Comprehensive Accounts and Application Assignment Solution Analysis

This document presents a detailed solution to an accounts and application assignment. It begins with the recognition and changes to provisions, including adjustments to warranty costs and bad debt write-offs, along with relevant journal entries and note disclosures. The solution then moves on to share capital, covering the authorized issue of preference and ordinary shares, including pricing, allotments, calls, and forfeiture, with corresponding journal entries. Further, it includes workings for allowable expenses, calculating taxable income and deferred tax liabilities. The assignment also addresses asset acquisition, revaluations, and disposals, detailing depreciation calculations, revaluation journal entries, and the gain or loss on disposal. Finally, the solution concludes with impairment tests, analyzing fair value and carrying amounts, and providing journal entries to address impairments. The document offers comprehensive insights into financial accounting principles.

Running Head: ACCOUNTS AND APPLICATION
ACCOUNTS AND APPLICATION
NAME OF STUDENT
NAME OF UNIVERSITY

2
ACCOUNTS AND APPLICATION
1.
i. Recognition of and changes to provisions. According to (AASB137 2010), provisions should be
reviewed and adjusted to reflect current exposure. The provision in the books will have to be reviewed
and if need be an adjustment is passed as appropriate. In this case the 2018 provisions will be adjusted
upwards as the new provision is higher than what is currently booked. The effect is to reduce income.
Workings.
Provisions brought forward. 19 000,00
Sales for the year 430 000,00
Rate of provisioning 8%
Provisioning amount (Rate of provisioning X
sales) 34 400,00
Provisions to be added (34,400-19000) 15 400,00
Journal entry
DR Warranty costs 15 400,00
CR Accumulated Warranty provisions
Notes disclosure
Note 1. The warranty costs for the year 2018 were adjusted from 5% to 8 % to reflect the rate of
returns on warranties.
ii. Recognition of and changes to provisions. According to (AASB137 2010), provisions should be
reviewed and adjusted to reflect current exposure. The provision in the books will have to be reviewed
and if need be an adjustment is passed as appropriate. In this case the 2018 provisions will be reversed
and the whole receivable amount written off as it is no longer recoverable. The effect is to reduce
income.

3
ACCOUNTS AND APPLICATION
Assessed bad debt 240 000,00
less Recognised bad debt 40 000,00
=Shortfall in bad debt recognition 200 000,00
Journal Entry
DR Bad debt written off 200 000,00
Cr Debtors 200 000,00
Notes disclosure
Note 2. During the close of the year we have assessed that two debtors who us 240,000 have been put
on administration and the funds are not recoverable. The balance that had not been provided for is
now fully provided for and the debit written off.
iii. this will be through a note disclosure and adjustment on the 2018 draft financials. This decrease in
tax rate will lead to a lower tax payable amount.
Notes disclosure
Note 3. The tax rate for the year 2018 has been adjusted downwards from 30% to 28% as it was in the
previous year.
iv. Reclassification of items relating to prior years. According to (AAS37 2010), this reclassification
will have an impact on the 2017 balance sheet and income statement. The two items will be restated,
and a tax refund claim will arise which will be deemed to be tax receivable in the current period.
The net book value of the asset was 21,000.00
Journal entries.
DR Retained earnings 21 000,00
CR Asset 21 000,00
DR Tax Payable 6 300,00
CR Tax receivable income 6 300,00

