Financial Accounting ACT204 Assignment: Semester 1, 2019, Problems

This document presents a comprehensive solution to a financial accounting assignment for the ACT204 unit. The solution encompasses several key accounting areas, including the calculation and accounting treatment of long service leave, with detailed workings and journal entries. It also covers share capital transactions, including share application, allotment, forfeiture, and reissue, with associated journal entries. Furthermore, the document addresses lease accounting, demonstrating the journal entries from both the lessor and lessee perspectives, including the calculation of implicit interest rates and depreciation. Finally, it explores creative accounting practices, defining the term, discussing its implications, and differentiating it from GAAP. The assignment provides a thorough understanding of various financial accounting concepts and their practical application.

FINANCIAL ACCOUNTING 1
FINANCIAL
ACCOUNTING

FINANCIAL ACCOUNTING 2
Problem 1:
The following are the relevant calculations:
Long
Service
Leave
a
)
Name of
the
Employe
es
Curren
t
Salary
(assum
ed
Monthl
y)
Ye
ars
of
ser
vic
e
Ye
ars
un
til
LS
L
ve
sts
Bon
d
Rate
(%)
Probabil
ity %
that
LSL
will vest
Monthl
y Salary
at the
time of
vesting
with
2%
inflatio
n
10
weeks
Salary
at the
time of
vesting
Present
Value
of 10
weeks
salary
Curre
nt
Oblig
ation
of
Long
Servi
ce
Leave
a b c d e f
g =
b*(1+2
%)^d
h =
g/4*10
i i*f
Black 40,000 2 10
8.00
% 15.00% 48,760
1
,21,899 56,463 8,469
White 40,000 4 8
7.00
% 20.00% 46,866
1
,17,166 68,192
1
3,638
Brown 50,000 6 6
6.50
% 50.00% 56,308
1
,40,770 96,475
4
8,237
Green 8 4 6.00 70.00% 1 1 9

FINANCIAL ACCOUNTING 3
60,000 % 64,946 ,62,365 ,28,608 0,026
Purple 70,000 10 2
5.80
% 90.00% 72,828
1
,82,070
1
,62,655
1,4
6,389
3,0
6,760
b
)
Long Service Leave
Expense A/c
Dr
.
2,8
2,45
9
Through Income
Statement
Re-measurement of
Long Service Leave
Dr
.
1
1,80
1
Through Other
Comprehensive Income
To Provision for Long
Service Leave
Cr
.
2,94,26
0
(Being Provision created for long service expense i.e.
Current Obligation - Opening Provision)
Calculation of Current Obligation at the end
of Previous Year
Name of
the
Employe
es
Curren
t
Salary
(assum
ed
Monthl
Ye
ars
of
ser
vic
e
Ye
ars
un
til
LS
L
Bon
d
Rate
(%)
Probabil
ity %
that
LSL
will vest
Monthl
y Salary
at the
time of
vesting
with
10
weeks
Salary
at the
time of
vesting
Present
Value
of 10
weeks
salary
Curre
nt
Oblig
ation
of
Long

FINANCIAL ACCOUNTING 4
y)
ve
sts
2%
inflatio
n
Servi
ce
Leave
a b c d e f
g =
b*(1+2
%)^d
h =
g/4*10
i i*f
Black 40,000 1 11
8.00
% 15.00% 49,735
1
,24,337 53,326 7,999
White 40,000 3 9
7.00
% 20.00% 47,804
1
,19,509 65,005
1
3,001
Brown 50,000 5 7
6.50
% 50.00% 57,434
1
,43,586 92,398
4
6,199
Green 60,000 7 5
6.00
% 70.00% 66,245
1
,65,612
1
,23,755
8
6,629
Purple 70,000 9 3
5.80
% 90.00% 74,285
1
,85,711
1
,56,813
1,4
1,132
2,9
4,959
Re-measurement of Long Service Leave (Current Obligation at the end of
Current Year - at the end of Previous Year)
1
1,801
Problem 2:
The following are the relevant calculations:

FINANCIAL ACCOUNTING 5
Share
Capital
Date
01-Jul-
19 Bank A/c
D
r.
120,
00,000
To Ordinary Share Application A/c
C
r.
120,
00,000
(Being share application money received on 12,000,000
shares @ $1 per share)
05-
Aug-19 Ordinary Share Application A/c
D
r.
100,
00,000
To Ordinary Share Capital A/c
C
r.
100,
00,000
(Being appropriation of application money towards share
capital on 10,000,000 shares @ $ 1 per share)
05-
Aug-19 Ordinary Share Application A/c
D
r.
20,
00,000
To Bank A/c
C
r.
20,
00,000
(Being excess Application money received on
2,000,0000 shares is returned to applicants)

