Financial Accounting Assignment - Question Answers

This financial accounting assignment solution addresses key concepts in financial reporting, including fair value accounting, depreciation, and pension accounting. Question 1 explores the application of fair value to assets without an active market, referencing AASB 13 and considering valuation methods based on similar assets or expert assumptions. Question 2 presents depreciation calculations using the straight-line method, along with journal entries for depreciation and revaluation of a printing machine. It also covers the sale of an asset. Question 3 delves into pension accounting, calculating the surplus or deficit of a defined benefit plan, pension expense, and net interest. It includes the calculation of actuarial gains or losses, return on plan assets, and a reconciliation of the net defined benefit liability, accompanied by relevant journal entries. The solution references accounting standards and provides detailed calculations and explanations to enhance understanding of these core financial accounting topics.

Running Head: Financial Accounting
Financial Accounting

Financial Accounting 2
Table of Contents
Question 1.............................................................................................................................................3
Question 2.............................................................................................................................................4
Part (i)................................................................................................................................................4
Part (ii)..............................................................................................................................................5
Question 3.............................................................................................................................................8
Part (i)................................................................................................................................................8
Part (ii)..............................................................................................................................................8
Part (iii).............................................................................................................................................9
Part (iv)..............................................................................................................................................9
Part (v)...............................................................................................................................................9
Part (vi)............................................................................................................................................10
Part (vii)...........................................................................................................................................11
References:..........................................................................................................................................12

Financial Accounting 3
Question 1
Fair value accounting can be applied to those assets which have no market available by
considering the values available for the similar assets in the market and these assets can also
be measured using some other methods. As per AASB 13 Para 27 the assets which have no
commercial use and which have no market available are exchanged between willing seller
and willing buyers only (Barr and McClellan, 2018). They are to be called as specialised
assets which are to be valued on the basis of the future income that can be generated from
those assets or the exchange value received for those assets, ideally they are not valued at fair
value as we will be unable to identify their fair value without having active market for that
asset (Hodder, Hopkins and Schipper, 2014). As per AASB 13 Para 22 We can also estimate
their value from the similar assets available in the market and which have some market value
or we can say fair value available as they are marketable so there must be their fair value or
market value of those assets and with the help of these values we can arrive at the nearby fair
value of the assets which are not marketable or which have no active market. If we value
those assets at the fair value then the assumptions need to be taken by the experts for the
valuation of those assets (Machado, Martins and Carvalho, 2015). The assets which have no
active market can either be valued on the basis of the similar assets or by taking some
assumptions only if the fair value method of accounting is used for their valuation.

Financial Accounting 4
Question 2
Part (i)
01-Jul-15
Cost of Printing Machine $39,800
Installation Cost $ 4,200
Residual Value $ 1,800
Useful Life 10
Straight line Method of Depreciation
Depreciation $ 4220
30-Jun-17
Useful Life 5
Residual Value $ 1,200
Cost of Machine $ 39,780
Depreciation $ 7,716
Journal Entries
Date Particulars
Amount
($) Amount ($)
30-Jun-16 Depreciation A/C
D
r 4220

Financial Accounting 5
To Machine 4220
(Being depreciation charged on machine)
30-Jun-16 Profit & Loss A/C
D
r
To Depreciation
(Being depreciation transferred to P & L A/C)
30-Jun-17 Depreciation A/C
D
r 7716
To Machine 7716
(Being depreciation charged on machine)
30-Jun-17 Profit & Loss A/C
D
r 7716
To Depreciation 7716
(Being depreciation transferred to P & L A/C)
Part (ii)
30-Jun-17
Fair Value $ 30,000
Cost of Machine $ 32,064
Downward Revaluation $ 2,064
Depreciation $ 7,500

Financial Accounting 6
30-Jun-18
Fair Value $ 16,000
Cost of Machine $ 22,500
Downward Revaluation $ 6,500
Depreciation $ 5,333
30-Sep-18
Cost $ 14,667
Sale
Value $ 10,500
Loss $ 4,167
Journal Entries
Date Particulars
Amount
($)
Amount
($)
30-Jun-17 Revaluation A/C Dr 2064
To Machine 2064
(Being machine revaluated)
30-Jun-18 Depreciation A/C Dr 7500
To Machine 7500
(Being depreciation charged on machine)
30-Jun-18 P & L A/C Dr 7500
To Depreciation 7500
(Being depreciation transferred to P & L A/C)

