MAA261 Assessment 2 Solution: Finance and Accounting Analysis, Deakin

This document presents a comprehensive solution to a finance and accounting assignment, likely from a university course. The assignment focuses on the recording, expensing, and reporting of non-current assets, specifically addressing the initial valuation of assets purchased in a lump sum, including buildings, warehouses, and drilling equipment. The solution includes journal entries for asset purchases and depreciation calculations using the straight-line method, considering residual values and useful lives. The solution also addresses asset impairment, applying IAS 36 to determine and record impairment losses on drilling equipment. The document provides detailed computations, journal entries, and references to relevant accounting standards like AASB 116 and IAS 36, demonstrating a strong understanding of financial accounting principles and their application in practice. It also provides the calculations for depreciation for warehouse and drilling equipment. Furthermore, the solution includes the computation of impairment loss on the drilling equipment.

Running head: FINANCE AND ACCOUNTING
Finance and Accounting
Name of the Student:
Name of the University:
Author’s Note

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FINANCE AND ACCOUNTING
Table of Contents
Answer to Question 1......................................................................................................................1
Answer to Question 4......................................................................................................................2
Reference.........................................................................................................................................4

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FINANCE AND ACCOUNTING
Answer to Question 1
Asset
Appraisa
l % of Market Value
Building 850000 55%
Warehouse 480000 31%
Drilling
Equipment 210000 14%
Market Value 1540000
Statement Showing computation of Individual Costs of Assets
Asset % of Market Value Total Purchase Price
Asset
cost
Building 55% 1300000 717532
Warehouse 31% 1300000 405195
Drilling Equipment 14% 1300000 177273
Journal
Building A/c …………..……...…. Dr 717532
Warehouse A/c……………...…..Dr 405195
Drilling Equipment A/c….……Dr 177273
To Cash A/c 1300000
Assets Purchased in Lumpsum
The treatment for fixed assets which are purchased and maintained by a business are done
considering AASB 116.
Carrying Amount and Depreciation Charges

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FINANCE AND ACCOUNTING
There is no depreciation charged on building and the amount of depreciation which is
charged on warehouse and drilling equipment is shown below:
Depreciation on Warehouse
Cost of the Asset 405195
Less: Residual Value 80000
Useful life (years) 20
Depreciation on Warehouse 8129.87
Carry amount 397065
Depreciation on Drilling Equipjment
Cost of the Asset 177273
Less: Residual Value 21273
Useful life (years) 10
Depreciation on Drilling Equipjment 7800
Carrying amount 169473
The depreciation is charged for the first 6 months as the year ending of the business is 30 June
2018
Answer to Question 4
IAS 36 covers the topic of impairment of assets of a business and the standard states that
entity is required to assess whether any asset is subjected to impairment at the end of financial
year if carrying amount is higher than the recoverable amount (Iasplus.com. 2019). In addition to
this, the standard also states that internal and external indicators of impairment are also to be
considered by the business for the purpose of charging impairment (Yu and Xu 2015).
Impairment Entry
Computation of Impairment loss
Carrying Amount of Drilling Equipment 114873

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FINANCE AND ACCOUNTING
Recoverable amount
Higher of
Fair value minus Value in use
5000
0
Fair value minus net selling price
2000
0 50000
Impairment loss 64873
Impairment loss A/c …………………….Dr 64873
To Accumulated Impairement loss A/c 64873
Impairment loss recorded
Cash A/c .
Dr 35000
Loss on Sale of equipment…………………Dr 15000
To Drilling Equipment 50000

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FINANCE AND ACCOUNTING
Reference
Iasplus.com. (2019). IAS 36 — Impairment of Assets. [online] Available at:
https://www.iasplus.com/en/standards/ias/ias36 [Accessed 8 Jan. 2019].
Yu, C. and Xu, J., 2015, March. Research on accounting conservatism and investment efficiency
of IT enterprises: A perspective of impairment of assets. In Information Technology and
Applications: Proceedings of the 2014 International Conference on Information technology and
Applications (ITA 2014), Xian, China, 8-9 August 2014 (p. 113). CRC Press.