FINANCIAL ACCOUNTING 6
05-Sep-
19 Ordinary Share Allotment A/c
D
r.
100,
00,000
To Ordinary Share Capital A/c
C
r.
100,
00,000
(Being allotment money due on 10,000,000 shares @ $ 1
per share)
05-Sep-
19 Bank A/c
D
r.
80,
00,000
To Ordinary Share Allotment A/c
C
r.
80,
00,000
(Being allotment money received on 8,000,000 shares @
$ 1 per share)
10-Sep-
19 Ordinary Share Capital A/c
D
r.
40,
00,000
To Ordinary Share Allotment A/c
C
r.
20,
00,000
To Ordinary Share Forfeiture A/c
C
r.
20,
00,000
(Being 2,000,000 shares forfeited on non-payment of
allotment money)
15-Sep-
19 Bank A/c
D
r.
36,
00,000
Loss on Share Re-issue A/c D 4,

FINANCIAL ACCOUNTING 7
r. 00,000
To Ordinary Share Capital A/c
C
r.
40,
00,000
(Being forfeited shares issued @ $ 1.80 per share fully
paid-up)
15-Sep-
19 Ordinary Share Forfeiture A/c
D
r.
20,
00,000
To Loss on Share Re-issue A/c
C
r.
4,
00,000
To Capital Reserve A/c
C
r.
16,
00,000
(Being balance net gain / loss on share forfeiture and
reissue is transferred to Capital reserve A/c)
Problem 3:
The following are the relevant calculations:
(a) Cash Flows
Year 1 2 3 4
Lease Rentals
1,00
,000
1,00
,000
1,00
,000
1,00,00
0
Unguaranteed Residual 50,00

FINANCIAL ACCOUNTING 8
- - - 0
1,00
,000
1,00
,000
1,00
,000
1,50,00
0
PV @ 10% of above cash flows
3,51
,137
or
say
3,51
,140
As PV @ 10% of the cash flows equals to fair
value of truck at inception - it shows that
interest rate implicit in the lease is 10%
(b)
Journal Entry in the Books of Lessor (City
Vans Ltd.)
01-
07-
2019 Lease Receivable A/c Dr.
3,51
,140
To Truck on Lease Cr.
3,51
,140
(Being Truck given on Lease recognised at
Fair Value)
30- Bank A/c Dr.

FINANCIAL ACCOUNTING 9
06-
2020
1,00
,000
To Finance Income Cr.
35,1
14
(Lease
Receivable
*implicit
rate)
To Lease Receivable Cr.
64,8
86
(balancing
figure)
(Being Lease rental received from Darwin
Ltd.)
(c)
Journal Entry in the Books of Lessee
(Darwin Ltd.)
01-
07-
2019 Truck on Lease A/c Dr.
3,51
,140
To Lease Payable Cr.
3,51
,140
(Being Truck given on Lease recognised at
Fair Value)
30-
06-
Lease Payable A/c Dr.
64,8
(balancing

FINANCIAL ACCOUNTING 10
2020 86 figure)
Finance Cost A/c Dr.
35,1
14
(Lease
Payable*im
plicit rate)
To Bank A/c Cr.
1,00
,000
(Being Lease rental paid to City Vans Ltd.)
30-
06-
2020 Depreciation A/c Dr.
70,2
28
To Provision for Depreciation for Truck on
lease Cr.
70,2
28
(Being Depreciation charged at Straight line
method considering useful life of 5 years)
(d)
Journal Entry in the Books of Lessee
(Darwin Ltd.)
30-
06-
2023 Lease Payable A/c Dr.
1,36
,363
(rounded
off)
Finance Cost A/c Dr.

FINANCIAL ACCOUNTING 11
13,6
37
To Bank A/c Cr.
1,50
,000
(Being Lease rental paid to City Vans Ltd.
including the residual value)
30-
06-
2023 Depreciation A/c Dr.
70,2
28
To Provision for Depreciation for Truck on
lease Cr.
70,2
28
(Being Depreciation charged at Straight line
method considering useful life of 5 years)
30-
06-
2023 Truck A/c Dr.
70,2
28
Provision for Depreciation for Truck on lease Dr.
2,80
,912
To Truck on Lease A/c Cr.
3,51

FINANCIAL ACCOUNTING 12
,140
(Being purchase of truck recorded by
transferring from truck on lease a/c)
Wor
king
Note
Year Lease Payments
Ope
ning
Bal
anc
e of
Lea
se
Pay
able
Fina
nce
Cost
@
10%
Red
ucti
on
fro
m
Leas
e
Pay
men
ts
Closing
Balance of
Lease
Payments
1 1,00,000
3,51
,140
35,1
14
64,8
86
2,86,25
4
2 1,00,000
2,86
,254
28,6
25
71,3
75
2,14,87
9
3 1,00,000
2,14 21,4 78,5
1,36,36
7