Accounting and Financial Management Assignment: Solutions and Analysis

This document presents a detailed solution to an Accounting and Financial Management assignment, addressing several key areas within the field. It begins by exploring the measurement of fair values, including the determination of liabilities and assets, premise valuation, the most beneficial market, and valuation techniques. The solution then delves into journal entries, providing detailed entries for Peewee Ltd for the years ended June 30, 2017, and June 30, 2018, covering asset acquisitions, depreciation, revaluation, and disposals. The assignment also covers accounting for intangible assets, differentiating between internally generated and acquired assets, and discussing the reluctance to change IAS 38 / AASB 138. Finally, the solution addresses pension accounting, calculating the deficit of the fund, net liability for defined benefit, net interest, and providing reconciliation and summary journal entries related to superannuation expenses and liabilities.

Running head: ACCOUNTING AND FINANCIAL MANAGEMENT
Accounting and financial management
Name of the student
Name of the university
Author note

1ACCOUNTING AND FINANCIAL MANAGEMENT
Table of Contents
Answer 1....................................................................................................................................3
Measurement of fair values........................................................................................................3
 Determination of liability or asset under measurement..................................................3
 Determination of premise valuation that is complied with the best and highest use......3
 Determination of the most beneficial market for assets..................................................4
 Determination of the valuation technique.......................................................................4
Answer 2....................................................................................................................................5
1. Journal entries in the books of Peewee Ltd for the year ended 30th June 2017...............5
2. Journal entries for the year ended 30th June 2018...........................................................6
Answer 3....................................................................................................................................8
1. Accounting for the intangible asset that is internally generated as per IAS 38 / AASB
138 8
2. Difference among internally generated and acquired intangible asset............................8
3. Reluctance with regard to press for the changes in the IAS 38 / AASB 138..................9
Answer 4..................................................................................................................................10
1. Deficit of fund...............................................................................................................10
2. The net liability for defined benefit..............................................................................10
3. Net interest....................................................................................................................10

2ACCOUNTING AND FINANCIAL MANAGEMENT
4. Reconciliation...............................................................................................................10
5. Summary journal entries...............................................................................................11
Reference..................................................................................................................................12

3ACCOUNTING AND FINANCIAL MANAGEMENT
Answer 1
Measurement of fair values
 Determination of liability or asset under measurement
Under the given circumstance, two assets are there that can be measured under the fair
value approach; they are factory and land (Bratten et al. 2013). Alternate option for
considering the factory and land will be to treat them as the single asset.
 Determination of premise valuation that is complied with the best and highest
use
As per the given case, the land was available for sale at $ 1 million for the purpose of
residence. Considering the demolition cost of the existing factory that is amounted to $
100,000, it is identified that the land can be sold for $ 900,000 for the purpose of residence.
Computing the fair values in this way determines the specific use and is depended upon the
valuation based on in-exchange for the premise as land will be accounted for on the stand-
alone basis (Griffin 2014).
Further the factory and the land can be sold as the package to be used by the
participants under market in association with the other assets. The factory is depreciated for
50% of the original cost of the factory by the reporting company. With regard to the cost of
the new factory that is $ 780,000, the depreciated cost of replacement of existing factory can
be estimated at $ 390,000. Moreover, as the factory can be assumed to be built at cheaper
land block that is one part is not available for the purpose of residency and it is not likely that
the market is available there for factory and land on the basis of in-use (Christensen and
Nikolaev 2013). Further, it is anticipated that the participant from the market will be

4ACCOUNTING AND FINANCIAL MANAGEMENT
pressurised for paying $ 900,000 for the land and the factory that are given as the alternative
use with respect to land for the purpose of residence.
 Determination of the most beneficial market for assets
Most beneficial market for the asset will be selling the property for the purpose of
residence.
 Determination of the valuation technique
The strategy of the market will be appropriate for the purpose of valuation provided
that the input for the observable market is there with regard to the sale price of the similar
properties (Bodie 2013). Further, the land is having the fair value that is based on the market
price of the same type of properties for $ 900,000. However, the factory is having the fair
value as the separate asset.

5ACCOUNTING AND FINANCIAL MANAGEMENT
Answer 2
1. Journal entries in the books of Peewee Ltd for the year ended 30th June 2017
Date Particulars Debit Credit
1st July 2016
Machine A 100,000.00
Machine B 60,000.00
To cash 160,000.00
30th June 2017
Depreciation on machine A 20,000.00
To accumulated depreciation 20,000.00
[500000*1/5]
Depreciation on machine B 20,000.00
To accumulated depreciation 20,000.00
[60000*1/3]
Accumulated depreciation on Machine A 20,000.00
To machine A 20,000.00
[writing down to the carrying amount]
Machine A 4,000.00
To gain on the revaluation - Machine A 4,000.00
[84000-80000 = 4000]
To gain on the revaluation - Machine A 4,000.00
To surplus on revolution - Machine A 4,000.00
[Revolution gain accumulation in equity]
Accumulated depreciation on machine B 20,000.00
To machine B 20,000.00
[writing down to the carrying amount]
Revolution loss on machine B 2,000.00
To machine B 2,000.00
[Revolution to the fair values on 30.06.2017]

