Financial Accounting Assignment Solution - Finance Module

This document is a comprehensive solution to a financial accounting assignment, addressing key concepts and practical applications. The assignment covers three main questions: the fair value method of accounting, depreciation calculations and journal entries, and the accounting for a defined benefit pension plan. The solution provides detailed explanations, calculations, and journal entries for each part, including straight-line depreciation, downward revaluation, and the reconciliation of pension assets and liabilities. It also includes calculations for pension expense, net interest, actuarial gains/losses, and the return on plan assets. The document concludes with a summary of the journal entries. This assignment provides a valuable resource for students studying financial accounting and seeking to understand complex accounting principles and their practical application.

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................................................................................................................................................7
Part (i)..................................................................................................................................................7
Part (ii).................................................................................................................................................7
Part (iii)................................................................................................................................................8
Part (iv)................................................................................................................................................8
Part (v).................................................................................................................................................8
Part (vi)................................................................................................................................................9
Part (vii)...............................................................................................................................................9
References:.............................................................................................................................................11

Financial Accounting 3
Question 1
Fair value method of accounting is applied to those assets which have active market available
as fair value accounting is based on the market based valuation techniques and not on the
entity based valuation techniques. Market based valuation technique is solely based on the
active market available for the asset (Brigham & Houston, 2012). The assets which have no
available market can be recorded at either historical cost say cost of acquisition or other
valuation methods are applied for their valuation. As per AASB 13 the assets which have no
active market available are exchanged between willing buyers and willing sellers. The value
of those assets can be recognised using the exchange value of the asset or by taking into
account the cash flows that are generated by those assets. As per AASB 13 the value of assets
which have no active market can be estimated by taking into account the value of the similar
assets which have active market (Chandra, 2011). The similar assets which are marketable
must be having their fair value or say market value available and with the help of that we can
arrive at the nearby fair value of the assets which have no active market. The value of those
assets can also be determined with the help of expert valuation as they can estimate the value
of the asset with the help of the cash flow generating capacity of the asset (Shapiro, 2008). If
the company strictly wants to follow the fair value measurement technique for the valuation
of assets then either they need to value the asset on the basis of the values of the similar
assets or they can value the asset with the help of expert’s valuation techniques. AASB 13
fair value measurement also contends that the assets which have no active market available
are to be valued at either historical cost or on the basis of the cash flow generating capacity of
the asset (Van Horne James, 2002).

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
Depreciation 4220
Straight line Method of Depreciation is used
Journal Entries
Date Particulars
Amount
($)
Amount
($)
30-Jun-
16 Depreciation A/C Dr 4220
To Machine 4220
(Being depreciation charged on machine)
Profit & Loss A/C Dr 4220
To Depreciation 4220
(Being depreciation transferred to P & L A/C)
30-Jun-17
Useful Life 5
Residual Value $ 1,200
Cost of
Machine
$ 39,780
Depreciation $ 7,716
Journal Entries
30-Jun-17 Depreciation A/C Dr 7716
To Machine 7716
(Being depreciation charged on machine)
Profit & Loss A/C Dr 7716
To Depreciation 7716
(Being depreciation transferred to P & L A/C)

Financial Accounting 5
Part (ii)
30-Jun-17
Fair Value $ 30,000
Cost of Machine $ 32,064
Downward Revaluation $ 2,064
Depreciation $ 7,500
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)
30-Jun-18 Revaluation A/C Dr 6500
To Machine 6500
(Being machine revaluated)

Financial Accounting 6
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)

Financial Accounting 7
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 8
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 9
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 10
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 11
References:
Brigham, E. F., & Houston, J. F. 2012. Fundamentals of financial management. Cengage
Learning.
Chandra, P. 2011. Financial management. Tata McGraw-Hill Education.
Shapiro, A.C., 2008. Multinational financial management. John Wiley & Sons.
Van Horne James, C. 2002. Financial Management & Policy, 12/E. Pearson Education India.