Financial Accounting: AASB and International Standards

This financial accounting assignment addresses key concepts including depreciation, impairment of assets, and the application of accounting standards. The solution begins with journal entries related to asset depreciation under AASB 116, demonstrating the calculation and recording of depreciation expense over several years. It then explores the relationship between AASB 116 and AASB 136, specifically focusing on the impairment of assets and providing a scenario where no impairment occurs. The assignment further examines other assessments Cisco Ltd should undertake, referencing AASB 108 for changes in accounting estimates. Question 2 presents journal entries for Ajax Ltd from 2012 to 2014, including the initial purchase of machinery and subsequent depreciation entries. It also includes journal entries for accumulated depreciation and impairment losses, along with an explanation of the reasons for impairment, and the presentation of plant and equipment in the balance sheet. Finally, Question 3 interprets the technical requirements and importance of international accounting standards, highlighting the significance of transparency and standardization in financial reporting, and the need for technical knowledge to deal with IFRS, deferred tax assets and liabilities, and retirement plans.

Issues in Financial Accounting

Table of Contents
ASSIGNMENT 2.............................................................................................................................4
QUESTION 1..................................................................................................................................4
a) Journal entries as per AASB 116.............................................................................................4
b) AASB 116 and AASB 136......................................................................................................5
c) Other assessment undertake by cisco......................................................................................6
QUESTION 2..................................................................................................................................6
A. Appropriate Journal entries for Ajax Ltd for the year of 2012, 2013 and 2014...................6
B. Journal entries for accumulated depreciation.........................................................................7
C. Explaining the reasons for impairment...................................................................................7
D. Presenting the amount of plant and equipment in balance sheet............................................8
QUESTION 3..................................................................................................................................8
Interpreting the technical requirements and importance of international accounting standards. 8

ASSIGNMENT 2
QUESTION 1
a) Journal entries as per AASB 116
Depreciation
Cost of assets 245000
Depreciation (245000-35000/7) 30000
= 215000
Date Particulars Amount
30-June-2013 Balance of machine at 2012 215000
Depreciation 30000
Balance at 2013 185000
30-June-2014 Balance at 2013 185000
Depreciation 30000
Balance at end of 2014 155000
30-June -2015 Balance at 2014 155000
Depreciation 30000
Balance at end of 2015 125000
30-June-2016 Balance at 2015 125000
Depreciation 30000

Balance at end of 2016 95000
Journal entries
Date Particular Debit Credit
30-June-2013 Machinery A/c Dr 185000
Depreciation a/c Dr 30000
To Cisco Ltd 215000
Narration (Being machine valued
at fair value)
30-June-2014 Machinery A/c Dr 155000
Depreciation a/c Dr 30000
To Cisco Ltd 185000
(Being machine valued
at fair value)
30-June-2015 Machinery A/c Dr 125000
Depreciation a/c Dr 30000
To Cisco Ltd 155000
(Being machine valued
at fair value)
b) AASB 116 and AASB 136
Machinery A/c Dr 95000

Depreciation a/c Dr30000
To Cisco Ltd 125000
Measurement of recoverable amount
=Fair value-cost to sell-value in use
= 104000-600-98000
= 5400
There will be no impairment of assets in this scenraio where in accordance with AASB 136
impairment of assets the the recoverable amount is less than the carrying amount of 95000.
c) Other assessment undertake by cisco
Cisco Ltd should comply with the framework of AASB 108 which deals in ensuring the
changes in estimates in the accounts. The depreciation method currently used by an entity is
Straight line method if changes to WDV are required to fulfill this standard requirements.
QUESTION 2
A. Appropriate Journal entries for Ajax Ltd for the year of 2012, 2013 and 2014
Date Particular Debit Credit
30 June 2011 Machinery A/c Dr 320000
To cash a/c 320000
30-June-2012 Depreciation a/c Dr 40000
To machinery a/c 40000
30-June-2013 Depreciation a/c Dr 40000
To machinery a/c 40000

