Financial Accounting Processes for Desklib

This article covers financial accounting processes for Desklib, including financing company operations, property, plant and equipment, leases, and intangible assets. It includes examples and explanations of each process, as well as relevant accounting standards and guidelines.

Running head: FINANCIAL ACCOUNTING PROCESS 1
financial accounting processes
Name
Institution

Running head: FINANCIAL ACCOUNTING PROCESS 2
Scenario 1: Financing company operations
ChiHerbal Ltd
No. of
Shares
applied for
No. of
Shares
Allotted
Money
Received
Application
$4.2
Allotment
$4.9
Call 1
$1.66
Call 2
$2.11
100 000 100 000 1 200 000 420000 490, 000 166,000 211,000
300 000 300 000 2 700 000 1 260 000 1470 000 -
440 000 400 000 1 760 000 1 680 000 160 000
20 000 0 80 000
860 000 800 000 $5 740 000 $3 360 000 $2,120,000 $166,000 $211,000
General Journal
2018
To 1 November 15 Cash Trust Dr 5,919,000
Application Cr 5,919,000
(Cash received on application)
November 7 Application Dr 84,000
Cash Trust Cr 84,000
(Refund to 20 000 applicants)
Application Dr 3 360 000
Allotment Dr 4,214,000
Share Capital Cr 7, 574,000
(Allotment of 860 000 shares)
Cash Dr 5857000

Running head: FINANCIAL ACCOUNTING PROCESS 3
Cash Trust Cr 5857000
(Transfer of trust funds)
Application * Dr 2 420 000
Allotment Cr 2,120,000
Calls in Advance Cr 377,000
(Allocation of application
across allotment and calls in advance)
* please see on the working table
Share Issue Costs/Share Capital Dr 12 000
Cash Cr 12 000
(Payment of share costs $12 000)
December 1 Cash Dr 1,932,000
Allotment Cr 1,932,000
(Cash received on allotment)
2018
February 1 Call 1 Dr 1,427,600
Share Capital Cr 1,427,600
(Call of $1.66 per share)
Calls in Advance Dr 166 000
Call 1 Cr 166 000
(Transfer of calls received
in advance)
March 1 Cash Dr 1,162,000

Running head: FINANCIAL ACCOUNTING PROCESS 4
Call 1 Cr 1,162,000
June 1 Call 2 Dr 1,814,600
Share Capital Cr 1,814,600
($1.40 per share)
Calls in Advance Dr 211,000
Call 2 Cr 211,000
(Transfer of calls received
in advance)
June 28 Cash Dr 1,477,000
Call 2 Cr 1,477,000
Chi Herbal Ltd
Equity
(as at 1st June 2018)
Contributed equity:
(800 000 shares paid to $12,87) $10,296,000
Less Share issue costs 12,000
Total Equity $10,284,000
Scenario 2: Property, Plant and Equipment

Running head: FINANCIAL ACCOUNTING PROCESS 5
CHIHERBAL LTD
During 31 December 2016, there was a Change from the cost model to the revaluation
model
Depreciation expense – Machine A Dr 15,000
Accumulated depreciation Cr 15,000
(1/2 x 10% x $300 000)
Depreciation expense – Machine B Dr 10,000
Accumulated depreciation Cr 10,000
(1/2 x 10% x $200 000)
Machine A Machine B
Cost 300,000 Cost 200,000
Accum depn 135,000 Accum depn 40,000
165,000 160,000
Fair value 180,000 Fair value 155,000
Increment 15,000 Decrement 5,000
Accumulated depreciation – Machine A Dr 135,000
Machine A Cr 135,000
(Writing the asset down to carrying amount)
Machine A Dr 15,000
Gain on revaluation of machinery (OCI) Cr 15,000
(Revaluation of asset)
Income tax expense – gain on
revaluation of asset (OCI) Dr 4,500
Deferred tax liability Cr 4,500
(Tax-effect of revaluation)
Gain on revaluation of machinery (OCI) Dr 15,000

