Detailed Solution: Advanced Financial Accounting Homework Problems

This document provides a detailed solution to an advanced financial accounting homework assignment. The solution covers various topics, including the computation of book value of an asset and related journal entries for revaluation, calculation of issue price and journal entries for debentures, calculation of present value of minimum lease payments and related journal entries, a comparison of accounting profit and taxable profit with relevant calculations, deferred tax liability and asset adjustments, and accounting practices in the mining industry. The assignment utilizes numerical tasks to illustrate and explain advanced financial accounting concepts and practices, ensuring a comprehensive understanding of the subject matter. The solution provides step-by-step explanations and journal entries to help students understand and master the key concepts of the course.

Advanced Financial Accounting

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Week 6 – Question 1........................................................................................................................3
Week 7 – Question 2........................................................................................................................3
(a). Issue Price:.......................................................................................................................3
(b). Journal entries at 1 July 2018 and 30 June 2019:............................................................4
Week 8 – Question 3........................................................................................................................4
Calculation of present value (PV) of MLP (minimum lease payments) as follows:..............4
Journal Entries:.......................................................................................................................4
Week 9 - Question 4........................................................................................................................5
(A)...........................................................................................................................................5
(B)...........................................................................................................................................6
Week 10 - Question 5......................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Advanced Financial Accounting aspect, with social and economic growth, financial
accounting for original material to complement, expand and improve an accounting which is
intrinsic in use of fiscal accounting techniques, financial accounting doesn't really involve
current businesses, as well as pragmatic adjustments in economic climate, some of the unique
businesses to create new ideas to regenerate (Christensen, Cottrell and Budd, 2016). The
intermediary financial accounting complements one another with accounting rules, together
creating a full financial accounting framework. The study covers different numerical tasks which
can assist to understand various aspects of advanced financial accounting.
MAIN BODY
Week 6 – Question 1
Computation of book value of asset as on 1st Jul., 2020:
Depreciation = (Cost of Asset less Salvage Value)/ Total useful life of Asset
= 280000 / 10 years = $ 28000
Depreciation for four years from year 2016 to year 2020 = $112,000 ($28,000*4)
Book value of asset on 1st Jul., 2020 = 168,000 ($280,000 - $112,000)
Revaluation shortage = $ 18,000 ($ 168000 – $ 150000)
Journal Entries for Revaluation:
Particulars Debit Credit
Machinery $ 18000
Revaluation Reserve $ 18000
Week 7 – Question 2
(a). Issue Price:
Issue Price: Present value of interest payment + Present Value of Debenture redemption at the
end
Rate of Return: 10 %
Interest paid in every 6 months
Discount Rate: Rate of return for six months = 12% * 6/12 = 6%

Interest Payment (Every Six month) = Debenture Face Value * Coupon Rate
= $ 2000000 * 10% * 6/12 = $ 100000
Total period for Interest Payment = Life of Debenture * 2 = 10 * 2 = 20
Present Value of Interest Payment = $ 100000 * Discount Factor @ 6% for 20 years
= $ 100000 * 11.46992 = $ 1146992
Present Value of Debenture Redemption = 1000000 * Discount Factor @ 6% for 20th year
= 2000000 * 0.31181 = $ 623620
Issue Price = $ 1146992 + $ 623620 = $ 1770612
(b). Journal entries at 1 July 2018 and 30 June 2019:
Date Particulars Debit Credit
1 July, 2018 Bank $ 2000000
Debenture $ 2000000
30 June, 2019 Debenture $ 1770612
Bank $ 1770612
Week 8 – Question 3
Calculation of present value (PV) of MLP (minimum lease payments) as follows:
Year Annual Lease
Payment
Present value Factor
@ 7%
Present Value of
Lease Payment
1 $ 550000 1.0000 $ 550000
2 $ 550000 0.9346 $ 514018.69
3 $ 550000 0.8734 $ 480391.3
4 $ 550000 0.8163 $ 448963.83
4 $ 190000 0.8163 $ 155096.6
Minimum Lease Rental Payment $ 2148470.42
Therefore, PV of MLP is $ 2,148,470.
Journal Entries:
(a) Transfer of control:
Particulars Debit Credit

