Financial Accounting Solutions: Tammy Ltd, Light Ltd, and Impairment

This document presents detailed solutions to a financial accounting assignment. It begins with the Statement of Profit and Loss and Other Comprehensive Income, along with the Statement of Changes in Equity for Tammy Ltd. It then analyzes adjusting and non-adjusting events after the reporting period. The solution includes journal entries for Light Ltd. and calculates impairment loss, allocating it to specific assets. The document references relevant accounting standards such as AASB 110 and AASB 136. This comprehensive resource is designed to help students understand and solve complex financial accounting problems. Desklib is a platform offering a wealth of study resources, including past papers and solved assignments, to aid students in their academic pursuits.

Solution -1
TAMMY LTD.
STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June, 2018
(Amount $)
Particulars For the Year ended
30 June, 2018
REVENUE
Sales 3,200,000
Less: Cost of sales (1,100,000)
Gross Profit 2,100,000
Other income
- Interest income 360,000
- Rental income 40,000 400,000
Operating expenses
- Bad debt expense 220,000 220,000
Administration expenses
- Administrative salaries 340,000 340,000
Depreciation and amortisation expense
- Depreciation of office equipment 140,000 140,000

Finance costs
- Interest expense 50,000 50,000
Profit before tax and extraordinary items 1,750,000
Extraordinary items
- Loss of asset due to natural calamity 130,000 130,000
Profit before tax 1,620,000
Tax expense:
- Income tax expense 300,000
Profit for the year - (a) 1,320,000
Other comprehensive income
A Items that will be reclassified to profit or loss
- Foreign currency translation loss (100,000) (100,000)
B Items that will not be reclassified to profit or loss
- Revaluation of property, plant and equipment 160,000 160,000
Total other comprehensive income - (b) 60,000
Total comprehensive income for the year (a+b) 1,380,000
TAMMY LTD.
STATEMENT OF CHANGES IN EQUITY

For the year ended on 30 June, 2018
(Amount $)
Particulars Share
Capital
Retained
Earnings
Foreign Currency
Translation Reserve
Revaluation
Reserve Total
Balance as at 1 July, 2017 1,020,000 3,900,000 110,000 40,000 5,070,000
Profit for the year 1,320,000 1,320,000
Other comprehensive income (100,000) 160,000 60,000
Total comprehensive income for
the year
Transactions with owners in their
capacity as owners:
- Dividends paid (400,000) (400,000)
Balance as at June 30, 2018 1,020,000 4,820,000 10,000 200,000 6,050,000

Solution -2
As per AASB 110 ("Events after the Reporting Period", 2018), the adjusting events are those events that provide evidence of
conditions that existed at the end of the reporting period and non-adjusting events are those events that are indicative of
conditions that arose after the reporting period. Hence, the required details are as below:
Sr.
No. Event
Material or
Immaterial
event
Reason
Adjusting or
Non-Adjusting
event
Reason
1
Return of
material by
customer
after the
reporting date
Material
Event
Sale from Joe Ltd.
accounts for 9% of the
total sale of the company
and profit from this
transaction is 13.6% of
the total profit of the
company, hence it is an
material event.
Non-adjusting
event
It is an non-adjusting event because
the evidence as regard to return of
goods was reflected on 3 July, 2017
i.e. the date of receipt of goods in
warehouse, and no evidence of
transaction existed at the end of
reporting period, hence it is an non-
adjusting event.
2
Loss of assets
and sale due
to fire
Material
Event
Since, the loss of asset is
almost 57.1% of the total
non-current assets of the
company and loss of sale
is 20% of the total sale of
the year, hence it is an
material event.
Non-adjusting
event
Since, there are no evidence of
destruction of asset as on the
reporting date, hence it is an non-
adjusting event.
3
Revised
value of
valuation
after the
reporting
period
Material
Event
Since, the amount
involved is $80,000 and
has depreciation impact
over the life of the asset
Adjusting Event
Since, the wrong valuation shows the
incorrect picture of the assets of the
company and further depreciation
impact is also there, resulting in
improper profit presented, hence it is
an adjusting event and needs to be
accounted for in 30 June, 2017.
4 Identification
of fraud
Material
Event
Although the amount
involved is not large but
the chances of more
frauds are there, hence it
is an material event
Adjusting Event
The discovery of cheque of $1000
identified by the auditor is indicative
of potential frauds in the company
and this may question the accuracy
of the financial statements presented.
Further, there are evidences of fraud
on the reporting date, hence it is an
adjusting event and needs to be
accounted for in 30 June, 2017.