4
ACCOUNTS AND APPLICATION
Note 4. The tax receivable arose due to a restatement of the 2017 financial where an invoice was
posted as an asset instead of as repairs. The receivable has arisen due to the restatement.
2.
Authorised issue
Date Preference shares Ordinary shares
31/03/2019 1 000 000,00 2 000 000,00
Pricing 2
Pricing 4,00
On allotment 1,50
On call 0,50
On Application
Shares allocated on prorate basis
Date Preference shares Ordinary shares
15/04/2019 800 000,00 2 200 000,00
Amount (Shares x Pricing) 1 600 000,00 8 800 000,00
Over/under subscription (Authorised
shares less applied shares 200 000,00 - 200 000,00
Number of oversubscribed shares to be
transferred to reserves 800 000,00
Journal Entries
Dr Bank 10 400 000,00
Cr Share Capital (Applied shares X
price) 9 600 000,00
Cr Reserves 800 000,00
Allotment -All was paid
Date Preference shares Ordinary shares
15/05/2019 2 000 000,00
Amount (Shares x Pricing of allotment) - 3 000 000,00
Amount utilised from application 800 000,00
Actual Amount received on allotment
(Allotment amount less reserved
amounts) 2 200 000,00

5
ACCOUNTS AND APPLICATION
Journal Entries
Dr Bank 2 200 000,00
Dr Reserves 800 000,00
Cr Share Capital 3 000 000,00
Call -All was paid
Date Preference shares Ordinary shares
15/09/2019 1 960 000,00
Amount (Shares x Pricing of call) - 980 000,00
Journal Entries
Dr Bank 980 000,00
Cr Share Capital 980 000,00
Forfeiture
Shares that did not honour the call 40 000,00
Amount (Shares x Price already paid) 220 000,00
Sale of forfeiture
Unit Sale price of forfeited shares 5,60
Proceeds from forfeited shares (sale
price X forfeited shares 224 000,00
Date 30/September 2019
Journal entries
DR Bank 224 000,00
Cr Forfeiture account 224 000,00
Costs of forfeiture and reissue
Journal entries
DR Forfeiture account 7 000,00
CR Bank 7 000,00
Refund
Sales of forfeited shares 224 000,00
less; Forfeiture costs
7
000,00
Refund amount 217 000,00
Journal entries
DR Forfeiture account 217 000,00
CR Bank 217 000,00

6
ACCOUNTS AND APPLICATION
3.
Workings for allowable expenses
Splash Ltd, for the year ended 30 June
2018
Balance sheet
amounts Adjusted Amount Comment
Interest receivable 2017 1 900,000
Less interest receivable 2018 1 000,00 900,00 Add to income
Provision for annual leave 2017 21400,00
less Provision for annual leave 2018 11000,00 10 400,00 Allowable expense
Doubtful debts expense 2017 13200,00 13 200,00 Add back to operating profit
Depreciation – plant =390000/6 -
straight line 65 000,00 Allowable expense
motor vehicles =150000/8 -straight
line 18 750,00 Allowable expense
Insurance expense 2017 6000,00
Insurance expense 2018 4000,00 2 000,00 Allowable expense
Impairment loss – goodwill (not tax
deductible) 23000,00 Add back
Warranty expense 2017 33100,00
Warranty expense 2018 14600,00 18 500,00 Allowable expense
Entertainment expense (not tax
deductible) 37,400 Add back
Calculation for income tax
Accounting Profit 714 000,00
Add back (non-allowable
expenses)
Interest revenue 15 000,00
Annual leave expense 11 000,00
Doubtful expense 13 200,00
Depreciation-Plant 22 800,00
Depreciation-Motor 47 850,00
Insurance expense 30 000,00
Impairments loss-goodwill 23 000,00
Warranty expense 14 000,00
Entertainment 37 400,00

7
ACCOUNTS AND APPLICATION
Total 214 250,00
less (non-allowable income)
Interest revenue 15 000,00
Total 15 000,00
Less allowable expenses
Annual leave 10 400,00
Depreciation-Plant 65 000,00
Depreciation-Motor 18 750,00
Insurance expense 2 000,00
Warranty expense 18 500,00
114 650,00
Add back allowable income
Interest revenue 900,00
900,00
Taxable income 799 500,00
Tax @30% 239 850,00
Net income 559 650,00
Accumulated Deferred tax liability is tax payable (239 850) + (11 250)
=241 100,00
4, Calculation of asset acquisition, revaluations and disposals.
Firefly Ltd
Date 1/7/2016
Cost 800 000,00
Useful life in years 5
Residual value 40 000,00
Journal entries
DR Equipment 800 000,00
Cr Bank 800 000,00
Straight line depreciation per year
(Cost less residual value divide by useful life) 152 000,00

