Accounting Solutions: Journal Entries, Statement of Financial Position

This document presents a series of financial accounting solutions, addressing key concepts such as the statement of financial position, journal entries, and impairment loss calculations. The first solution critiques a statement of financial position, highlighting issues related to current/non-current asset and liability classifications, presentation formats, and grouping errors, providing a revised statement as an enclosure. The second solution provides detailed journal entries for share transactions, including share application, allotment, and calls, along with the forfeiture and reissue of shares. The third solution focuses on accounting for machine revaluation and depreciation, including the journal entries for initial purchase, depreciation, and revaluation gains/losses, as well as the associated deferred tax implications. The fourth solution addresses impairment loss, including the calculation and allocation of impairment losses for both machinery and patents under different scenarios with varied fair values less costs to sell. These solutions offer a comprehensive guide to various financial accounting problems.

Solution -1
MEMORANDUM
Date: 9th September, 2017
To: Jennifer
From: Chief Accountant
Subject: Problems with the statement of financial position
Statement of financial position is an important statement and is required to be prepared
with due care. However, the statement of financial position prepared by you contains many
flaws. The following are the key problems with the statement of financial position:
a. Your financials fails to meet the current and non-current bifurcation. As per AASB
101, para 51 “An entity shall present current and non-current assets, and current and
non-current liabilities, as separate classifications on the face of its balance sheet.”
So, all the assets and liabilities should be monitored minutely to check whether they
are current or non-current, if they are current then they should be reflected under
the heading of current assets/ current liabilities or if they are non-current then they
should be reflected under the heading of non-current assets/ non-current liabilities.
For better understanding, please review the redrafted financial statement.
b. Even your financials are not prepared in the format prescribed by the standard and
fails to meet the presentation criteria. As per AASB 101, the balance sheet should be
structured with the following line items:
a. property, plant and equipment;
b. investment property;
c. intangible assets;
d. financial assets (excluding amounts shown under (e), (h) and (i));
e. investments accounted for using the equity method;
f. biological assets;
g. inventories;
h. trade and other receivables;
i. cash and cash equivalents;
j. the total of assets classified as held for sale and assets included in disposal groups classified as
held for sale in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued
Operations;
k. trade and other payables;
l. provisions;
m. financial liabilities (excluding amounts shown under (k) and (l));
n. liabilities and assets for current tax, as defined in AASB 112 Income Taxes;
o. deferred tax liabilities and deferred tax assets, as defined in AASB 112;
p. liabilities included in disposal groups classified as held for sale in accordance with AASB 5;
q. minority interest, presented within equity; and
r. issued share capital and reserves attributable to owners of the parent (AASB 101, par. 54).”

c. Further, some grouping issues are also evident in the statement of financial position.
Some of them are listed below:
a. Classification of ordinary share capital liabilities instead of shareholder’s
equity
b. Classification of accumulated depreciation - property, plant and equipment
under liabilities instead assets.
c. Intangible assets should be disclosed separately whereas it is clubbed with
property, plant and equipment.
Enclosures:
1. Revised Statement of Financial Position

WESLEY LTD.
STATEMENT OF FINANCIAL POSITION
For the year ended on 30 June, 2017
(Amount in $)
Particulars As at
30 June, 2017
Current assets
Cash and cash equivalents 4,000
Trade and other receivables 160,000
Inventories 36,000
Other assets 10,000
Total current assets 210,000
Non-current assets
Property, plant and equipment 610,000
Investment Property 114,000
Intangible assets 94,000
Other assets 36,000
Total non-current assets 854,000
Total assets - (a) 1,064,000
Current liabilities
Trade and other payables 110,000
Short term borrowings 62,000
Current tax liabilities 8,000
Provisions 40,000
Financial liabilities 100,000
Total current liabilities 320,000
Non-current liabilities
Financial liabilities 500,000
Total non-current liabilities 500,000
Total liabilities - (b) 820,000
Net assets (a-b) 244,000
Equity
Ordinary share capital 200,000
Reserves 24,000
Retained earnings 20,000
Total equity 244,000

