.286-302.
Yallwe, A.H. and Buscemi, A., 2014. An era of intangible assets. Journal of Applied Finance
and Banking, 4(5), p.17.