Financial Accounting: Statement Analysis and Journal Entries

This document presents comprehensive solutions to a financial accounting assignment. The first solution addresses issues with a statement of financial position, including classification errors and incorrect groupings, providing a corrected version adhering to AASB 101 standards. The second solution offers detailed journal entries for share transactions, including share application, allotment, and forfeiture, in the books of Ansett Ltd. The third solution provides journal entries for machine depreciation, revaluation losses, and deferred tax assets for Genesis Ltd, along with calculations for carrying value and depreciation. Finally, the fourth solution demonstrates the recording of impairment losses for Big Friday Ltd, including allocation to goodwill, machinery, and patents under different scenarios, with detailed calculations.

Solution -1
MEMORANDUM
To Jennifer,
This memorandum is prepared in reference to the statement of financial position sent. The following are
the key problems with the statement of financial position:
a. Absence of classification in current and non-current – The presented statement of financial
position fails to provide the assets classification between current and non-current in accordance
with AASB 101. As per AASB 101, any assets or liability which is receivable or payable within
the company’s normal operating cycle or 12 months from the balance sheet date should be
classified as current and all other assets as non-current. The relevant text of para 51 of AASB 101
states that:
“An entity shall present current and non-current assets, and current and non-current liabilities,
as separate classifications on the face of its balance sheet.”
b. Non/ improper grouping of items – AS per generally accepted principles and format of financial
position prescribed by AASB 101, the assets and liabilities should be properly grouped and
presented. The balance sheet or statement of financial position should firstly give disclosures
regarding current assets then non-current assets and then moving towards current liability and
then to non-current liabilities and lastly shareholder’s equity should be presented. In your
financial position following grouping are incorrect:
a. Ordinary share capital is classified under liabilities instead of shareholder’s equity
b. Accumulated depreciation - property, plant and equipment is classified under liabilities
instead of deducting from property, plant and equipment.
c. Intangible assets are clubbed with property, plant and equipment whereas it should be
disclosed separately.
d. Loan taken for investment property should be disclosed under liabilities instead of
deducting from assets.
c. Format of financial statement – Further, the format used for preparation of statement of financial
position is not in accordance with the format prescribed by AASB 101. AASB 101 prohibits

using t. account format for preparation of financial position. The corrected statement of financial
position is attached herewith for your review and understanding.
d. Proper bifurcation and details- The presented statement of financial position fails to bifurcate the
assets and liabilities. For example, provisions needs to be further bifurcated to provision for tax
liabilities and other provisions. Similarly, the bifurcation of other items wherever possible is
required.
Enclosures:
1. Revised Statement of Financial Position

WESLEY LTD.
STATEMENT OF FINANCIAL POSITION
For the year ended on 30 June, 2017
Particulars Amount as on
30 June, 2017
Current assets
Cash and cash equivalents 4,000
Trade and other receivables 160,000
Inventories 36,000
Other assets 10,000
Total current assets 210,000
Non-current assets
Property, plant and equipment 610,000
Investment Property 114,000
Intangible assets 94,000
Other assets 36,000
Total non-current assets 854,000
Total assets 1,064,000
Current liabilities
Trade and other payables 110,000
Short term borrowings 62,000
Current tax liabilities 8,000
Provisions 40,000
Financial liabilities 100,000
Total current liabilities 320,000
Non-current liabilities
Financial liabilities 500,000
Total non-current liabilities 500,000
Total liabilities 820,000
Equity

Ordinary share capital 200,000
Reserves 24,000
Retained earnings 20,000
Total equity 244,000
Total liabilities and equity 1,064,000

Solution-2
Journal Entries in the books of Ansett Ltd
Date Description Reference calculation Debit Credit
31-Jul-16 Bank A/c (5,500,000*1.5) 8,250,000
Share Application Money A/c 8,250,000
(Share application money received)
12-Aug-16 Share Application Money A/c 8,250,000
Share Capital A/c (5,000,000*1.5) 7,500,000
Bank A/c (500,000*1.5) 750,000
(Allotment of shares and refund of excess
amount)
12-Sep-16 Share Allotment A/c (5,000,000*0.3) 1,500,000
Share Capital A/c 1,500,000
(Share allotment due)
12-Sep-16 Bank A/c 1,500,000
Share Allotment A/c 1,500,000
(Amount received on share allotment)
20-Mar-17 Share First Call A/c (5,000,000*0.2) 1,000,000
Share Capital A/c 1,000,000
(Share first call due)
30-Apr-17 Bank A/c ((5,000,00050,000)*0.2) 990,000
Share First Call A/c 990,000
(Amount received on first call except for
50,000 shares)
31-May-17 Share Capital A/c (50,000*2) 100,000

Share First Call A/c (50,000*0.2) 10,000
Forfeited Shares A/c 90,000
(Forfeiture of shares due to non-payment
of call money)
05-Jun-17 Bank A/c (50,000*1.7) 85,000
Forfeited Shares A/c 15,000
Share Capital (50,000*2) 100,000
(Reissue of shares at $1.70)
05-Jun-17 Forfeited Shares A/c 5,000
Bank A/c 5,000
(Cost of reissue recorded)
05-Jun-17 Forfeited Shares A/c (90,000-15,000-5,000) 70,000
Bank A/c 70,000
(Excess surplus on reissue refunded)