Equipment $ 2390000
Lease Liability $ 2390000
(b) Payment of annual payments for 2015 and 2016:
Particulars Debit Credit
Year
2015
Lease Rental $ 550000
Bank $ 550000
Year
2016
Lease Rental $ 550000
Bank $ 550000
Week 9 - Question 4
(A)
The main distinction among Accounting Profit sum and Taxable Profit sum is that
Accounting Profit assumes that company's costs are smaller than company's revenue for a
specified period, while taxable profit assumes that a corporation is forced to pay taxation on the
corporation 's benefit within income tax laws. The accounting benefit audit is fiscal audit
whereas tax audit is done for taxable income. Public or private corporations or entities run
enterprises to make profits or increase profits. Accounting Profit referred to bookkeeping profit
or fiscal profit is real net income generated after all clear, i.e. operational & non-operating
expenses are subtracted from overall revenue. It indicates how much funds the company is
remaining with it post paying all expenses or duties like wages, rents, transportation expenses,
sales & advertising costs, production costs, cost of raw materials, taxes, depreciation etc.
Taxable benefit is the part of the profits of an entity which is subject to income taxes
according to the tax laws of the country's particular jurisdiction. It's being used to distinguish
between income from the accounting and profits. Taxable benefit is being used to illustrate
income taxes or sales tax liability. Taxable profits use financial earnings as a basis of their
accounts and measure tax thereon. It just takes into consideration the amount that is earned
in books of not recorded transactions. Taxable profits are published in the company's balance

sheets because it demonstrates income tax payments or retrievable by the enterprise (Abdallah,
2017).
Calculation of accounting profit:
Details Amount
Sales (Cash) $ 950000
Less: Cost of Goods sold $ 35,000
Gross profit $ 915,000
Less: Expenses
Rent expense $ 9,000
Doubtful debts $ 1,200
Amount payment for Employees LSL entitlement $ 5000
Goodwill impairment expenses $ 7,000
Total accounts profits $ 892800
Calculation of Taxable profit:
Details Amount
Sales (Cash) $ 950000
Less: Cost of Goods sold $ 35,000
Gross profit $ 915,000
Add: Unearned Revenue $ 9500
Total Income $ 924500
Less: Expenses
Rent expense $ 9,000
Prepaid rent expenses for two months $ 1,200
Total accounts profits $ 914300
(B).
Particulars Deferred Tax Liability Deferred tax Asset
Balance as of 30th June 2019 $ 700000 $ 900000

Existing Tax Rate 0.2 0.2
Pre-Tax Difference $ 3500000 $ 4500000
Further Tax Rate from 1st Dec. 0.25 0.25
Differed taxes at new rates $ 875000 $ 1125000
Required increment in
deferred taxes
$ 175000 $ 225000
Journal entries to adjust the carry-forward balances of the deferred tax asset and deferred tax
liability:
Debit Credit
Adjustment Account 175000
Deferred tax Liability 175000
Deferred Tax Asset 225000
Adjustment Account 225000
Week 10 - Question 5
The stated statement is partially right, as mining activities and mining industries like
exploration, evaluation, design, construction as well as manufacturing operate at different stages.
Entities working in mining or exploitative sector are engaged in search for mineral reserves,
including coal, oils and gas and related non-regenerative resources. due to its intrinsic risk
nature extractive sector is regarded to be dynamic industry (Steinberg, 2019). Corporations
in extractive sectors face high exploration costs, rapid technological growth, competitive supply
and demand within market, diverse global demand Intention, rising running costs and shaping
policy. Since mining corporations bear high exploration as well as appraisal costs, appropriate
accounting practices should be implemented to compensate for these expenses. Accounting
practices are required to provide financial statements with more accurate and appropriate
information about the impact of sales, certain events or circumstances on the financial situation
of the company. financial statement has a quite big effect on accounting practices and policies.

Exploration, mining, Discovery and evaluation investment in the discovery and evaluation
processes contributes a significant portion to overall mining expenses for mining corporations.
Exploratory and evaluation expense accounting treatment could have fundamental effect
on mining company's financial statements, especially for new mining undertakings with no
generating assets. All exploration and appraisal costs connected with the discovery of new
deposits that written off as ongoing assessment incurred or capitalized. total Cost method
proponents capitalizing cost of dredging oil wells; while Successful Efforts method proposes
capitalizing only cost of effective wells, failed exploration is expended as accrued. Exploration
and mining costs are categorized as development expenses and pursuant to impairment
verification once technical economic viability and financial value of production have been stated
(Lam, 2018).
CONCLUSION
From above study it has been articulated that consideration of different techniques and
elements of advanced financial accounting is essential to deal with different financial and
accounting issues as well as to adopt effective accounting practices. Accountant should focus on
each and every financial aspects of accounting to minimise the risk of adverse impact which may
arise due to inappropriate accounting practices.

REFERENCES
Books and Journals:
Christensen, T.E., Cottrell, D.M. and Budd, C., 2016. Advanced financial accounting. NY
McGraw-Hill/ Irwin,.
Steinberg, J., 2019. Mines, Communities, and States: The Local Politics of Natural Resource
Extraction in Africa. Cambridge University Press.
Lam, P.P.Y., 2018. Write-offs of exploration and evaluation assets in Australian mining
development stage entities: determinants and stock price reactions (Doctoral
dissertation).
Abdallah, A.A.J., 2017. The Conformity Level of Income Tax Accounting In Jordan with the
Requirements of the International Accounting Standard IAS (12) in Terms of Taxable
Temporary Differences’ Recognition. International Business Research, 10(5).