Finance Assignment: Application of Accounting Standards and Principles

This finance assignment addresses several key accounting concepts and principles. Question 1 presents journal entries related to various financial transactions, including losses from cloud service disruptions, asset revaluations, fraudulent activities, and share value declines. Question 2 focuses on share transactions, detailing journal entries for share applications, underwriting commissions, share allotments, and calls, including forfeitures and reissuance. Question 3 delves into current and deferred tax calculations, providing worksheets and journal entries to illustrate the process. The assignment also covers the revaluation model, explaining its application to fixed assets, specifically trucks, with accompanying journal entries to reflect changes in asset values. This assignment provides a detailed exploration of financial accounting practices, offering valuable insights into real-world financial scenarios and the application of accounting standards.

Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
QUESTION 1...................................................................................................................................1
QUESTION 2 ..................................................................................................................................2
QUESTION 3...................................................................................................................................4
QUESTION 4...................................................................................................................................6
QUESTION 5...................................................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financing is the major source of funding which help the business to run their operational
activities in order to fulfil their financial needs. There are various financial institutes available
which provide funding such as banks, investors and other non commercial institutes for source of
funding (Finance for organization, 2019). It help the organization to purchase product, further
investments etc. This report is all about generating funds with the help of various activities. It
includes different methods of techniques which help the organization to generate money which is
beneficial for the businessman to smoothly run their business and further invest for for more
profit. This report cover various practice questions which required to solve with the help of
various accounting standards and principles.
MAIN BODY
QUESTION 1
Date Particulars Debit ($) Credit ($)
02/08/19 Damage for loss profit Accounts
To Cloud service provider
(Grace Ltd’s has to face major disruptions due
to cloud service down and it impact business
operations)
300000
300000
20/08/19 Fixed assets
To Revaluation
(Increase in the value of fixed assets)
800000
800000
25/08/19 Capital Account
To Manager's Accounts
(Purchase car for his personal use and
recognize as company's assets)
38000
38000
20/07/19 Grace Ltd's shares
To Revaluation Accounts
(Major decline in Grace Ltd's shares)
250000
250000
1

Total 1388000 1388000
a. Company bear the loss because of cloud service provider and its services down for the 14 days
in the month of July 2019. It majorly impact the business operation of Grace Ltd and they take
legal action against cloud service provider. Company seeking $ 300000 for lost profit due to
damage. Here company follow their legal rights where business can claim for their damages to
the another party.
b. Grace Ltd was planing to subdivide the area into residential block or airport for landing or
take off (Darrough, Guler and Wang, 2014). Company revise the and value on 20 August 2019
but after government announcement land was valued at $ 800000. it will be less than the amount
which listed in financial statement on 30th June, 2019.
c. On 25th August 2019, At the time of auditing company find the fraudulent activity where
manager use $ 38000 amount from company's fund. It will be used for personal purpose and this
car recognise as business assets in the financial statement of the company. Director of the
company met with manager and said to repay $ 38000 amount by 30th September 2019.
d. Grace Ltd owns shares of public listed company which had a market value of $ 500,000 on 30
June 2019 and will decline $ 250,000 on 20 July 2019. It will be recorded in the financial
statement of the company.
QUESTION 2
Date Particulars Debit ($) Credit ($)
01/02/19 Bank account
(200000 * 3)
To Share application account
(200000 * 3)
(Being share application amount received)
600000
600000
01/02/19 Cost of issue account
To Commission account
(Being underwritten commission of $ 12000 )
12000
12000
2

28/02/19 Share application account
(180000 * 1.5)
To Share capital
(180000 * 1.5)
( Being application amount transfer to the
share capital )
270000
270000
10/03/19 Share allotment account
( 180000 * 1)
To share capital
( 180000 * 1)
( Allotment amount transfer to the share
capital account )
180000
180000
10/04/19 Bank account
((180000 * 1) - 12000)
To share allotment money
((180000 * 1)- 12000)
(Allotment money received after deducting
commission)
180000
180000
15/04/19 Cost of share issue
To Bank account
( Cost of issuing share will be paid )
5000
5000
01/05/19 Share call amount account
(180000 * .5)
To share capital account
(180000 * .5)
( Call amount transfer to the share capital
account )
90000
90000
01/05/19 Bank
Call in Arrears
80000
10000
3

