Financial Accounting 2 Report

This report covers various aspects of financial accounting, including the treatment of contingent liabilities, lease obligations, and long-term service leave provisions. It includes detailed calculations, journal entries, and a cash flow statement for T Pty Limited, along with references to relevant literature. The report aims to provide a comprehensive understanding of financial accounting practices and their implications for financial reporting.

Financial Accounting 1
FINANCIAL ACCOUNTING
By Name
Course Title
Instructor’s name
Name of Institution
Name of Department

Financial Accounting 2
Financial Accounting
Question 1:
Factors that could be considered in determining the form the disclosures that should be
taken and the period of years the disclosures would be made
Contingent liability: This is a form of commitment that depends on the occurrence of the
future events which may either happen or not. If a contingent liability that is considered to be
both probable and the amount can be estimated with reasonable certainty is basically to be
recorded as a loss or expense in the income statement and also as a liability in the company
balance sheet (Annan, 2014). It can be noted that if a contingent that is probable but the
amount cannot be recorded in the financial accounts, but will be disclosed in the notes to the
financial statements. Furthermore, a contingent liability that is very remote that may happen
in future need not to be recorded as well as disclosed in the notes section of the financial
statements. In this particular case, the factor that needs to be considered is that CBA has
settled with the investors for A$50 Million and agreed to pay A$1.5 Million. Therefore, the
settlement has occurred that is not contingent (Buchman, Harris, and Liu, 2016). The entry
for payment for A$50 Million must be demonstrated as an expense in the income statement
for the company. The nature and details of this particular transaction should also be given in
the notes for the readers to have a better understanding of the item.
Provision must be made in the account for A$1.5 Million which is an amount not paid but
agreed upon, and the obligation must be made in the statement of financial position. The
details of this particular transaction must be provided in the notes sections for easy
understanding (El-Gazzar, Lilien, and Pastena, 2008). The accounting treatment as above and
such disclosures must be included in the financial statement for the FY2012 which is
considered to be the year of the transaction. Since this item is considered to be significant and

Financial Accounting 3
repetitive, complete disclosures must be made in the director's report and the action plan that
would be implemented in future so as to ensure that such incidents do not repeat itself.
Question 2
i.
PV of period rental costs = Yearly rental income * PVIFA (n=4, i=8%)
$50,000 * 3.5771
178855
PV of the guaranteed residual = Guaranteed residual * PVIF (n=4, i=8%)
$40,000 * 0.7350
$29,400
Lease obligation = PV of period rental costs + PV of the guaranteed residual
Lease Liability = $178,855 + $29,400
Lease liability = $208,255
ii.
Lease Amortization Table
Date Lease payment Interest payment
Reduction in
obligation
Lease
obligation
1/7/2019 208,255
1/7/2019 50,000 50,000 158,255
1/7/2020 50,000 12660.4 37,340 120,915
1/7/2021 50,000 9673.232 40,327 80,589
1/7/2022 50,000 6447.0906 43,553 37,036
1/7/2023 40,000 2962.8578 37,037 -1
Lease expense on 1/7/2023 is the guaranteed residual
iii.
Date Journal Entries Dr. Cr.
1/7/2019 Lease studio 208,255
Lease Obligation 50,000
Leased Studio 50,000
Cash
208,25
5
30/6/2020 Interest payment 12,660
Interest Payable 12,660
Depreciation payment rented studio 42,060
Acc. Depreciation rented studio
(208255 - 40,000)/4 42,060

Financial Accounting 4
1/7/2020 Lease obligation 27,340
Interest outstanding 12,660
Cash 50,000
iv.
Hopeful Ltd should pay $15,000 that is the variance between fair value of the guaranteed
residual and the leased studio.
Dr. Cr.
1/7/2019 Acc. Depreciation rented studio 168,255
Rented studio
168,25
5
(208,255 - 40,000)
1/7/2019 Leased Obligation 37,036
Interest outstanding 2,964
Rented Studio 40,000
1/7/2019 Loss on guaranteed residual 15,000
Cash 15,000
Question 3
Question 3 (i)
Calculation of Alexandra Bays Current obligation for long-term service
Calculations (See Notes below for justification of the calculations under each
column)
Employee
name
Anticipated
salary
Acc. LSL
Benefit
PV of LSL
Liability
Likelihood that
LSL will be compensated
LSL
Obligatio
n
Mike Black 48,760 1563 724 15% 109
Ian White 46,866 3,004
17,48
1 20% 350
Noel Brown 56,308 5,414 3,710 50% 1855
Peter Green 64,946 8,326 6,595 70% 4617
Alvin Purple 72,828 11,671
10,42
6 90% 9383
16,314
Notes
1 Estimated salary
Existing salary x (1+ rate of inflation)n, where n is no of years until the end of long-
term service