Solution-3
Journal Entries in the books of Genesis Ltd
Date Description Debit Credit
01-Jul-15 Machine G A/c 400,000
Machine Q A/c 300,000
Bank A/c 700,000
(Purchase of machines)
30-Jun-16 Depreciation Expense A/c 96,000
Accumulated Depreciation - Machine G A/c 36,000
Accumulated Depreciation - Machine Q A/c 60,000
(Depreciation on machines)
30-Jun-16 Machine G A/c 16,000
Revaluation Loss A/c (refer annexure-1) 24,000
Accumulated Depreciation - Machine G A/c 36,000
Accumulated Depreciation - Machine Q A/c 60,000
Machine G A/c 36,000
Machine Q A/c 100,000
(Revaluation loss on fair valuation)
30-Jun-16 Deferred tax asset A/c (24,000*30%) 7,200
Revaluation Loss A/c 7,200
(Tax impact on above revaluation loss)
30-Jun-17 Depreciation Expense A/c 92,500
Accumulated Depreciation - Machine G A/c 42,500
Accumulated Depreciation - Machine Q A/c 50,000
(Depreciation on machines)
30-Jun-17 Revaluation Loss A/c (refer annexure-1) 27,500
Accumulated Depreciation - Machine G A/c 42,500

Accumulated Depreciation - Machine G A/c 50,000
Machine G A/c 80,000
Machine Q A/c 40,000
(Revaluation loss on fair valuation)
30-Jun-17 Deferred tax asset A/c (27,500*30%) 8,250
Revaluation Loss A/c 8,250
(Tax impact on above revaluation loss) `
Annexure -1 Calculation of Carrying Value and Depreciation
Particulars Machine G Machine Q
As on 1 July, 2015
Cost of Acquisition - (a) 400,000 300,000
Residual Value 40,000 -
Estimated Useful Life 10 5
Depreciation for the year (400000-40000)/10 (300000-0)/5
Depreciation for the year - (b) 36,000 60,000
As on 30 June, 2016
Carrying Value [c=(a-b)] 364,000 240,000
Fair Value - (d) 380,000 200,000
Revaluation Gain / (Loss) 16,000 (40,000)
Residual Value 40,000 -
Estimated Useful Life 8 4
Depreciation for the year (380000-40000)/8 (200000-0)/4
Depreciation for the year - (e) 42,500 50,000
As on 30 June, 2017
Carrying Value (d-e) 337,500 150,000
Fair Value 300,000 160,000
Revaluation Gain / (Loss) (37,500) 10,000

Solution-4
Journal Entries in the books of Big Friday Ltd
Date Description Debit Credit
Part (i)
30-Jun-17 Impairment Loss A/c 130,200
Accumulated impairment loss – Patent A/c (refer annexure-
3) 15,000
Accumulated impairment loss – Machinery A/c (refer
annexure-3) 115,200
(Impairment loss recorded)
Part (ii)
30-Jun-17 Impairment Loss A/c 130,200
Accumulated impairment loss – Patent A/c (refer annexure-
2) 26,040
Accumulated impairment loss – Machinery A/c (refer
annexure-2) 104,160
(Impairment loss recorded)
Explanation: Under part (i), an maximum of 15,000 (150,000-135,000) of impairment loss can be
allocated to Patent as the fair value less cost of sell of Patent is 135,000 and the carrying amount of patent
is 150,000. Whereas in part (ii) an maximum of 30,000 (150,000-120,000) of impairment loss can be
allocated to Patent, as the fair value less cost of sell of Patent is 120,000 and the carrying amount of
patent is 150,000.
When we allocate the impairment loss of $135,200 as per the carrying value of assets, the portion of
allocation to Patent comes at 26,040, so the entire cost can be allocated to Patent in part (ii) whereas only
15,000 can be allocated to Patent in part (i).

Annexure-1: Calculation of Impairment Loss
Machinery 840,000
Accumulated depreciation - machinery (240,000)
Patent 150,000
Receivables 16,000
Inventory 87,000
Cash 20,000
Goodwill 15,000
Carrying amounts 888,000
Fair Value less costs to sell 742,800
Value in use 650,000
Recoverable amount (higher of fair value and
value in use) 742,800
Impairment Loss (888,000-742,800) 145,200
Annexure-2: Allocation of Impairment Loss
Impairment loss is firstly allocated to goodwill and the remaining portion is allocated to other assets on
the basis of their carrying amount. In the given case,
Impairment Loss 145,200
Allocated to Goodwill 15,000
Remaining impairment loss 130,200
Allocation of Impairment loss to other assets on the basis of carrying amounts.
Particulars Carrying amounts
Allocation of impairment
loss
Machinery 600,000 104,160
Patent 150,000 26,040
Carrying amounts 750,000 130,200