Solution -3
Journal Entries in the books of Light Ltd.
Date Description Debit ($) Credit ($)
31-Jan-18 Bank (2,100,000*4) 8,400,000
To Share Application Money 8,400,000
(To record share application money received on 1,900,000 shares)
15-Feb-18 Share Application Money 8,400,000
To Share Capital (2,000,000*4) 8,000,000
To Share Allotment 400,000
(To record allotment of shares)
15-Feb-18 Underwriter Commission 6,000
To Bank 6,000
15-Mar-18 Share Allotment (2,000,000*2) 4,000,000
To Share Capital 4,000,000
(Share allotment due)
15-Mar-18 Bank ((2,000,000-20,000)*2 - 400,000) 3,560,000
To Share Allotment 3,560,000
(To record amount received on share allotment)
15-Jun-18 Share Capital (20,000*6) 120,000
To Share Allotment (refer WN-1) 36,000
To Forfeited Shares A/c (20,000*4.2) 84,000
(To record forfeiture of shares due to non-payment of call money)
30-Jun-18 Bank (20,000*5.2) 104,000
Forfeited Shares A/c 16,000
To Share Capital (20,000*6) 120,000
(To record reissue of shares at $1.70)
30-Jun-18 Forfeited Shares A/c 2,000
To Bank 2,000
(To record cost of reissue)
30-Jun-18 Forfeited Shares A/c (84,000-16,000-2,000) 66,000
To Bank 66,000
(Excess surplus on reissue paid back to shareholders whose shares
were forfeited)

WN-1: Calculation of amount unpaid on allotment
Number of shares applied for allotment 2,100,000
Shares allotted to defaulter 20,000
Total shares allotted 2,000,000
Number of shares applied for allotment by defaulter 21,000
Share application money received 84,000
Excess share application money received 4,000
Amount called on allotment 40,000
Excess share application money received adjusted towards allotment 4,000
Amount unpaid on allotment 36,000

Solution -4
Calculation of Impairment Loss
Carrying amount of cash-generating unit $ 650,000
Fair value less cost of sells $ 540,000
Value in use $ 590,000
As per para 18 of AASB 136, recoverable amount is the higher of an CGU’s fair value less cost to sell and it’s value in
use. Hence, the recoverable amount is
Recoverable amount $ 590,000
The impairment loss is excess of carrying amount over recoverable amount. Hence, the impairment loss is calculated as
below:
Carrying amount of cash generating unit $ 650,000
Recoverable amount $ 590,000
Impairment loss $ (60,000)
Allocation of Impairment Loss to assets in CGU
As per AASB 136, Impairment loss is first be applied to goodwill and then to remaining assets.
Impairment loss remaining after writing of goodwill = $ 60,000 - $ 25,000
= $ 35,000
Accounts
Carrying
Amount Proportion
Allocation
of loss
Net carrying
amount
Motor vehicles 400,000 66.67% 23,333 376,667
Land 200,000 33.33% 11,667 188,333
600,000 100.00% 35,000 565,000
Since, the land has fair value less costs to sell of $190,000, hence only $10,000 ($200,000-$190,000) can be allocated to
land and rest (i.e. $ 1, 667 ($11,667-$10,000)) is to be allocated to motor vehicle.
Accounts
Carrying
Amount Proportion
Allocation of
loss
Net carrying
amount
Motor vehicles 400,000 66.67% 25,000 375,000
Land 200,000 33.33% 10,000 190,000
600,000 100.00% 35,000 565,000

Note 1: Since, the inventory is recorded at lower of cost and net realizable value, hence no impairment loss can be
allocated to inventories.
The Journal Entry for Impairment Loss is
Impairment loss Dr. $ 60,000
To Goodwill Cr. $ 25,000
To Motor Vehicles Cr. $ 25,000
To Land Cr. $ 10,000
References:
aasb.gov.au (2018). Events after the Reporting Period. Retrieved from
http://www.aasb.gov.au/admin/file/content102/c3/AASB110_07-04_ERDRjun10_07-09.pdf