Advanced Financial Accounting Homework Solution - University X

This document presents a comprehensive solution to an Advanced Financial Accounting assignment. It includes detailed calculations and journal entries for various accounting concepts. The solution covers topics such as revaluation of assets, calculation of implicit interest rates, lease payment calculations (both minimum lease payments and related journal entries), calculation of current tax liability, analysis of temporary differences leading to deferred tax assets and liabilities, and accounting for foreign exchange gains and losses. The assignment provides step-by-step solutions, making it a valuable resource for students studying advanced financial accounting principles. The solution includes references to relevant accounting literature.

Advanced financial
Accounting

Table of Contents
Question 1........................................................................................................................................1
Question 2........................................................................................................................................1
Question 3........................................................................................................................................2
Question 4........................................................................................................................................3
Question 5........................................................................................................................................3
Question 6........................................................................................................................................5
Question 7........................................................................................................................................5
REFERENCES................................................................................................................................7

Question 1
Revaluation account:
Revaluation accounts
Particular Amount Particular Amount
To plant
a/c 10000
By Balance b/d 10000
10000 10000
Particular Debits Credit
Plant account…………………. Dr
To revaluation a/c……………….cr
(Being plant has been revaluated as on 31st December,
2016)
10000
10000
Question 2
(a): Implicit rate is said to be the difference rate between the spot and in one-year time.
Total amount paid / amount borrowed raised to 1/ number of period = X,
Then X-1= Implicit interest rate.
=230000/200000
=1.15
Determination total number of years to repay: 1/n, where n is number of periods interest is going
to be paid.
N=8 years
:1.15^ (1/8)
: 1.15^0.125
: 1.017624.
: 1.017624 – 1*100
: 1.7624 % implicit rate per year
=230000*(1/1.1) ^8
= 107296.697
As per the mentioned case scenario, the implicit rate is correct against the fair value.
(b): Journal entries
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Particular Debit Credit
Equipment’s A/c…………………Dr
Residual value A/c………………. Dr
To DEF ltd A/c………………………. Cr
( Being acquisition amount has been deliver to lessor)
200000
30000
230000
ABC Ltd a/c ………………………… Dr
To DEF ltd a/c ……………………… Cr
(Being transfer of control has been made to lessor)
1048966
1048966
Cash / Bank a/c………………… Dr
To DEF ltd a/c ………………… CR
(Being payment received for first 2-years)
347107.4
347107.4
Cash / Bank a/c……………………………Dr
To DEF a/c ………………………….CR
(Final payment has been made to DEF ltd)
107296.697
107296.697
Question 3
(a): Minimum lease payment
It is known as the lowest payment a lessee is obligated to make in context with an asset
over the period of agreement. Formula to calculate the payment:
Minimum lease payment (MLP): Rental payments + Residual value + renewal penalty –
Executory cost.
PV = SUM[P/(1+r) n] + [RV/(1+r) n]
In this,
Annual lease payments: P
Interest rate: r
N= number of years in the lease term
RV= residual value
SUM[P/(1+r) n] = Total amount paid during the lease term, discounted for the interest rate.
In the above calculation,
PV= [200000/ (1.1)] + [200000/ (1.1)2] + [200000/ (1.1)3] + [200000 / (1.1)4] + [200000 / (1.1)5]
+ [30000 / (1.1)5]
= 181818 + 165289 + 150263 + 136603 + 124184 + 18627.6
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= 776785
(b): Journal entries
Particular Debit Credit
Equipment’s A/c…………………Dr
Residual value A/c………………. Dr
To Metro leasing A/c………………………. Cr
( Being acquisition amount has been deliver to lessor)
200000
30000
230000
Freedom Ltd a/c ……………………… Dr
To Metro leasing a/c …………………. Cr
(Being transfer of control made to lessee)
220000
220000
Cash / Bank A/c ………………. Dr
To Freedom Ltd a/c ……………Cr
(Annual payment made for first 2-years)
347107.438
347107.438
Question 4
Calculation of Current tax liability
CTA to the ATO: Net profit - depreciation of plant
: 600000 – (80000 + 200000)
: 600000 – 280000
: 320000
Less: Tax deduction @ 30 %
: 320000*30%
: 96000.
Question 5
(a): Difference amount
For accounting purpose:
:600000/5
: 120000
Before tax: 630000
Less: Depreciation: 120000
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= 630000-120000
Gain: 510000
Tax: 510000*30%
: 153000
For tax purpose,
: 600000 / 4 years
: 125000
Before tax: 630000
Less: Depreciation: 125000
Gain: 505000
Tax: 505000*30%
: 151500
Temporary difference amount: 153000-151500: 1500.
It does have impacts on the deferred tax liability. As per the ATO, Tax is less paid by the
company, whereas for accounting purpose it is more.
To recognise tax expenses associated with the temporary difference:
Tax expenses a/c ………………. Dr 1500
Deferred tax liability a/c ………. Cr 1500
(Being taxes are recognised with temporary differences)
(b) Taxable profit and taxes payable and journal entries
Total Gain: 510000 (for accounting purpose)
Less: 153000
Total taxable profit: 357000
In case of tax:
505000-151500: 353000 profit.
Journal entries:
Income tax expenses a/c……………… Dr
To Income tax payable a/c ……………. Cr
(c): Examples of temporary difference create a deferred tax asset and liability
 Revenue and gains that are recognised in financial income are later taxable for income
tax purposes.
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 Depreciation: It is schedule from the tax authority as temporary differences.
 Cash and advance, it arises at the time when earnings are recognised during the cash
collected in the current period of time.
Question 6
(a): Calculate the company taxable profit
For accounting purpose:
30000/3: 10000
Less: depreciation: 30000-10000
: 20000*30%
: 6000
Profit 20000-6000: 14000 taxable.
For tax purpose,
: 30000/4: 7500
Less: 30000-7500: 22500
Less: Tax @ 30%: 22500*30%
: 6750
Profitable tax: 22500-6750: 15750
(b):
Deferred tax liability: 14000 and 15750
Deferred tax assets: 22500+20000=42500
(c): Entries
Profit and loss a/c …………… Dr 29750
To, Deferred tax liability a/c………... Cr 29750
(Being deferred tax liability needs to create on account of timing differences)
Deferred tax assets a/c …………… Dr 42500
To Profit and loss, a/c …………. Cr 42500
(Being difference are reduced on reversing timing variations)
Question 7
Journal entries:
USD: 20/8 – A$1= US$0.95
5

: 31/8-A$1= US$0.89
AS $ / US $
USA: US$283,000 / 0.95
: $297895
In case, it due on 31/8:
=283000/ 0.89: 317977
Date Particular Amount Amount
20/8 Purchase a/c ……………… Dr
Foreign exchange losses a/c…Dr
To, James Hope p/l a/c …………… Cr
(Being purchase is made from the USA)
$283000
$14895
$297895
31/8 Purchase a/c ……………… Dr
Foreign exchange losses a/c……. Dr
To, James Hope p/l a/c …………… Cr
(Being purchase is made from the AUD)
$283000
$34977
$317977
Question 8
Journal entries:
Date Particulars Debit Credit
01/04/15 Machinery account 500000
To Accounts payable account 454545
To foreign exchange gain 45455
01/06/15 Machinery account 500000
To Accounts payable account 490197
To foreign exchange gain 9803
30/06/15 Machinery account 500000
To Accounts payable account 500000
To foreign exchange gain 0
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REFERENCES
Books and Journal:
Weil, R. L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics. 58(2-3). pp.339-383.
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