30-June-2014 Depreciation a/c Dr 40000
To machinery a/c 40000
B. Journal entries for accumulated depreciation
Date Particular Debit Credit
30 June 2014 Depreciation expense
a/c Dr
40000
To accumulated
depreciation a/c
40000
30-June-2015 Depreciation a/c Dr 40000
To machinery a/c 40000
Journal entries for impairment losses
Date Particular Debit Credit
30 June 2014 Impairment loss a/c Dr 90000
To accumulated
depreciation a/c
90000
In 2015, recoverable amount is higher than carrying figure so there is no journal entry has
been made.
C. Explaining the reasons for impairment
In 2014, carrying amount is $200000, whereas recoverable amount implies for $110000.
Hence, carrying amount is higher than recoverable cost which shows the loss of $90000.

Carrying cost – recoverable amount
$200000 – $110000 = $90000
D. Presenting the amount of plant and equipment in balance sheet
In balance sheet, revaluate amount of plant and equipment is recorded by business entity
after doing final reversal.
QUESTION 3
Interpreting the technical requirements and importance of international accounting standards
International Accounting standards have high level of importance which ensures high
level transparency and standardization in the financial statements. Hence, final accounts which
are prepared according to IFRS are highly reliable in nature and thereby helps stakeholders in
making decisions (Florou, Kosi and Pope, 2017). However, technical knowledge is highly
required among the individuals or accounting personnel to deal with the aspects of International
Accounting Standards such as IAS 12 and 26 etc. In this, accounting personnel must have ability
to recognize deferred tax assets and liabilities. Moreover, assets, revenue received in advance,
other liabilities, unrecognized items; consolidated financial statements are the main bases of
taxation (Warren, 2016). By taking into consideration all such bases accounting personnel can
assess or determine the tax liability. In addition to this, in IAS 12 contains rules regarding the
measurement of deferred tax. Along with this, tax rate are also varied from one year to another.
In this, accounting personnel is required to update with changing rules and policies. Through
this, finance manager and accounting personnel would become able to determine suitable tax
liability.
In addition to this, IAS 26 serves information about retirement plans which can be
distinguished into two types such as defined benefit and contribution plan. Hence, it clearly
presents information about the recording, measurement and disclosure of information regarding
the retirement benefit plans. Hence, for effective presentation accounting personnel must have
knowledge regarding the rules and regulations which are related to it (Bond, Govendir and
Wells, 2016). Thus, by considering all such aspects it can be said that technical and conceptual
knowledge is highly required for dealing with the standards more effectively and efficiently.

Moreover, reporting and measurement aspect of pension plan is highly differing from one
standard to another (McPhail, Macdonald and Ferguson, 2016). For instance: UK GAAP has
different rules in relation to treatment on pension benefits in against to IAS. Hence, conceptual
understanding and knowledge is highly required for dealing with the amount of retirement
benefits and deferred tax amount.
There are several key issues which are associated with financial reporting enumerated
below:
 Reporting needs and requirements are mentioned in the regulations which business entity
requires following for ensuring transparency in the final accounts. However, sometimes
is not possible for the business organization to comply with all the rules to the large
extent.
 Further, some government authorities have framed and introduced legislation which
entail that companies are not obliged to prepare financial statements according to
accounting standards. Moreover, sometimes treasurer directives also enforce accounting
standard which company has to follow for the preparation of financial statements.

REFERENCES
Books and Journals
Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by Australian
firms and whether they were impacted by AASB 136. Accounting & Finance.
Florou, A., Kosi, U. and Pope, P.F., 2017. Are international accounting standards more credit
relevant than domestic standards?. Accounting and Business Research. 47(1). pp.1-29.
McPhail, K., Macdonald, K. and Ferguson, J., 2016. Should the international accounting
standards board have responsibility for human rights?. Accounting, Auditing &
Accountability Journal. 29(4). pp.594-616.
Warren, C. M., 2016. The impact of International Accounting Standards Board
(IASB)/International Financial Reporting Standard 16 (IFRS 16). Property
Management. 34(3).