8
ACCOUNTS AND APPLICATION
Journal entry
Dr Depreciation expense 152 000,00
Cr Equipment 152 000,00
Revaluation date 1/7/2017
Revaluation Amount 610 000,00
Book value of the asset is Cost less one-year
depreciation (800000-152000) 648 000,00
Revaluation amount less book value - 38 000,00
The revaluation has resulted in a loss
Journal entry for the revaluation
Dr Revaluation loss 38 000,00
Cr Equipment 38 000,00
Revised residual value 50 000,00
Revised useful life 6
Straight line depreciation per year
(Revalued Cost less revised residual value divide
by revised useful life) 93 333,33
Journal entry
Dr Depreciation expense 93 333,33
Cr Equipment 93 333,33
Estimation of fair value
Date 30/6/2019
Calculation of book value from 1/7/2017 to
30/6/2019
Years depreciated 2
Annual depreciation 93 333,33
Accumulated depreciation (Annual depreciation
X 2) 186 666,67
Net book value as at 30/6/2019(Revalued cost
less accumulated deprection 423 333,33
Estimated fair value 550 000,00
Loss on estimated value (Estimated value less
NBV) 126 666,67
Journal entry to recognise fair value
DR Equipment 126 666,67

9
ACCOUNTS AND APPLICATION
Cr Revaluation gain 126 666,67
Price asset was disposed 490 000,00
Disposal date 31/12/2019
So, there is further depreciation of six months
and assuming the residual value and estimated
life does not change.
Depreciation calculation for six months
Estimated fair value less residual cost/useful life
prorated for six months 41 666,67
Accumulated depreciation for 2 and 1/2 years 228 333,33
Net book value 321 666,67
Gain or loss on disposal (Disposal less NBV) 168 333,33
Journal entries
Dr Bank 490 000,00
Cr Equipment 321 666,67
Cr Gain on sale 168 333,33
5, Impairment tests
Fair value and carrying amount analysis
Item Book value Fair VALE
Book value less fair
value
Cash 143 000,00 143 000,00 -
Plant and equipment 750 000,00 750 000,00 -
Less: accumulated
depreciation - 250 000,00 -306 000,00
- 56
000,00
Land 300 000,00 270 000,00 - 30 000,00
Inventory 220 000,00 220 000,00 -
Accounts receivable 163 000,00 163 000,00 -
Patent 90 000,00 85 000,00 - 5 000,00
Goodwill 30 000,00 90 000,00 60 000,00
Carrying amount of cash
generating unit 1 446 000,00 - 31 000,00

10
ACCOUNTS AND APPLICATION
Journal entries
Journal Entries
DR depreciation expense 6 000,00
Cr Accumulated
depreciation
Dr Revaluation loss 30 000,00
Cr Land 30 000,00
Dr Revaluation loss 5 000,00
Cr Patent
Dr Good will 60 000,00
Cr Reserves 60 000,00
A review of the impairment test (AASB136 2007), the net effect of the impairment against the
carrying balances is loss of 31 000. The resultant difference of the division carrying amount and
recoverable amount is a positive 30 000. The net effect then is not material for this case.
References
Accounting for Issue of Ordinary Shares. (2017). Retrieved
from https://accounting - simplified.com/financial/share-capital/ordinary-issue.html

11
ACCOUNTS AND APPLICATION
Impairment of Assets. (2007). Retrieved
from https://www.aasb.gov.au/admin/file/content105/c9/AASB136_07-04_COMPapr07_07-07.pdf
Provisions, Contingent Liabilities and Contingent Assets. (2010). Retrieved
from https://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-04_COMPoct10_01-11.pdf
Bragg, S. (2018). The revaluation model. Retrieved from
https://www.accountingtools.com/articles/the-revaluation-model.html