( 20000 * .5 )
To Share call
( 180000 * .5 )
( 20,000 shares who did not pay the call )
90000
10/06/19 Equity share capital (20000 * 3)
To Call in Arrears ( 20000 * .5 )
To share forfeited (20000 * 2.5)
( Company forfeited 20,000 shares )
60000
10000
50000
20/06/19 Bank account
Share forfeited
To Share capital ( 20000 * 2.70 )
( Being forfeited shares were reissued as fully
paid )
4000
50000
54000
QUESTION 3
Current Tax Worksheet
For the year ended 30 June 2019
Particulars Details Amount
Revenue
Add:
Interest Expenses
Rent expenses
Depreciation on equipments
Depreciation on motor vehicle
Doubtful debts
Entertainment expenses
Less:
Depreciation on Equipment
( (400000 – 120000) / 5 )
17000
87000
35000
20000
14000
2000
56000
1430000
4

Depreciation on Motor vehicle
( (150000 – 30000) / 8 )
Annual leave expenses
Warrantee expenses
Insurance expenses
Taxable profit
Current tax liability @ 30%
15000
24000
18000
14000
1478000
443400
Deferred Tax Worksheet
Deferred income tax related to
assets:
Details Amount Taxable
difference
Deductible
difference
Account receivable 181000 (181000-
14000) =
167000
Equipment
Less: Acc. Depreciation
400000
(35000) 365000
365000
Motor vehicles
Less: Acc. Depreciation
150000
(20000) 130000
130000
Deferred income tax related to
liabilities:
Provision for annual leave 22000 22000
Provision for warranties 15000 15000
Total temporary difference 495000 204000
Deferred tax liability @ 30% 148500
Deferred tax assets @ 30% 61200
5

Journal Entries
For the year ended on 30 June 2019
Date Particulars Debit Credit
30/06/19 Current Income tax expenses
To Current tax liability
( Being recognition on current tax )
$ 443400
$ 443400
30/06/19 Income tax expense (deferred)
To Deferred tax liability
( Being adjusted deferred tax liability )
$148500
$ 148500
30/06/19 Deferred tax assets
To Income tax expenses
( Being adjusted deferred tax assets)
$ 61200
$ 61200
Deferred tax: It is a future executed tax which can be related to the assets as well as for
liability (Dayan and Berridge, 2014). Tex was due but not paid in the current financial period and
it will be recorded in the financial statement of the company as deferred tax assets of liability.
Deferred tax refer to the tax which generated in the accounting period but paid more then it
actual value than additional tax amount will be recorded in the financial statement as a name of
deferred tax assets and it will be evaluating in the next year.
QUESTION 4
Revaluation Model:
This model gives a option to the business to carry fixed assets and its revalued amount. In
the revaluation amount accumulated depreciation was less and accumulate the impairment losses.
This model used for the property, plant & equipment and measure carrying amount. This
measurement include the depreciation and impairment losses. It include the tangible item for
valuation that used in production or supply of goods or services (Harris, Jermakowicz and
Epstein, 2014). It is expected to be used for more than one period. Because there is high chances
of providing economic benefits which related to the flow of the business. In the initial stage
property, plant or equipment will be measured and it include various cost such as purchase price,
import duties, trade discount, non refundable purchase taxes, rebates etc.
6

Key aspects of Revaluation Model:
Each and every item will be depreciated separately which impact the total cost of assets.
Everly assets has significant useful life which required to calculate total cost of property, plant
and equipment. Depreciation will be charged for each period and it will be recognize in profit
and loss account and carrying out for another assets. Depreciation amount will be allocated on
systematic basis and over its life value.
According to Australian Accounting Standard Board (AASB) 116, cost of individual
item such as property, plant & equipment and it will be recognise as assets of the company. On
different time period, value of an assets or liability will revalued which required to estimate
because it further impact the financial position of the company (Jalbert, Fleischman and Jalbert,
2014). In context of Star Freight Ltd, company will shift on three trucks and for revaluation of
assets value company use cost model to account their trucks along with depreciation amount by
using straight line method.
Application of Revaluation Model:
Journal Entries of revaluation of fixed assets on 1st July 2018
Date Particulars Debit ( $ ) Credit ( $ )
01/07/18 Truck 1 account Dr..
To Revaluation account
(Being increase in the value of assets )
10000
10000
01/07/18 Truck 2 account Dr..
To Revaluation account
(Being increase in the value of fixed assets )
20000
20000
01/07/18 Revaluation account Dr..
To Truck 3 account
( Being decrease in the price value of assets )
30000
30000
Above journal entries represent that value of fixed assets such as truck will be changes.
On 1st July 2018, value of truck 1 will be increase by $ 10000, $ 20000 for truck two and $
30000 value will be decrease for truck three.
Journal Entries of revaluation of fixed assets on 30th June 2019
7