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2. Journal entries for the year ended 30th June 2018
Date Particulars Debit Credit
1st Jan 2018
Machine C 80,000.00
To cash 80,000.00
[Being machine C acquired]
Depreciation on machine B 9,500.00
To accumulated depreciation 9,500.00
[38000*1/2*1/2]
Cash 29,000.00
To Sale proceeds from Machine B 29,000.00
[Being amount received from sale of machine
B]
Carrying amount for sale of Machine B 28,500.00
Accumulated depreciation on machine B 9,500.00
To machine B 38,000.00
[ Carrying amount of the machine sold]
General reserve 8,000.00
Revaluation surplus on Machine A 2,000.00 10,000.00
To share capital
30th June 2018
Depreciation on machine A 21,000.00
To accumulated depreciation on machine A 21,000.00
[84000*1/4]
Depreciation on machine C 10,000.00
To accumulated depreciation on machine C 10,000.00
[80000*1/4*1/2]
Accumulated depreciation on machine A 21,000.00
To machine A 21,000.00
[written down to the carrying amount]
Revaluation loss on machine A 2,000.00
To machine A 2,000.00
[written down the value 63000 - 61000]
Revaluation surplus on machine A 2,000.00

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To revaluation loss on machine A 2,000.00
[Revaluation loss accumulated to equity]
Accumulated depreciation on machine C 10,000.00
To machine C 10,000.00
Revaluation loss 1,500.00
To machine C 1,500.00
[Revolution to the fair values on 30.06.2018]

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Answer 3
1. Accounting for the intangible asset that is internally generated as per IAS 38 /
AASB 138
The standards on accounting, AASB 138 that is equivalent to the international
standards on accounting IAS 38, the intangible asset is stated as the non-monetary
identifiable asset that has not any physical substance. To be classified as intangible asset, it is
not enough to fulfil the definition criteria; it shall also be complied with the asset definition as
per the framework. The intangible assets are recognized at cost initially (Pucci et al. 2014).
However, the problem that arises for the intangible asset that is internally generated is that
whether the future economic benefit will arise from the identifiable asset and whether the cost
will be reliably determined or not. As per the standard the internally generated goodwill is
recognized as asset. Further, for other internally generated intangible asset like, brands,
customer lists, publishing titles and mastheads, the expenditure are not separable from the
development cost and thus not identifiable separately.
2. Difference among internally generated and acquired intangible asset
Expenses related to acquire intangible asset that is separately purchased which meets
the intangible asset’s definition are recognized as intangible asset. On the other hand, other
expenses related to intangibles are recognized as internally generated intangible assets and
are classified as development or research (Carvalho, Rodrigues and Ferreira 2016).
Accounting for the internally generated intangible asset requires more concern and are
subject ti special recognition criteria. The internally generated intangible cost can be
capitalized provided the reasonable expectation is there that the future revenue will be earned
from that. On the other hand, the acquired intangibles with definite life are amortized over the
useful life of the asset (Ji and Lu 2014). However, the acquired intangibles with indefinite life

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are not amortized but are tested for impairment and thereafter written down to the recoverable
amount. However, once the intangibles are recognized, both are treated as the same.
3. Reluctance with regard to press for the changes in the IAS 38 / AASB 138
Managers generally prefer to show the higher amount of future profits. Whereas the
major expenses related to development and researches are written-off, there is an assurance
that the future benefit will be derived from the acquired intangibles. Further, if write-off takes
place, the impact of the ratios like return rates on equity and assets will be better ( Russell
2017). The investors normally consider the write-offs as the one-time items in association
with no valuation consequences. Therefore, the investors discount the impact of one-time
write-offs and feel happy for the improvement in profitability during the coming years.

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Answer 4
1. Deficit of fund
Deficit of the fund = $ 28,70,000
PV of defined benefit obligation as on 31st December 2016 = $ 23,000,000
FV of the plan asset as on 31st December 2016 = $ 20,130,000
Deficit of fund as on 31st December 2016 = $ 28,70,000
2. The net liability for defined benefit
The net liability for defined benefit as on 31st December is $ 28,70,000, being deficit of fund.
3. Net interest
Net interest = $ 300,000
Calculation –
Component of interest expense on the defined benefit obligation –
Brought forward obligation for defined benefit = $ 20,000,000
Past service cost = $ 20,00,000
Total = 220,00,000 * 10% = $ 22,00,000
Component of interest income = $ 19,000,000 * 10% = $ 19,00,000
4. Reconciliation
Particulars Net defined
benefit liability
Defined benefit
obligation Plan assets
Balance as on 01.01.2016 $ 1,000,000.00 $ 20,000,000.00 $ 19,000,000.00

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Past service cost $ 2,000,000.00
Revised balance $ 22,000,000.00
Interest @ 10% $ 2,200,000.00 $ 1,900,000.00
Current service cost $ 800,000.00
Contributions received by
the fund $ 1,000,000.00
Benefit payment by fund $ (2,100,000.00) $ (2,100,000.00)
Return on plan asset
excluding the recognised
interest (WN1) $ 330,000.00
Actuarial remuneration on
DBO re-measurement $ 100,000.00
Balance as on 31.12.2016 $ 2,870,000.00 $ 23,000,000.00 $ 20,130,000.00
5. Summary journal entries
Date Particular Debit Credit
30.06.201
3
Superannuation Expenses (P & L) $ 3,100,000.00
To Superannuation income (OCI) $ 230,000.00
To Bank $ 1,000,000.00
To net superannuation liability $ 1,870,000.00
[Being the expenses on superannuation and
contribution for year]