Superannuation Fund Accounting

This assignment tasks students with analyzing the financial statements of a superannuation fund. The analysis involves examining various components like service cost, contributions received, benefits paid, return on plan assets, actuarial losses, and journal entries to reconcile balance sheet items. It requires an understanding of accounting principles applied to superannuation funds.

Running head: FINANCIAL REPORTING 1
Financial Reporting
Name:
Institution:
Date:

FINANCIAL REPORTING 2
Question 1
The highest and best use principle
This is a principle used by the valuation experts in finding the possible and probably the best
use in which a property particularly land can yield the maximum reward if put into best use.
It is based on the principle of maximum gain from a real estate. This is presumably so if the
current use of land does not yield maximum output therefore not relevant to the best use and
highest principle. It is usually established by conducting a site analysis for the property where
the following factors are then considered by the valuer; first is the physical possibility and
whether the land is legally allowable. Then the valuer will ascertain whether the use will be
financially feasible and profitability levels that would accrue also known as the maximum
utility level (Harrington, Nunes & Roland, 2010).
In this report, Anne Lockwood is discouraging valuation at fair value as it has too much
judgment required to make a decision. There is a lot of time used and consumed in
determining the fair value where the global economic volatility always causes the fair value
to vary. The financial auditor suggest that it is wise to use the market value in valuation of a
property due to a lot of inconsistencies in the way different businesses use the fair value to
give account in Plant, Property and Equipment valuation.
AASB 13 gives clear directions to accountants on how to prepare financials using the market
value and not fair value due to changes in valuations. The highest and best use principle is
always considered in determining the value of a property but also possess a lot of problems
for nonprofit making organizations (Hitchner, Hyden & Mard, 2013).
The example given is that the age care home will be knocked down and the owner of the
building will build flats on the same piece of land. In this case, considering that the age care

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home was not for profit organization, it wasn’t expected to realize profits. However, building
of the block of flats will ensure that the land is put into maximum use and not used for
altruistic purposes. Furthermore, the real challenge is determining the value of the asset as
there is no intention shown by the owners to get the value of the land. The value given of
$10 million is not the market value and factors such as inflation of the assets makes the
valuation even more complex and requires the judgment call for use of fair value in asset
determination (Hyman, n.d.).
Question 2
Determine how Last Ltd should account for the results of the impairment tests at both 31
December 2016 and 31 December 2017.
Relevant Issues:
IAS 36 brings into limelight the concept of cash generating units (CGU). Cash generating
units are also called cash impairment units (Reeve, 2012)
Impairment Test for year ended 31/12/16
a. Calculations:
Impairment loss= Carrying amount CA- Recoverable amount RA
At Time= 1500 – 1044
= $ 456
Impairment loss at Leisure= CA – RA

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= 1200-990
= $ 210
Since it is impairment at Cost model impairment loss is recognized as following in the ledger
journals entries
DR; PL impairment loss CR; Asset allowance account
b. General Journal Entries 31/12/16:
Date Account DR CR
31/12/2016 Profit and loss account - Time 456
31/12/2016 Asset allowance account 456
31/12/2016 P&L - Leisure 210
31/12/2016 Asset allowance account 210
2. Impairment Test 31/12/17
a. Calculations
This is a revaluation model/ Revaluation surplus
Impairment loss= Carrying amount CA- Recoverable amount RA
At Time= 1322 – 1502
= $ (180)
Impairment loss at leisure= CA – RA

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= 1433-1520
= $ (87)
b)General Journal Entries for year ending 31/12/17:
Date Account DR CR
31/12/2017 Equity - Time 180
31/12/2017 Asset- allowance account 180
31/12/2017 Equity - Leisure 87
31/12/2017 Asset 87
Question 3 – Research and Development
Relevant Issues:
Unmanned technologies posted a well thought announcement by Martin Lockheed for
achieving a milestone in research and development of the organization.
There is however a very big difference between Research and Development phase as I will
discuss in this question.
Research and development is treated as an expense account in the income statement which
shows that it is an expense account and not a capital item (Weygandt et al., n.d.). Most of the
firms including Martin Lockheed’s Unmanned technologies uses a lot of resources in R&D of
the company for growth and to be ahead of the competitors in the game. Accounting
allocation for the R&D are the expenses of the year whether the company hired another party
to carry the research or was done by the company itself. This will give rise to the following

