Impairment Loss Recognition and Disclosure

This assignment discusses the impairment of loss on building and machinery, in accordance with IAS 36 Impairment of Assets. The journal entries for both assets are provided, showing the debit and credit amounts. The importance of recognizing impairment losses is emphasized, as it affects an entity's profit and loss account. The report also highlights the compliance of AASB 101 requirements by preparing a complete new balance sheet after considering all provisions.

FINANCE QUESTIONS

Table of Contents
INTRODUCTION...........................................................................................................................3
QUESTION 1...................................................................................................................................3
Prepare corrected financial statements of DL vision Ltd for the year ended 30 June 2016........3
QUESTION 2...................................................................................................................................5
Provide the journal entries necessary to account for the above transactions and events for the
year ended 31 December 2016 for T. Padroni Ltd.......................................................................5
QUESTION 3...................................................................................................................................7
Prepare the necessary journal entries to record depreciation and the revaluation entries for
each vehicle of LZ Ltd for the year ended 31 December 2016...................................................7
In accounting for a depreciable asset, how does a revaluation increment affect an entity’s
reported profits in subsequent periods.........................................................................................9
QUESTION 4...................................................................................................................................9
Provide the journal entries to account for the impairment loss for Star for the year ended 31
December 2016............................................................................................................................9
1920000- 880000= impaired asset gain.....................................................................................10
1920000 -600000= ....................................................................................................................10
Journal entry for impairment of loss of building.......................................................................10
Journal entry for impairment of loss of Machinery...................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Finance is regarded as one of the important source that uplift the current market status of
an entity (Baum and Crosby, 2014). This project is all about explaining the corporate financial
structure of an entity that focuses on using different financial resources in accomplishing their
needs and the expectations. This report stresses on preparing financial position statements
specifically according to the requirements of AASB 101 that specifically about presentation of
the financial statements. Important approaches used in the corporate financial structure of an
enterprise includes issuing shares of different size and components to be used in an entity as the
business requirements will get fulfilled with the passage of time (Herbener and Rapp, 2016). The
record of all the shares will be used in an entity are taken into considerations for attaining all
desired aims and targets of an entity. This report is also stresses on impairment loss and
revaluation of the assets in an entity.
QUESTION 1
Prepare corrected financial statements of DL vision Ltd for the year ended 30 June 2016
Particulars Amount
Current assets
Cash and cash equivalent 42500
Trade and other receivables 217500
Inventories 310750
Other assets 102500
Total current assets 673250
Non-current assets
Investment in associates 108750
Machinery 91250
Land and building 290000
Intangible assets 362500

Total non-current assets 852500
Total assets 1525750
Current liabilities
Other loan 6250
Bank loan 100000
Trade and other payable 205000
Current tax liabilities 7500
Provision for employee benefit 27500
Provision for warranty 10000
Provisions for restructuring 15500
Total current liabilities 371750
Non-current liabilities
Deferred tax liabilities 25000
Other loan 102500
Bank loan 21500
Provisions for employee benefit 10750
Total non-current liabilities 159750
Total liabilities 531500
Net assets 994250
Equity
Contributed equity 730000
Reserves 3750
Retained earnings 260500

Total equity 994250
Issues in the old statements of financial position of DL vision LTD
The issues faced by DL vision Ltd is of the presentation of financial statements as
violation of AASB 101 by an entity. All transactions should be properly recorded into their
respective heads such as current assets and non-current assets and current liability's ad non-
current liabilities (Baum and Crosby, 2014). In the old statements all the transactions are
recorded in haphazard manner which creates confusion for the user who interpret all these
statements in order to make important decisions in the business.
There are various issues faced in the financial position statements includes wrong
allocation of transactions as the Australian accounting standards board has devised standard 101
for true presentation of the financial statements. In these statements, current tax liabilities are
separately recorded in the statements from the deferred tax liability which is shown in the non-
current liabilities.
Corrected financial statements of DL vision LTD
In the current statements, an entity has focuses on the proper allocation of all the business
transactions properly in the books of accounts in order to avoid further confusion in the business
(Jackson, Finn and Scheepers, 2014). Certain transactions that will be payable within one year
or less are regarded as the current liabilities whether that components belongs to assets side or
liabilities as this is mentioned in the AASB 101.
QUESTION 2
Provide the journal entries necessary to account for the above transactions and events for the year ended
31 December 2016 for T. Padroni Ltd
Journal entries in the books of T Pedroni LTD
01/05/16 Bank a/c Dr 4800000
To share application 4800000
Being 2000000
ordinary shares @4.80
are due on application
at 2.40
Share application 4800000