Financial Accounting 5
Assumed that rate of inflation will be 2%
Therefore, salary for first worker (Black) will be = $40,000 * (1.02)10 = $48,760
2 Accrued LSL benefit is assessed by the following
Accrued LSL entitlement =
Employment years X Weeks of LSL privilege X Projected Salary
No. of periods until privilege
52 weeks per
year
For the first employee = 2 X 10 X
$48,76
0
12 52 $1,563
3 PV of the long-term service
Accrued long-term service leave benefit
(1+ Suitable rate of government bond)n
Where n is considered to be the no. of years until long-term service leave entitlement can be
taken.
First employee (Black) = $1,563/(1.08)10 =
$724
4 Chance that long-term service will be reserved
Assessed in reference prior to the reference in the industry and organization
Taken that a worker with two years’ experience has a likelihood of 15% of staying in the company until
long-term service leave should be taken. Once a worker reaches the pre conditional time of 12 years,
the chance is 100% that fee would be made.
For example: First employee (Black) the calculation would be $724 * 0.15 = $109
Following on the above assessment after considering all the five workers, the long-term leave
services provision of leave at the period end must be $16,314.
Question 3 (ii)
Journal entry to record Alexandra Bays long-term service leave expense
If the balance in the provision account at the start had been $12,500, the expense for the year
will be ($16,314 - $12,500) = $3,814. This aspect will represent the increase in the liability for
the year.
Dr. Cr.
Long service leave expense
$3,81
4

Financial Accounting 6
Long service leave provision $3,814
Question 4
T Pty Limited
Cash Flow Statement for the year ended June 2020
Cash Flows from Operations: $ $
Profit Before
Tax 365000 365000
Add
Depreciation Expense 140000
Accounts Receivables
Dr. Cr.
Balance as at 2019 2,654 Debt 265
Increase in Acc. Rec 508 Balance as at 2020 2,897
3162 3162
Property, Plant and Equipment
Dr. Cr.
Balance as at 2019 768,000 PPE 80,000
Purchases 25000 Balance as at 2020 1,025,000
1,025,000 1,025,000
Workings:
Cash 20000 sold
Cash 80000
Equipement 80,000
Accounts Payable
Dr. Cr.
Balance as at 2019 1,483
Increase in Acc. P 154
Balance as at 2020 1,637
1,637 1,637

Financial Accounting 7
Increase in interest expense 315000
Increase in accounts payables 154000
Decrease in inventories 288000
897000 1262000
Subtract
Increase Accts Rec 508000
508000
Cash Flows from Operations 754000
Cash Flows from Investing
Interest paid 315000
Income tax paid 100000 415000
Net Cash Flows from Operations 339000
Cash Flows from Investing
Interest received 110000
Dividends
received 51000
Squash Pty Ltd bet of cash acquired -250000
Purchase of tennis equipment -80000
Proceed from sale of equipment -50000
Net Cash Flows from Investing activities -219000
Cash Flows from Financing activities
Payments of finance lease liabilities -25000
Share capital
issue -750000
Net Cash Flows from Financing activities -775000
Net decrease in cash and cash equivalents -655000
Cash and cash equivalents at the beginning of the year 790000
Cash and cash equivalents at the end of the year 135000
Question 5
Workings 1
HK$8.00 = A$1.00
HK$300,000
Purchases at as 22/4/2018 300,000/8.00 = A$37,500

Financial Accounting 8
(HF$300,000/
3) HK$100,000
HK$8.56 = A$1.00
HK$100,000
Purchases at as 30/5/2018 100,000/8.56 = A$11682
Foreign exchange gain
(12500-11682) =
818
HK$8.56 = A$1.00
HK$100,000
Purchases at as 30/6/2018 100,000/8.59 = A$11641
Foreign exchange gain
(12500-11641) =
859
HK$8.56 = A$1.00
HK$100,000
Purchases at as 31/7/2018 100,000/8.94 = A$11186
Foreign exchange gain
(12500-11186) =
1314
Workings 1
Yen160 = A$1.00
Yen 5,000,000
Purchases at as 30/5/2018 5,000,000/160 = A$31,250
Purchases at as 31/7/2018 5,000,000/260 = A$19,230
Foreign exchange
gain (31250-19231) = 12019
20, 000,000 * 11.5 *
10
23,000,00
0
Loan = 3,000,000
Date Dr. Cr.
30/4 Purchases A$37500
Accounts Payables A$37500
To record Purchases at as 22/4/2018

Financial Accounting 9
30/5 Accounts Payables A$12500
Cash A$11682
Foreign exchange gain A$818
To record Purchases at as 30/5/2018
30/6 Accounts Payables A$12500
Cash A$11641
Foreign exchange gain A$859
To record Purchases at as 30/6/2018
31/7 Accounts Payables A$12500
Cash A$11186
Foreign exchange gain A$1314
To record payment for mortgage payable
30/4
Equipmen
t A$31250
Accounts Payables A$31250
To record Purchases at as 30/5/2018
31/7 Accounts Payables A$31250
Cash A$19231
Foreign exchange gain A$12019
To record Purchases at as 31/7/2018
31/1 Loan US$3,000,000
Interest Payables
US$2,070,00
0
Hedge funds US$930000
To record Interest payables
31/1 Purchases for car A$744,680
Cash A$714286
Foreign exchange gain A$30,394
To record Interest payables

Financial Accounting 10
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