Running head: FINANCIAL ACCOUNTING PROCESS 6
Income tax expense (OCI) Cr 4,500
Asset revaluation surplus – Machine A Cr 10,500
(Accumulation of net revaluation gain in equity)
Accumulated depreciation – Machine B Dr 40,000
Machine B Cr 40,000
(Writing the asset down to carrying amount)
Loss – revaluation decrement (P/L) Dr 5,000
Machine B Cr 5,000
(Revaluation of machine from $200 000
to $155 000)
Depreciation expense of Machine A Dr 15,000
Accumulated depreciation Cr 15,000
(1/6 x 0.5x $180,000)
Depreciation expense of Machine B Dr 15,500
Accumulated depreciation Cr 15,500
(0.2 x 0.5x $155 000)
Machine A $ Machine B $
Carrying amount 165,000 Carrying amount 139 500
Fair value 163,000 Fair value 136,500
Decrement 2,000 Decrement 3,000
Accumulated depreciation for Machine A Dr 15,000
Machine A Cr 15,000
(The writing down to the carrying amount)
Loss on revaluation of machinery (OCI) Dr 2,000
Machine A Cr 2,000

Running head: FINANCIAL ACCOUNTING PROCESS 7
(Revaluation downwards)
Tax liability Deferred Dr 600
Income tax Cr 600
Asset revaluation surplus for Machine A Dr 1,400
Expense (Income tax Dr 600
Loss on revaluation of machinery
Cr 2,000
(Reduction in accumulated equity due
to revaluation decrement)
Accumulated depreciation – Machine B Dr 15,500
Machine B Cr 15,500
(Writing down to carrying amount)
The loss by revaluation decrement of Dr 3,000
Machine B Cr 3,000
(Writing down to fair value)
Scenario 3: Leases

Running head: FINANCIAL ACCOUNTING PROCESS 8
Part A
Chi Herbal Ltd should base their classification criteria on the following:
(i) The lessee cannot cancel the lease contract. A finance lease cannot be canceled as the
lessee has the ownership of the property for the time agreed.
(ii) The lessee enjoys all the rewards and takes all the risks of the asset until it is returned,
on the date agreed.
(iii) The finance lease treatment is similar to that of the loan as It appears in the balance
sheets.
(iv) Linhong, G., & Jun, L. (2017) stated that, the present value of the minimum lease
payments is substantial all the economic
life of the leased asset.
PV of MLP = 30,500 x 2.8550 + 3,115 x 0.4972
= 30,500 + 85,650+ 1,350
=103,791
Present Value of Minimum Lease Payment ÷ Future Value= 103,791÷ 129,000 = 80.5%
(v) The five-year lease term represents the asset life (i.e. 5/6*100 =83.3%)
(vi) The lessee bears all maintenance and insurance costs consistent with ownership. The lessee
incurs all insurance and maintenance cost just like the owner of the asset.
The Chi herbal should classify as a finance lease.

Running head: FINANCIAL ACCOUNTING PROCESS 9
PART B – LEASE PAYMENT SCHEDULE
PV of MLP = 30 500 x 3.3522 + 3,115 x 0.4972
= 1,022,42.1 + 1548.778 =
=103790.9
=103,791
Chi Herbal Ltd (Lessee)
Schedule of lease payments
MLP Interest Liability liability
expense reduction
balance
$ $ $
$
31 Dec 2015
103,791
31 Dec 2015 30 500 30 500
73,291
31 Dec 2016 30 500 10,994 19,506
62,297
31 Dec 2017 30 500 9,345 21,155
52,952
31 Dec 2018 30 500 7,943 22,557
30,395
31 Dec 2019 30 500 4,559 25,941
4,454
31 Dec 2020 3115 668* 4,454
*Includes adjustment for the effect of rounding