Financial Accounting 7
30-Jun-18 Revaluation A/C Dr 6500
To Machine 6500
(Being machine revaluated)
30-Sep-
18 Depreciation A/C Dr 1333
To Machine 1333
(Being depreciation charged on machine)
30-Sep-
18 Cash A/C Dr 10500
Loss on Sale Dr 4167
To Machine 14667
(Being machine sold and the amount of loss
recorded)
(Titman, Keown and Martin, 2017)

Financial Accounting 8
Question 3
Part (i)
Surplus or Deficit of CHL’s defined benefit plan at 30 June 2017
Present value of DBO (30-June-
2017) 1,07,50,000
Fair Value of plan asset (30-June-17) 1,00,47,500
Deficit 7,02,500
Part (ii)
Net defined benefit asset or liability that should be recognised by CHL at 30 June 2017
Calculation of pension
expense ($)
Interest Cost 900000
Service cost 11,50,000
Actual return on plan assets -7,47,500
Pension expense 13,02,500
Calculation of pension Asset or
liability ($)
Pension Expense 13,02,500
Cash 10,00,000
Pension Liability 3,02,500

Financial Accounting 9
Part (iii)
Calculation of net Interest ($)
Present value of DBO (01-Jul-
2016) 1,00,00,000
Interest cost 9,00,000
Part (iv)
The actuarial gain or loss
Calculation of Actuarial Gain/ Loss ($)
Balance 30 June 2017 1,07,50,000
Balance 1 July 2016 1,00,00,000
Net interest 9,00,000
Service cost 11,50,000
Contributions paid to the fund 10,00,000
Benefits paid by fund 12,00,000
Actuarial loss on DBO 15,00,000
Part (v)
Calculation of Return on Plan asset ($)

Financial Accounting 10
Fair Value of plan asset (01-Jul-2016) 95,00,000
Contributions paid by CHL to the fund during the year 10,00,000
Benefits paid by the fund during the year 12,00,000
Fair Value of plan asset (30-June-17) 1,00,47,500
Return on Plan asset 7,47,500
Part (vi)
Reconciliation Net defined benefit
liability
Defined benefit
obligation
Plan assets
$ $ $
Balance 1 July 2017 1,00,00,000 95,00,000
Interest 9,00,000 9,00,000
Current service cost 11,50,000 11,50,000
Contributions received by
fund
10,00,000 10,00,000 10,00,000
Benefits paid by fund 12,00,000 12,00,000 12,00,000
Return on plan assets
excluding interest recognised *
7,47,500
Actuarial loss on re-
measurement of DBO
15,00,000
Balance 30 June 2017 1,07,50,000 1,00,47,500

Financial Accounting 11
Part (vii)
Summary Journal Profit or
Loss
Other
comprehensive
Income
Bank Net
DBL(A)
Balance 1 July 2016
Net interest 9,00,000
(Dr.)
Service cost 11,50,0
00 (Dr.)
Contributions paid to
the fund
10,00,00
0 (Cr.)
Gain/Loss on plan
assets (ex. interest)
7,47,5
00 (Cr.)
Actuarial loss on DBO 15,00,000 (Cr.)
Journal entry 13,02,500
(Dr.)
15,00,000 (Cr.) 10,00,00
0 (Cr.)
Balance 30 June 2017 302500
(Cr.)

Financial Accounting 12
References:
Barr, M.J. and McClellan, G.S., 2018. Budgets and financial management in higher
education. John Wiley & Sons.
Hodder, L., Hopkins, P. and Schipper, K., 2014. Fair value measurement in financial
reporting. Foundations and Trends® in Accounting, 8(3-4), pp.143-270.
Machado, M.J.D.C., Martins, E.A. and Carvalho, L.N., 2015. Reliability in fair value of
assets without an active market. Advances in Scientific and Applied Accounting, 7(3), pp.319-
338.
Titman, S., Keown, A.J. and Martin, J.D., 2017. Financial management: Principles and
applications. Pearson.