Financial Accounting: Detailed Analysis of Financial Statements

This financial accounting report covers several key areas including financial statement disclosures, accounting for share capital, accounting for income tax, revaluation of property, plant, and equipment, and impairment of assets. The report analyzes different scenarios related to financial statement ...Read More

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1FINANCIAL ACCOUNTING
Table of Contents
Question 1: Financial statement disclosures....................................................................................2
Requirement i:.............................................................................................................................2
Requirement ii:............................................................................................................................4
Question 2: Accounting for share capital........................................................................................5
Requirement i:.............................................................................................................................5
Requirement ii:............................................................................................................................6
Question 3: Accounting for income tax...........................................................................................7
Requirement i:.............................................................................................................................7
Requirement ii:............................................................................................................................8
Question 4: Revaluation of property, plant and equipment.............................................................9
Question 5: Impairment of assets..................................................................................................10
References:....................................................................................................................................12

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Question 1: Financial statement disclosures
Requirement i:
Situation 1:
According to “Paragraph 51 of AASB 116”, any revision in an asset’s useful life is to be
considered as a change in accounting estimate, instead of accounting policy change
(Aasb.gov.au, 2018). Hence, this does not mandate the need for retrospective restatement of
accounts. The change would exert influence only on the financial statements of the prospective
periods.
Book value as at 1st July 2017 = ${800,000 – 2 x (800,000/10)} = $640,000
Depreciation charges per annum for the remaining six years = $640,000/6 = $106,667
Finally, a disclosure about the change in accounting estimate is to be made as financial
footnotes.
Situation 2:
The due amount of $200,000 would be shown in the form of accounts payable under the
section of current liabilities in the balance sheet statement as at 30th June 2018. Since the repairs
expense belong to the period ended 30th June 2017, it is not possible to show the same in the
form of expense in the income statement for the period ended 30th June 2018 in accordance with
accounting, accrual and matching principles. Due to the closure of repairs expense account in
2017, retained earnings account would be used for adjustment that denotes the accumulated
profits until date.

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Situation 3:
When an investment value falls after the reporting period, the event is stated to be non-
adjusting. According to “Paragraph 21 of AASB 110”, these events need to be disclosed as
notes to accounts, if they carry material amounts. In opposition, these events are required to be
ignored (Aasb.gov.au, 2018). According to the provided scenario, significant fall in investments
could be observed from $600,000 to $250,000 and this is extremely crucial for the financial
statement users. Even though the fall in market value does not require any adjustment to the
value of an asset for reporting in the 2018 balance sheet statement, disclosure needs to be made
in notes to accounts. However, in 2019, there is need to write-off investments to $250,000 for
which Superstore Limited has to register a loss. In that case, revenue or income statement
account needs to be debited by $350,000 ($600,000 - $250,000), while investments account
would be credited by $350,000.
Situation 4:
In accordance with “Paragraph 8 of AASB 110”, a business organisation needs to
account for adjusting events through adjustment of potential financial effects in the financial
statements before finalisation and issuance (Aasb.gov.au, 2018). If an error or fraud is identified
after the date of reporting, the event is said to be adjusting. In this scenario, the two accounts
needing adjustments include Max and advertising expense.

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Requirement ii:

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Question 2: Accounting for share capital
Requirement i:

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Requirement ii:
The refunded amount was not identical to $3.50, as per the demand of one shareholder,
since the individual has failed to make timely payment. As a result, there was forfeiture of shares
and the organisation has to spend an excess of $4,000 for reissuance of the same. After
reissuance of shares, only $3.20 would be obtained, instead of $4. Due to this, Rippa Limited has
to suffer a loss of $0.80 ($4 - $3.20) along with reissuance cost of $0.10 ($4,000/40,000).
Therefore, the shareholders have to bear the overall loss of $0.90 ($0.80 + $0.10). As a result, the
shareholders would receive $2.60 per share, instead of $3.50 per share.

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Question 3: Accounting for income tax
Requirement i:

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Requirement ii:

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Question 4: Revaluation of property, plant and equipment

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Question 5: Impairment of assets

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References:
Aasb.gov.au. (2018). Retrieved 16 September 2018, from
https://www.aasb.gov.au/admin/file/content102/c3/AASB136_07-04_ERDRjun10_07-
09.pdf
Aasb.gov.au. (2018). Retrieved 16 September 2018, from
https://www.aasb.gov.au/admin/file/content105/c9/AASB110_08-15.pdf