ACCT6003 - Financial Accounting Processes: Company Case Study

This assignment provides solutions to various financial accounting scenarios, including financing company operations through share issuance, accounting for property, plant, and equipment (PPE) with depreciation and revaluation, lease accounting under both lessee and lessor perspectives, and the treatment of intangible assets according to IAS 38. The share issuance scenario includes journal entries for application, allotment, calls, and forfeiture of shares. The PPE scenario demonstrates the accounting for asset purchases, depreciation, revaluation surpluses, and asset sales. The lease scenario covers the initial recognition, subsequent payments, and depreciation for the lessee, as well as the initial recognition and revenue recognition for the lessor. Finally, the treatment of software development costs as intangible assets is discussed with reference to IAS 38, emphasizing the capitalization of certain costs while expensing others. Desklib offers a range of study tools to help students understand accounting principles and practices.

Running head: FINANCIAL ACCOUNTING PROCESSES
Financial Accounting Processes
Name of the Student
Name of the University
Author Note

1Financial Accounting Processes
Table of Contents
Scenario 1- Financing company operations.....................................................................................2
Scenario 2- Property, plant and equipment......................................................................................5
Scenario 3- Lease.............................................................................................................................8
Scenario 4-Intangible Assets.........................................................................................................12
References:....................................................................................................................................13

2Financial Accounting Processes
Scenario 1- Financing company operations
Date
1/7/2017
1/8/2017
1/8/2017
15/8/2017
30/8/2017
1/05/2018
15/06/201
8
15/06/201
8
15/06/201
8
Particulars
Bank A/c
To Equity Share Application A/c
(Being cash received on applications)
Equity Share Application A/c
Equity Share Allotment A/c
To Equity Share Capital
(Being 500000 shares allotted)
Equity Share Application A/c
To Equity Share Allotment A/c
To Calls in Advance A/c
(Being allocation of application across
allotment and calls in advance)
Share issue costs A/c
To Bank
(Being payment done on prospectus, stamp
duty and legal fees)
Bank A/c
To Equity Share Allotment A/C
(Being cash received on allotment)
Call 1 A/c
To Equity Share Capital
( Being call of $ 1.5 per share)
Calls in Advance A/c
To Call 1
( Transfer of calls received in advance)
Bank A/c
To Call 1 A/c
( Being cash received on 485000 shares)
Equity Share Capital A/c
To Call 1
Share Forfeiture A/c
(Being 15000 shares forfeited)
LF Dr
2100000
1500000
1250000
600000
36000
600000
750000
150000
727500
105000
Cr
21000000
2750000
350000
250000
36000
600000
750000
150000
727500
22500
82500

3Financial Accounting Processes
15/06/201
8
1/07/2018
30/07/201
8
30/07/201
8
30/07/201
8
1/9/2018
1/9/2018
Bank A/c
Share Forfeiture A/c
To Share Capital A/c
( Reissue of shares forfeited)
Call 2 A/c
To Equity Share Capital
(Being call on $ 1 per share)
Calls in Advance A/c
To Call 2
(Transfer of calls received in advance)
Bank A/c
To Call 2 A/c
(Being cash received on 48500 shares)
Equity Share Capital A/c
To Call 2
Share Forfeiture A/c
(Being 15000 shares forfeited)
Bank A/c
Share Forfeiture A/c
To Equity Share Capital
(Reissue of shares forfeited)
Share Forfeiture A/c
To Bank A/c
(Refund to former shareholders)
75000
30000
500000
100000
485000
120000
90000
30000
127500
105000
500000
100000
485000
15000
105000
120000
127500
Working Notes-

4Financial Accounting Processes
No. of
Shares
applied for
No. of
Shares
Allotted
Money
Received
Application Allotment 1st Call 2nd call
100 000 100 000 800000 300000 250000 150000 100000
500 000 400 000 1300000 12000000 100000 -
600 000 500 000 2100000 $1500000 $350000 $15000 10000

