ACCT6003: Financial Accounting Processes Assignment 2 Report

This report presents a comprehensive case study on financial accounting, addressing key concepts such as accounting for debentures, impairment of assets, and asset revaluation. Part A of the report includes detailed general journal entries for debenture transactions, impairment loss calculations, an...Read More

Case study report
writing / accounting

Contents
MAIN BODY..............................................................................................................................................3
PART A...................................................................................................................................................3
Question 1 Accounting for Debentures....................................................................................................3
Question 2 Accounting for Impairment...................................................................................................3
Question 3 Asset Revaluation..................................................................................................................5
Part B.......................................................................................................................................................6
REFERENCES..........................................................................................................................................11

MAIN BODY
PART A
Question 1 Accounting for Debentures
General Journal
Date Particulars Debit Credit
1st August
2020
Bank a/c DR
To debenture application
800000
800000
31
December
8% debenture application a/c
To 8% debenture account
64000
64000
30 June Debenture allocated a/c DR
To debenture application
64000
64000
30
Septembe
r
Bank account DR
To debenture application
880000
880000
1 October,
2020
Bank a/c DR
To application a/c
800000
800000
1 October,
2020
Deb application a/c DR
To bank a/c
80000
80000
1 October,
2020
Deb allocation account
To debenture account
720000
720000
Question 2 Accounting for Impairment
(a) Impairment loss:
Assets Carrying amount
Stock 15000
Goodwill 30000
Plant 80000
Motor vehicle 40000

Total 165000
Impairment loss: Unrecoverable amount-recoverable amount
= 165000-120000
= $45000
(b) Allocation of impairment loss:
Assets Carrying
amount
Proportion Loss allocated Adjusted
amount
Stock 15000 15/165 1363 13637
Goodwill 30000 30/165 5454 24546
Plant 80000 80/165 38787 41213
Motor vehicle 40000 40/165 9697 30303
Total 165000 55301
(c) Journal entry:
General Journal
Date Particulars Debit Credit
30 June
2020
Accumulated impairment loss a/c
To accumulated impairment loss a/c
55301
55301
30 June
2020
Accumulated impairment loss (stock) a/c
Stock a/c
To revaluation reserve (stock)
1363
13637
15000
30 June
2020
Accumulated impairment loss (vehicle) a/c
Vehicle a/c
To revaluation reserve (vehicle)
9697
30303
40000

30 June
2020
Accumulated impairment loss (goodwill) a/c
Goodwill a/c
To revaluation reserve (goodwill)
5454
24546
30000
30 June
2020
Accumulated impairment loss (plant) a/c
Plant a/c
To revaluation reserve (plant)
41213
38787
80000
Question 3 Asset Revaluation
30 June 2023:
Value: Fair value-cost to sell
= $85000-$2000
= $83000
Actual value: Value in use-$83000
= $90000-$83000
= $7000 gain
30 June 2025:
Value: Fair value-cost to sell
= $45000-$3000
= $42000
Actual value: $40000-$42000
-$2000 loss

General Journal
Date Particulars Debit Credit
30 June
2025
Impairment loss a/c
To accumulated impairment loss a/c
$2000
$2000
30 June
2023
Equipment a/c DR
To revaluation surplus
$7000
$7000
Part B
Introduction
This is important for companies to select a particular method for raising funds. Each of
business needs funds to expand or start a business. In the absence of particular method of fund
raising may lead to many issues for companies. The report is based on Berry Ltd that is an
existing public retailer. Company wants to extend its market. In order to do so, the managers
need a significant cash infusion to fund the new growth. The report contains detailed information
about option of raising fund under issue of share and debenture.
Comparison between raising funds by a share issue versus the issue of debentures.
Raising fund by issue of share- Shareholders are practically the shareholders of the business.
They face the ultimate danger of the business. They will be the last to claim a payout of the
company's profits and wealth. It is still in the company's interest to obtain its essential capital by
selling (Warren, Jonick, and Schneider, 2020). The amount of shares distributed is reported as
invested capital or equity of the shareholders in the company’s balance sheet. The share price
shall be reported on the annual reports of the firm with the SEC (SEC). In the capital portion of
the annual report of a corporation, the amount of shares outstanding is also shown. In the
measurement of market cap (emitted shares compounded by current stock price) and income per
share (EPS), emitting equities are also included. This is the equity broken up by income. Both
statistics help investors and analysts assess the valuation and success of a firm. For instance, if a

start - up company issues 10 million shares out of 20 million approved shares to an individual,
and the investor's stocks are really the only ones given, the proprietor has 100 percent of the
business. Boards usually use the completely filtered or required to work-model estimate for
preparing and forecasting. The Board of Directors, for instance: if the Board feels it should give
an activist two million more shares and gives high-performance staff three million shares, can
provide the founders with extra company shares so that their shareholding percentage cannot
decline dramatically.
Raising fund by issuing debenture- Debenture is a tool provided by the corporation that
acknowledges its loans to the holder. At some percent, debentures bear interest (Schroeder, Clark
and Cathey, 2019). The debt obtained by the corporation shall be reimbursed within a certain
time or at the discretion of the management in compliance with their terms of delivery. The price
where the debentures are sold does not have legal limits. Debentures may be sold at par, at a
discount or at an equity premium.
The corporation's creditors became Debenture holders. They routinely pay interest at a set rate on
their debt securities. It is standard practice to prefix the rate preceding debt securities, i.e. 12%.
In the event of the company dissolved against lenders, debenture holders have preference to pay
their debt and loans. Debenture holders don't worry about the company's equity. The ownership
and ownership of the organization are not concerned.
Comparison:
Basis Share Debenture
Meaning The stock is the corporation's own
funds.
The debt securities are the borrowing
resources of the firm.
What is it The shares comprise the company's
assets.
Debentures are the corporation's
liabilities.
Holders The investor is appointed
shareholders.
The debenture owner is called debenture
holder.