Date Particulars Debit ( $ ) Credit ( $ )
30/06/19 Revaluation account Dr..
To Truck 1 account
( Being decrease in the value of fixed assets )
30000
30000
30/06/19 Revaluation account Dr..
To Truck 2 account
( Being decrease in the value of fixed assets )
25000
25000
30/06/19 Truck 3 account Dr..
To Revaluation account
(Being increase in the value of assets )
10000
10000
On 30th June 2019, value of truck 1 will be decreased by $ 30000 same as for truck 2
where its value reduce by $ 25000 (Miller, Miller and Tolin, 2016). On the other hand, value of
truck 3 were increase by $ 10000.
QUESTION 5
Particulars Fresh Juice Bar Fresh Salads
Fixtures and fittings 5000 50000
Equipments 35000 60000
Motor vehicle 12000 18000
Goodwill ( Intangible assets ) 10000 20000
Carrying cost 62000 148000
* Working Notes:
Items Fresh Juice Bar Fresh Salads
Fixture & fittings (Less Acc.
depreciation)
= 5000 (50000 – 5000) = 50000 (65000 – 15000)
Equipments (Less Acc. depreciation) = 35000 (65000 - 30000) = 60000 (90000 – 30000)
Motor vehicle (Less Acc.
depreciation)
= 12000 (25000 - 13000) = 18000 (26000 - 8000)
8

To: Directors of Fresh Ltd
Subject: Regarding impairment loss
Calculation of impairment loss recoverable amount of assets:
There are two basic steps to calculate recoverable amount where first based on
disposable income less from fair value of assets (Whichever fare value is high). In the second
one is recoverable assets compare with carrying amount (Impairment Loss, 2010).
Rules of impairment test:
Step 1: Recoverable Amount = Fare value – Cost of disposal value
Step 2: Recoverable amount compare with carrying amount (Wilkins, 2015).
If, recoverable amount higher than carrying amount than there is no need to carry out
test.
If, recoverable amount is lower than the carrying amount than test will be carried out
(Financial reporting, 2019).
From: XYZ.
Recoverable assets for Fresh Juice Bar & Fresh Salads:
Fresh Juice Bar Fresh Salads
Carrying amount 62000 148000
Recoverable assets 58000 180000
Impairment Loss -4000 32000
Test will be carried out No need to carry out the test
From the above mention table represent that Fresh juice bar need to carry out the test
because carrying amount is higher than recoverable amount (Picker and et.al., 2019). In case of
carried out test, need to calculate impairment loss and allocate the losses with effective
implementation with the help of impairment test.
Allocation of impairment losses:
Fresh Juice Bar
Carrying amount 62000
9

Less: Goodwill -10000
Remaining 52000
Impairment loss 4000
Loss will be divided on pro rate basis (1: 7: 2.4)
Fixture & fittings ( 125 )
Equipments ( 875 )
Motor vehicle ( 3000 )
125
875
3000
Impairment loss will be adjusted from the assets on prorate basis excluding goodwill
because of intangible assets (Tomblin and et.al., 2014). Loss will be adjusted from various assets
such as fixtures & fitting, equipment and motor vehicle of $ 125, $ 875, $ 3000 respectively.
Journal Entry
For the year of 30th June 2019
Date Particulars Debit ($) Credit ($)
30/06/19 Impairment loss account Dr..
To Accumulated impairment loss
( Being recognition of impairment loss)
4000
4000
30/06/19 Fixture & fitting
Equipments
Motor vehicle
To Impairment loss
( Being allocation of impairment loss with assets)
125
875
3000
4000
CONCLUSION
From the above discussion it has been consulted that every accounting standard used for
specific purpose where accountant have to pass journal entry to better clarity in their accounts.
As well as whenever company required money in their organization to run their operational
activities they generally issued shares through inviting applicants. Along with this, revaluation
model helps in estimating depreciation amount and how it will impact the overall business. In
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