account Dr
To Share capital 4800000
Being application
money transferred to
share capital account
Share allotment
account Dr 240000
To Share capital 240000
Being the share
allotment money
within one month due
@ 1.20
15/06/16
Share application
account Dr 2400000
To Share allotment 2400000
Being 2000000 shares
are allotted on pro rata
basis and est all are
credit to the
shareholders through
share allotment
Share application
account Dr 2400000
To Calls in advance 2400000
Being excess
application money are
transferred to calls in
advance account
15/07/16
Share allotment
account Dr
Jorge-Calderón, D.,
20142400000
To share application 2400000
Being outstanLavallee,
D., 2014ding amount
of allotment received
01/10/16
Share final call account
Dr 2400000
To Share capital 2400000
Being final call due on
2000Lavallee, D.,

2014000 @1.20
01/10/16 Bank a/c Dr 2280000
To share at final call 2280000
Being call money
received except
100000 shares
10/10/16
Share capital account
Dr 2400000
To shares at final call
Jorge-Calderón, D.,
2014 2280000
To forfeited shares 120000
Being 100000 shares
forfeited by
management for non-
payment of call money
20/10/16 Bank a/c Dr 400000
To share capital
account 120000
To securities premium 280000
Being 100000 shares
forfeited which will be
reissued at 4 out of
which 3.80 is security
premium
20/10/16
Shareholders account
Dr 290000
To reissue costs 10000
To share security
premium 280000
Being reissue expenses
borne by shareholders
and surplus will be
transferred to their
account
20/10/16
Share forfeited account
Dr 120000
To capital reserve 120000
Being forfeited shares

transferred to the
capital reserve account
of T Pedroni Ltd
QUESTION 3
Prepare the necessary journal entries to record depreciation and the revaluation entries for each vehicle
of LZ Ltd for the year ended 31 December 2016.
Journal entries of depreciation of 1953 Rolls Royce Silver Dawn LHD Vehicle
Date Particulars Debit Credit
31-December 2016 Profit and loss account
Dr
25000
To Depreciation
(120000-20000/4=
25000)
25000
Narrations- Being depreciation charged on the vehicles on SLM basis is of 25000 for the year
2016.
Date Particulars Debit Credit
31-December 2016 Rolls Royce Silver
Dawn LHD Vehicle
account Dr
21000
To Revaluation
surplus
(116000-95000)
21000
Narrations- Being surplus generated on the revaluation of rolls Royce vehicle
Working- The carrying value after charging depreciation on the Rolls Royce Silver Dawn LHD=
120000-25000=95000
Fair value of vehicle at 31st December 2016= 116000
So, an entity has earned surplus on the revaluation of the vehicle
Journal entries of depreciation of 1953 Ford F-450 Platinum Truck Vehicle
Date Particulars Debit Credit
31-December 2016 Profit and loss account 16000

