Financial Statement Disclosures

Financial Statement Disclosures
Answer 1 Part 1
During the year there has been increase in the warranty cost along with return of
goods ,so the directors of the company decided to increase the provision for
warranty cost for the year ended 30th June,2018. The said decision shall impact
the financial statement of the current year and accordingly disclosure shall be
made in the financial statement of 30 June, 2018.
The existing journal entry with respect to provision:
Profit and Loss A/c...Dr $21,500
To Provision for Warranties A/c $21,500
(430000*5%)
Adjustment Entry
Profit and Loss A/c...Dr $12,900
To Provision for Warranties A/c $12,900
(430000*3%)
Accordingly, the amount of provision shall be disclosed in financial statement as
$ 34,300.
In terms of AASB 110, Adjusting events after the reporting period requires
adjustment in the financial statement for events existing on the balance sheet
date.
Also, in terms of AASB 108, the said change in estimate shall have prospective
effect on the balancesheet.
Answer 1 Part 2
The said conditions existed on the balance sheet date and the events have
crystallised post the balance sheet date, the event qualifies for adjusting and
appropriate adjustment shall be made in the financial statement in terms Para
9(b) of AASB 110 of Australia “Adjusting events after the reporting period”. (it is
assumed that conditions existed on the balance sheet date as insolvency is not
one day affairs and it is apparent from 6-7 months before such event)
Accordingly, the following adjusting entry shall be passed in the books of
company:
Bad debt A/C.. Dr $420,000
To Accounts Receivable A/c $420,000
And
Profit and Loss A/c..Dr $420,000
To Bad debt A/c. $420,000
Answer 1 Part 3

In the present case, since the change have taken place post the balance sheet
date and there was no indication for the events on the end of the financial year.
Hence, the said event shall qualify for non-adjusting event. Accordingly, the
entity shall not adjust the financial statement to reflect the non-adjusting event
after the end of the financial period.
Balance sheet of 2019 shall be impacted by the event.
Answer 1 Part 4
In terms of AASB 108, Accounting Policies, Changes in Accounting Estimates and
Errors, the current situation qualifies for a retrospective restatement .
Accordingly, the financial event of the past years shall be adjusted to disclose
the require adjustment.
Journal entries
2017
Repairs A/c..Dr 22000
To Property Plant and Equipment A/c 22000
Profit and Loss A/C...Dr 21000
Depreciation A/c...Dr 1000
To Repairs A/c... 22000
2018
Depreciation A/c...Dr 1000
To Profit and Loss A/c 1000
Answer 2
In the books of Funland Limited
Journal Entries
$ $
Date Particular Dr Cr
31-03-
2019 Bank A/c...Dr 1600000
To Application for Preference Shares A/c 1600000
(Being preferred shares application received)
31-03-
2019 Bank A/c...Dr 8800000
To Application for Ordinary Shares A/c 8800000
(Being ordinary shares application received)
15-04-
2019 Application for Ordinary Shares A./c..Dr 8800000
To Ordinary Shares A/c. 8000000

In the books of Funland Limited
Journal Entries
$ $
Date Particular Dr Cr
To Share Allotment A/c 800000
(being shares prorata allotted)
Excess money per share=.25
15-05-
2019 Bank A/c..Dr 2200000
To Share Allotment A/c 2200000
(Being Balance amount received)
(2000000*1.5-800000)
15-05-
2019 Share Allotment A/c..Dr 3000000
To Ordinary Shares A/c. 3000000
(Being shares allotted)
01-09-
2019 Bank A/c..Dr 980000
To call on Shares A/c 980000
1960000*.5
(Being call on shares made)
Answer 3
Computation of Taxable Income
For Splash Limited
For Year ended 30 June 2018
$ $
Sl
No Particulars Amount Amount
1 Profit as per Profit and Loss A/c 714000
2 Add
Annual Leave Expense 13200
Doubtful Expense 22800
Depreciation as per books of Account- Plant 48750
Depreciation as per books of Account- Motor 30000
Insurance expense 23000
Impairment Loss 14000
Warranty Expense 37400
Entertainment Expense 3500 192650
3 Less
Royalties 15000
Depreciation as per Act- Plant 65000