Running head: FINANCIAL ACCOUNTING PROCESS
10
PART C
31 December 2016
Lease Liability Dr 19,506
Interest Expense Dr 10,994
Cash Cr 30,500
(Second lease payment in advance)
Depreciation Expense Dr 20,135
Accumulated Depreciation Cr 20,135
(Depreciation for year 1, [$103,791– 3,115] ÷ 5)
31 December 2017
Lease Liability Dr 21,155
Interest Expense Dr 9,345
Cash Cr 30,500
(Third lease payment in advance)
Depreciation Expense Dr 20,135
Accumulated Depreciation Cr 20,135
(Depreciation for year 2, [[$103,791– 3,115] ÷ 5))
31 December 2018
Lease Liability Dr 22,557
Interest Expense Dr 7,943
Cash Cr 30,500
(Fourth lease payment in advance)
Depreciation Expense Dr 20,135
Accumulated Depreciation Cr 20,135
(Depreciation for year 3, [$103,791– 3,115] ÷ 5)

Running head: FINANCIAL ACCOUNTING PROCESS
11
31 December 2019
Lease Liability Dr 25,941
Interest Expense Dr 4,559
Cash Cr
30,500
(Fifth lease payment in advance)
Depreciation Expense Dr 20,135
Accumulated Depreciation Cr 20,135
(Depreciation for year 4, [$103,791– 3,115] ÷ 5)
31 December 2020
Depreciation Expense Dr 20,135
Accumulated Depreciation Cr 20,135
(Depreciation for year 5, [$103,791– 3,115] ÷ 5)
Lease Liability Dr 4,454
Interest Expense Dr 668
Leased Equipment Cr 3,115
(Return of leased asset at guaranteed residual value)
Accumulated Depreciation Dr 98,669
Leased Equipment Cr
98,669
(De-recognition of leased asset)

Running head: FINANCIAL ACCOUNTING PROCESS
12
Scenario 4: Intangible Assets
Introduction
In the 2014/2015, the chi herbal had finished the project believing that, it was going to be
successful. Although the company had the freedom to do what it takes to make sure that, the
problem is solved, but had to follow the guidelines provided in paragraph 57 of the AASB 138.
The start and the end of the project should be predetermined in accordance with some factors
listed and explained below. It is accountable for its outlay in the following ways (.
Technical feasibility
Linhong, G., & Jun, L. (2017) explained that, The company will be accountable for the
unproductivity of the project if it occurs. It is very difficult to forecast the future of any business
in terms of profitability or ability to serve what it is supposed. To reduce this, the Chi herbal
must do some research. Regarding the international financial reporting standards, the carrying
cost must be equal to the fair value of the asset. During the viable period of the asset to be
introduced, the chi herbal should make sure that the revaluation is taken into account. The
revaluation process helps the owner of the asset to keep its updated value anytime and therefore
avoid unproductive projects. The workability and flexibility are the other important aspects of
the business projects to consider. It is not sensible when the machine that is not operable is
introduced in the market for serving other people.

Running head: FINANCIAL ACCOUNTING PROCESS
13
According to paragraph 57 of AASB, the asset should be categorized as either intangible or not
tangible in nature. Intangible assets are like goodwill, permits, patents, copywrites and
trademarks. This intangible asset is also considered in the valuation of the asset. Other intangible
assets like the trademarks should be measured initially at cost according to the paragraph 58 of
AASB. The chi herbal is accountable for such costs and should be taken care of at the start of the
business. Both types of the assets should be well categorized so as for the project to be
recognizable as stated by Linhong, G., & Jun, L. (2017). The fixed asset is considered as the asset
that can be transferred and the intangible asset is known by its nature of not able to see, touch or
physically transfer it. This is in accordance with paragraph 57 of AASB.
Intention to complete and sell
The chi herbal does the research, prepares the patent, and until it is complete, it can be used. It
must be clear that the intention of the business is to complete and also to sell. Paragraph 34 of
AASB states that the cost of research on an internal project should be considered when incurred.
The chi herbal must have considered this during the research period of 2011 and 2012. From
where it now moves to the testing period. Wong, K., & Joshi, M. (2015) stated that, for the
patenting, the government will make sure that every move until the time it is complete is
countable and it followed the provisions of AASB and the law. Chi herbal will keep records of
the patent administration so as to keep evidence of ownership. Bear in mind that, anybody can
claim for the properties that are viable economically and hence still the innovative or incentive
techniques of the other. The chi herbal should be accountable for any error or misrepresentation
until it is complete.
The project must be able to sell and being used