Dr
To Depreciation
(40000-8000/2=
16000)
16000
Narrations- Being depreciation charged on the vehicles on SLM basis is of 16000 for the year
2016.
Date Particulars Debit Credit
31-December 2016 Ford F-450 Platinum
Truck Vehicle account
Dr
6000
To Revaluation
surplus
(116000-95000)
6000
Narrations- Being surplus genLavallee, D., 2014erated on the revaluation of Ford F-450
Platinum Truck vehicle
Carrying amount after charging depreciation= 40000-16000= 24000
Fair value of asset= 18000
so, ford has earned surplus on the revaluation of 6000 (24000-18000)
In accounting for a depreciable asset, how does a revaluation increment affect an entity’s
reported profits in subsequent periods
The revaluation increments will increase the carrying amount of the asset and doesn't
affect the profits of an entity (Jorge-Calderón, 2014). The decrements on the contrary, decreases
the carrying amount to be transferred to the next period on which depreciation has charged. So,
the depreciation charged will decrease the available profit of the business entity. So, revaluation
decrements is better from the perspective of profit and loss of an entity as compared to the
revaluation increments. In the given case scenario, revaluation decrements of 24000 will increase
the profit as this indirectly decreases the depreciation charged on the vehicle.

QUESTION 4
Provide the journal entries to account for the impairment loss for Star for the year ended 31
December 2016
Impairment loss- It is that terminology used in the revaluation of assets in which the value of an
asset gets decreases with the passage of time. It is regarded as tat kind of loss in which the
carrying value of assets exceeded the recoverable value of an asset than this kind of loss suffered
by an entity owner (Tiedemanand O'Hara, 2013). The assets of the business entity are tested on
the parameter of impairment loss when its ability will be checked in relation to the external
market threats. The business assets are compared in order to recognize the losses to be incurred I
the business enterprise in the near future related to the given transactions. The causes behind the
decreasing value of the business asset is determined in order to justify the actions of the
management (Jorge-Calderón, 2014). The cause and effect relationship will be created in order to
improve the existing condition of an entity in relation to the challenges faced by an enterprise in
the external market.
The impairment loss will be incurred in the business when the current value of an entity
reduces as compared to the market value (Baum and Crosby, 2014). The higher market
expectations needs to be taken into considerations by improving the overall performance of an
entity. The disclosures of all the impaired loss to be disclosed in order to comply all the legal
rules and the regulations need to be complied by the management.
Carrying amount of building
Carrying amount- recoverable amount
Carrying amount of building
Cost- depreciation charged= 1200000-320000= 880000
Carrying amount of Machinery
= cost – accumulated depreciation
= 800000-200000= 600000
Recoverable amount
It is amount determined by comparing higher value of fair value less cost to sell or value
of asset in use
Fair value less cost to sell= 836000

Value in use= 19,20000
Higher of above is regarded as the recoverable amount for both building and machinery is
19,20000
Impairment loss of Building= recoverable amount-carrying amount
1920000- 880000= impaired asset gain
= 1040000
Impairment loss of Machinery= Carrying amount- recoverable amount
1920000 -600000=
= 1320000
Journal entry for impairment of loss of building
Date Particulars Debit Credit
End of the year Loss on impairment 1040000
Accumulated
depreciation on
building
320000
To building 1360000
Being impairment of
loss on building
recognized
Journal entry for impairment of loss of Machinery
Date Particulars Debit Credit
End of the year Loss on impairment 1320000
Accumulated
depreciation on
building
200000
To building 1520000
Being impairment of
loss on building
recognized

The impairment of loss recognizes by an entity need to be disclosed according to the
standard requirements of IAS 36 impairment of assets (Pozzi, Noè, Lazzarotti and Rossi, 2015).
The disclosure of the loss is essential as this will affect the profit and loss account of an entity as
this reduces the total amount of profit as this loss needs to be imposes of an enterprise.
CONCLUSION
It can be concluded from the above assignment that the requirements of AASB 101 are
complied by an entity by preparing complete new balance sheet after considering all the
provisions of the act. This report also stresses o the share issue, reissue and forfeiture entries in
order to convey important financial business performance of an entity. This report also stresses
on the impairment of loss and revaluation model and depreciation entries.