Payment of
return
Mostly out of benefit will the
dividends be paid to the owners.
Profit can be charged even without
benefit to debenture holders.
Allowable
deduction
Dividend is tax expenditure and is
also not permitted as deductions.
Income is a cost in operation and is thus
authorized as a tax deduction
(Jiambalvo, 2019).
Trust deed In the event of shares, no
promissory note is performed.
In context of large debentures, trust
deeds shall be conducted.
Repayment When all debts have been paid,
shares shall be returned.
Debentures take precedence over stocks
and are thus refunded before shares.
Impact of each option on each option:
Impact of issue of share capital on financial accounts-
 The first impact is on the balance sheet under the cash account. The sum the company
earns for the acquired stock raises the cash account. When receive amount is more than
par value capital, build two cash account entries that assign to each column the benefits
you earn. For example, if company issue an equity share of $20 with a par value of $1,
enter one item labeling the balance sheet cash account "common shares, Par-Value -$1"
and another item called "Capital over Par-Value-$ 19." The result of the inputs raises the
sum of the account to $20, and assets are distributed.
 The influence of the issuing of shares on the shareholder's Equity Account is also
growing. The capital earned from the issuance of the stock raises the shareholders '
equity. Enterprises must enter the shareholder’s payment equity on the balance sheet
similarly to the company's cash records (Edwards, 2020). The first entry is called
"ordinary shares-Par Value $1." It can be included in the amount of shares sold in the
deal and the amount of shareholders left to be issued by the business. These numbers
must represent the drop in the amount of shares allowed. On the right hand section of the
balance sheet is the par value earned by the issued stock.
Impact of issue of debenture on financial accounts-

 Debenture securities are a corporation's liabilities as they reflect potential assets to be
refunded. Present obligations or long-term liabilities exist in the balance sheet. Long-term
commitments are non-refundable loans of one year. Since debenture bonds fall under this
group, they are put in the long-term liability portion of the balance sheet.
 When the Corporation has given and is to be charged one year after, it is reflected on the
Balance Sheet on non-current liabilities. If the corporation has given and is due in one
year, so the existing obligations are displayed in the financial statements. The debenture
value for the year (payable or non-payable) is a business cost and is included in the
declaration of income. Any gain in debenture which is extraordinary is also seen in the
Balance sheet in the total liabilities.
 If the corporation has acquired debentures, they are known as expenditure and are seen in
the balance sheet under the reserves (Non-Current / Current securities). Debenture
interest is compensation that is reflected in the Declaration of Income. Interest is earned
or accumulated. Any convertible debt interest accrued is displayed in the financial
statements under cash flows.
Advantage of each option for company:
Issue of share capital:
 The business does not promise the regular dividend on stock shares, thus, as with
debentures, the business has no defined liability. Dividend payments shall not be charged
out of loss in the event of combined preferred shares (Weygandt, Kieso and Aly, 2020).
 Shares shall be distributed without protection or asset fee. Thus, the organization obtains
funds for its investments or also receives coverage without fee.
 No refund is required for the funds collected by the issuance of securities. The owners
cannot claim restitution and thus the business has no obligation to reimburse share
capital.
 Dividends are not pressured by the corporation. The dividend rate is not even defined on
the equity share. The organization holds adequate reserve in this situation and is
financially stable.

Debenture:
 Debentures enable higher role as a trustee in the 'pecking order.' The debt is not covered
otherwise-the uncertain role of borrowers at the base of the payment ladder is a far lower
ability to reclaim all cash.
 Director's private funds are provided with important financial security and
encouragement.
 The use of debt securities can support the development of a company in the long term. In
contrast to other modes of credit, it is also economical (Leone, Minutti-Meza and Wasley,
2019).
 Debentures normally provide the issuer with a set interest rate which must be paid off
before the lenders earn any dividends.
 Established owners do not minimize shares of the business, and the share of income stays
the same.
Conclusion
On the basis of above report this can be concluded that companies need to select the
appropriate fund raising method. In order to do so companies have to make proper research
related to types of options available, issues and benefits of each option. In the context of above
mentioned company, this can be suggested to owners and boards that they should raise funds
from issuing debentures. It is so because under this company does not need to pay any fixed
amount of interest to holders. As well as company does not need to share their ownership under
this option.

REFERENCES
Warren, C., Jonick, C. and Schneider, J., 2020. Accounting. Cengage Learning.
Schroeder, R.G., Clark, M.W. and Cathey, J.M., 2019. Financial accounting theory and
analysis: text and cases. John Wiley & Sons.
Jiambalvo, J., 2019. Managerial accounting. John Wiley & Sons.
Edwards, J.D., 2020. History of public accounting in the United States (Vol. 28). Routledge.
Weygandt, J.J., Kimmel, P.D., Kieso, D.E. and Aly, I.M., 2020. Managerial Accounting: Tools
for Business Decision-Making. John Wiley & Sons.
Leone, A.J., Minutti-Meza, M. and Wasley, C.E., 2019. Influential observations and inference in
accounting research. The Accounting Review, 94(6), pp.337-364.