Running head: FINANCIAL ACCOUNTING PROCESS
14
In the year 2016/2017, the project was modified to make it sellable due to arising design
problems. The chi herbal must reduce the claims related to the warranty regarding the operation
of the filter system. The chi herbal is accountable for such claims and should make sure that
everything operates at a very high efficiency. The project must have the demand, and the filter
system usable by the users. The intangible assets are acquired when the government is sure that,
what you did is viable and carries an economic value.
A good invention or innovation attracts the economic factors and therefore, its survival will be
based on them and their fore leads to the legal ownership. The invention and innovation show a
unique acquired skill of a person that should be protected. The chi herbal must have come up
with the solution to solve the existing problem, and therefore, the solution must be usable by the
whole community as should be researched in 2011 to 2012 and 2012 to 2013. And, the testing in
2014 and 2015 should ensure the compatibility between the customer and the problem.
The existence of a market
Chi herbal is accountable to make sure that there is a market for their product. There must be a
customer and a certain price which the customer is supposed to pay. As done in 2026/2017, the
research done to modify the design may be meant to enhance the market share, ore to attract hire
price. More so, the chi herbal identified the market before, in connection to the available gap for
the need for filters, to eliminate the iron content.
Linhong, G., & Jun, L. (2017) also concluded that, for the market to exist, there must be a high
demand for the product is started. Chi herbal had been looking at what the farmers are going
through and thereafter came the solution to solve this and enable the customers to use the clean
water in their production and hence increases the productivity. This company had also helped to

Running head: FINANCIAL ACCOUNTING PROCESS
15
curb the problem that could arise due to shortages of the farming products in the market. The
shortage is also the determinant what the customers want from the filter system
Availability of resources
The chi herbal will be accountable for the resources available. This company had enough
resources when they were making this product. The resources include human resource and the
raw materials. The company used the raw materials in a way that could help them achieve what
they wanted. This means that they could be able to budget for the available resources and come
up with a sensible product that can boost the economy.
More so, the resources also include the acceptance of the project by the government that could
lead to the patent offers. In 2016/2017, the company had prepared some fees to pay for the
patent. In 2017/2018, the company had to pay some fees for the patent, so that, no one could
come up with the fake product like that. Chi herbal also had enough financial resources to cater
for every activity needed regarding this project.
Ability to measure costs reliably
After the modification of the design in 2016/2017, the product cost was readily available.
According to the paragraph 57 of AASB 138. Linhong, G., & Jun, L. (2017) explained that, It is
advisable to record and measure the cost outlay appropriately, whether intangible or tangible.
This will help with the knowledge of patent cost and other intangible assets. It also helps the
project to run in a way that is profitable and accountable.
conclusion

Running head: FINANCIAL ACCOUNTING PROCESS
16
The cost incurred in 2017/2018 is the only amount that can be capitalized. The expensed money
is all the amount of money incurred until 2016 and 2017.
Reference
Linhong, G., & Jun, L. (2017). A Case Study of Successful Financial Leasing Project.
INNOVATION AND MANAGEMENT.
Wong, K., & Joshi, M. (2015). The impact of lease capitalization on financial statements and key
ratios: Evidence from Australia. Australasian Accounting, Business and Finance Journal,
9(3), 27-44.