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issues;
Suppose that a company tackles a research and development project that allows it to improve
its industrial process. The project is divided into two phases:
1 - Study of the adequate procedures for the improvement of the industrial process, that is,
Research
2 - Development of the necessary systems for the implementation of the new procedures,
proceeding if it registers the industrial property of these procedures and systems.
So far, when we read section a) of the 6th standard of valuation of the General Accounting
Plan, referring to the expenses in research and development, we had some doubts needed
further explanation but thanks to the accounting resolution, they seem to be resolved. In our
view some of these doubts are: Accounting doubts in the expenses of research and
development. The following questions should be asked in R&D
- Can research or development expenses be activated in subsequent years if the requirements
of the standard are already fulfilled (Koken, 2011)
- When do we begin to amortize research and development expenses?
We note that in both cases the maximum repayment period is short term, but it does not
clarify the time to be taken as the start of amortization.
The amortization of the development expenses will start from the date the project ends.
Can research expenses be part of industrial property? Yes they can due to the amount used to
research on the property
1. Difference between two phases:
Research: This is the original and planned inquiry that seeks to discover new knowledge and
a better understanding of those existing in scientific or technical fields. It contains the
research expenses activated by the company, in accordance with what is established in the

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registration and valuation rules
Development means the concrete application of the achievements of research or any other
type of scientific knowledge to a particular plan or design for the production of new or
substantially new materials, products, methods, processes or systems until commercial
production is started (Power & Kohler, 2012).
1. Accounting for Research & Development:
This will make a difference in accounting entries. Development expenses will start to be
amortized once the project is completed, which will make the amortizable base the total cost
of the project and its share the result of distribution in five years. However, research expenses
begin to be amortized as they become assets, which mean that their value can change from
one period to another. This, therefore, implies at the same time to have to change the quota of
each exercise.
What happens if we do not know when the research ends and development begins (Power &
Kohler, 2012)
Decision / Conclusion / Reasons and Justification:
For research and development accounting, the standard evaluation of the firm should clarify
on the account treatment of the expense. The decision to include research and development
phase as an expense results from the fact that it is a continuous process which may or may not
be capital intensive but appears like they are operational activities of unmanned technologies.
Unlike research expenses, those caused by development projects may be part of the cost of
Industrial Property when the corresponding patent or similar right is adjusted (Whittaker,
2007).

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Under the Plan's standard, we know the requirements that must be given in order to activate
certain expenses and consider them as intangible assets therefore the expenses can be
activated in subsequent years. However, expenses that fall under the research and
development can de activated or deactivated in later stages depending on the policy of the
firm (Whittaker, 2007).
Question 4
Relevant Issues:
1. Deficit of Fund
Net sum 19300
Less; closing balance (23000)
Deficit of fund (3700)
2. Net Defined Benefit Liability
Item amount $”000”
Present value defined benefit obligation 20,000
Add; Benefits paid 2100
22,100
Less: Past service cost (2000)
Current service cost (800)
Closing balance 23000

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3. Net Interest
Net Interest= 10% of
Present value of the defined benefit obligation 1 Jan. 20 000 000
As at Dec 2015= 10% of 20000000= $2,000,000
As at Dec 2016= 10% of 23 000 000= $ 2300000
Total interest earned = $ 4300000
4. Reconciliation
Item amount $”000”
Present value defined benefit obligation 20,000
Add; Benefits paid 2100
22,100
Less: Past service cost (2000)
Current service cost (800)
Closing balance 23000
Net sum 19300
Less; closing balance (23000)

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Deficit of fund (3700)
5. Summary Journal
Date Account DR CR
31 Dec
2015
Net interest 2,000
P $ L 2,000
31 Dec
2016
B/sheet 185
Return on planed assets 185
4. Reconciliation
Net defined benefit
liability
$
Defined benefit
obligation
$
Plan
assets
$
Balance 1 January 2016 - 20000 19000
Past service cost 2000
Revised balance - 210
Interest @ 10% 210 100
Current service cost 800
Contributions received by fund 1000
Benefits paid by fund - 2100
Return on plan assets excluding
interest recognised *
400
Actuarial loss on remeasurement of
DBO
- 100
Balance 31 December 2016 4000 23000 191
00

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5. Reconciliation for Journal Entries
Workings
Profit or Loss Other
comprehensive
Income
Bank Net DBL(A)
Balance 1 January 2016
Past service cost 2000
Net interest 210 2000
Service cost 2000
Contributions paid to the fund
Gain on plan assets (ex.
interest)
210
Actuarial loss on DBO 100
Journal entry 2000
Balance 31 December 2016 2000 2000

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References
Harrington, J., Nunes, C., & Roland, G. (2010). 2010 goodwill impairment study.
[Morristown, N.J.]: Financial Executives Research Foundation.
Hitchner, J., Hyden, S., & Mard, M. (2013). Valuation for financial reporting. Hoboken, N.J.:
Wiley.
Hyman, M. Guides sixth impairment training workbook.
Koken, E. (2011). The Superannuation Handbook 2008-09. Wrightbooks.
Power, T., & Kohler, A. (2012). Superannuation For Dummies. Hoboken: John Wiley &
Sons.
Racine, S. (2010). Accounting principles. Charleston, SC: BiblioLife.
Reeve, F. (2012). Accounting principles. [Place of publication not identified]: Nabu Press.
Weygandt, J., Kieso, D., Kimmel, P., Trenholm, B., Warren, V., & Novak, L. Accounting
principles.