5Financial Accounting Processes
Scenario 2- Property, plant and equipment
Date Particulars LF Dr Cr
1/4/2017
30/06/2017
30/06/2017
31/8/2017
1/9/2017
1/3/2018
30/6/2018
30/6/2018
Truck A A/C Dr
To Cash A/c
(Being truck bought for cash $
90000)
Equipment A/c Dr
To Cash A/c
(Being equipment bought for cash)
Depreciation on Truck A A/c Dr
To Profit and Loss A/c
(Being depreciation provided at year
end)
Truck A A/c Dr
To Cash A/c
(Being expenses debited to truck)
Asset Revaluation Surplus A/c Dr
To Equipment A/c
(Being reduced value of equipment
transferred to asset revaluation A/c)
Truck A A/c Dr
To Cash A/c
(Being truck A sold in cash)
Equipment A/c Dr
To Asset Revaluation Surplus A/c
(Being increased value of equipment
transferred to asset revaluation)
Depreciation on Equipment A/c Dr
To Profit and Loss A/c
(Being Depreciation provided at
year end)
90000
140000
4000
2500
22667
59000
16979
11979
90000
140000
4000
2500
22667
59000
16979
119379

6Financial Accounting Processes
Workings
Cost of equipment on 30th June 1,40,000
Less: Depreciation for 2 months 23333
(1,40,000/10= 14000 * 2/12)
WDV on 1st September 1,37,667
Less: Fair Value on 1st September 115000
Amount to be debited to Asset Revaluation 22667
Fair Value of Equipment on 1st September 115000
Less: Depreciation for yr end ( 10 months) 11979
WDV on 30th June 103021
Fair Value of the equipment on 30th June,2018 120000
Amount to be credited to Asset Revaluation (1,20,000-1,03,021)=16979
Calculation of Depreciation
2017- on Truck A- (90000-10000)/5 * 3/12 = 4000
2018- on equipment- (115000)/8 * 10/12- 11979

7Financial Accounting Processes
Scenario 3- Lease
a) Lease payments
PV OF Chiherbal Ltd- 8000* 3.8896 + 2160 * 0.6499= 32520
Schedule of lease payments
Date MLP Interest expense Liability
reduction
Liability
reduction
1st July 2017
1st July 2017
1st July,2018
1st July, 2019
1st July, 2020
1st July,2021
1st July, 2022
8000
8000
8000
8000
8000
2160
2207
1685
1117
498
4133
8000
5793
6315
6883
7502
(1973)
32520
24520
18727
12412
5529
(1973)

8Financial Accounting Processes
Date Particulars Dr Cr
30th June,2018
30th June,2019
Leased Machine A/c Dr
To Lease Liability A/c
(Being initial recognition of finance lease)
Lease liability A/c Dr
To Cash A/c
(Being Initial lease liability recognised)
Lease liability A/c Dr
Interest expense A/c Dr
To Cash A/c
(Being first lease payment paid)
Depreciation Expense A/c Dr
To Accumulated Depreciation A/c
(Being depreciation provided at year end
between 31st December and 30th June)
Lease Liability A/c Dr
Interest expense A/c Dr
To Cash A/c
(Being second lease payment paid)
Depreciation Expense A/c Dr
To Accumulated Depreciation
32520
8000
5793
2207
2069
6315
1685
4337
32520
8000
8000
2069
8000
4337
ChiHerbal Ltd
Journal entries

9Financial Accounting Processes
Date MLR Interest
Revenue@ 9%
Receivable
reduction
Receivable
Balance
1st July 2017
1st July 2017
1st July,2018
1st July, 2019
1st July, 2020
1st July,2021
8000
8000
8000
8000
8000
2459
1960
1417
824
8000
5541
6040
6583
7176
35322
27322
21781
15741
9158
1982
Cessnock Ltd(lessor)
Schedule of Lease receipts

10Financial Accounting Processes
Particulars Dr Cr
30th June, 2018
30th June,2019
Lease Receivable A/c Dr
To Sales A/c
(Being Initial recognition of lease
receivable)
Cost of Sales A/c Dr
To Inventory
(Being recording sale of machine)
Cash A/c Dr
To Lease Receivable A/c
To Interest receivable
(Being 1st payment received)
Cash A/c Dr
To Lease Receivable A/c
To Interest receivable
(Being 2nd payment received)
1 35322
31000
8000
8000
35322
31000
5541
2459
1960
6040
Cessnock Ltd
Journal entries

11Financial Accounting Processes
Scenario 4-Intangible Assets
Amount of development cost- 500000 + 380000= 880000
According to IAS 38 , both the cost of software development 380000 and cost of
computer equipment are capitalised while the cost of computer equipment is recognized as an
expense(Lim, Macias & Moeller 2018).
According to IAS 38 any operating cost or cost of hardware are capitalised.Also
internally developed charge or expense relating to technological feasibility, probable future
benefits and the ability to use and sell the software form a part of capitalised expenditure. Hence
the above costs has been treated as capitalized(Saunders & Brynjolfsson,2016).