Solution-2
Journal Entries in the books of Ansett Ltd
Date Description Reference Cal Debit Credit
31-Jul-16 Bank (5,500,000*1.5) 8,250,000
Share Application Money 8,250,000
(Being share application money
received on 5,500,000 shares)
12-Aug-16 Share Application Money 8,250,000
Share Capital (5,000,000*1.5) 7,500,000
Bank (500,000*1.5) 750,000
(Being allotment of shares and
excess amount returned)
12-Sep-16 Share Allotment (5,000,000*0.3) 1,500,000
Share Capital 1,500,000
(Share allotment due)
12-Sep-16 Bank 1,500,000
Share Allotment 1,500,000
(Being amount received on share
allotment)
20-Mar-17 Share First Call (5,000,000*0.2) 1,000,000
Share Capital 1,000,000
(Share first call due)
30-Apr-17 Bank
((5,000,000-
50,000)*0.2) 990,000
Share First Call 990,000
(Being amount received on first
call except for 50,000 shares)
31-May-
17 Share Capital
(50,000*2)
100,000
Share First Call (50,000*0.2) 10,000
Forfeited Shares 90,000
(Being forfeiture of shares due to
non-payment of call money)
05-Jun-17 Bank (50,000*1.7) 85,000
Forfeited Shares 15,000
Share Capital (50,000*2) 100,000
(Being reissue of shares at $1.70)
05-Jun-17 Forfeited Shares 5,000
Bank 5,000
(Being cost of reissue)

05-Jun-17 Forfeited Shares
(90,000-15,000-
5,000) 70,000
Bank 70,000
(Excess surplus on reissue paid
back to shareholders whose
shares were forfeited)
Solution-3
Journal Entries in the books of Genesis Ltd
Date Description Debit Credit
01-Jul-
15 Machine G 400,000
Machine Q 300,000
Bank 700,000
(Being purchase of machines)
30-Jun-
16 Depreciation Expense 96,000
Accumulated Depreciation - Machine G 36,000
Accumulated Depreciation - Machine Q 60,000
(Being depreciation on machines)
30-Jun-
16 Machine G 16,000
Revaluation Loss (refer WN-1) 24,000
Accumulated Depreciation - Machine G 36,000
Accumulated Depreciation - Machine Q 60,000
Machine G 36,000
Machine Q 100,000
(Being revaluation loss on fair valuation)
30-Jun-
16 Deferred tax asset (24,000*30%) 7,200
Revaluation Loss 7,200
(Being tax impact on above revaluation loss)
30-Jun-
17 Depreciation Expense 82,500
Accumulated Depreciation - Machine G 42,500
Accumulated Depreciation - Machine Q 40,000
(Being depreciation on machines)
30-Jun-
17 Revaluation Loss (refer WN-1) 37,500
Accumulated Depreciation - Machine G 42,500

Machine G 80,000
(Being revaluation loss on fair valuation)
30-Jun-
17 Deferred tax asset (37,500*30%) 11,250
Revaluation Loss 11,250
(Being tax impact on above revaluation loss) `

WN-1 Calculation of Carrying Value and Depreciation
Particulars Machine G Machine Q
As on 1 July, 2015
Cost of Acquisition - (a)
400,00
0 300,000
Residual Value
40,00
0 -
Estimated Useful Life 10 5
Depreciation for the year (400000-40000)/10 (300000-0)/5
Depreciation for the year - (b)
36,00
0 60,000
As on 30 June, 2016
Carrying Value [c=(a-b)]
364,00
0 240,000
Fair Value - (d)
380,00
0 200,000
Revaluation Gain / (Loss)
16,00
0 (40,000)
Residual Value
40,00
0 -
Estimated Useful Life 8 5
Depreciation for the year (380000-40000)/8 (200000-0)/5
Depreciation for the year - (e)
42,50
0 40,000
As on 30 June, 2017
Carrying Value (d-e)
337,50
0 160,000
Fair Value
300,00
0 160,000
Revaluation Gain / (Loss)
(37,50
0) -

Solution-4
Journal Entries under Part (i) in the books of Big Friday Ltd
Date Description Debit Credit
30-Jun-17 Impairment Loss 130,200
Accumulated impairment loss – Patent (refer
WN-3) 15,000
Accumulated impairment loss – Machinery
(refer WN-3) 115,200
(Being impairment loss recorded)
Journal Entries under Part (ii) in the books of Big Friday Ltd
Date Description Debit Credit
30-Jun-17 Impairment Loss 130,200
Accumulated impairment loss – Patent (refer
WN-2) 26,040
Accumulated impairment loss – Machinery
(refer WN-2) 104,160
(Being impairment loss recorded)
WN-1: Calculation of Impairment Loss
Machinery 840,000
Accumulated depreciation - machinery (240,000)
Patent 150,000
Receivables 16,000
Inventory 87,000
Cash 20,000
Goodwill 15,000
Carrying amounts 888,000
Fair Value less costs to sell 742,800
Value in use 650,000
Recoverable amount (higher of fair value
and value in use) 742,800
Impairment Loss (888,000-742,800) 145,200
WN-2: Allocation of Impairment Loss
Goodwill will be consumed first for allocation of impairment loss and remaining portion will
be consumed by other assets in the ratio of their carrying amount. In the given case,
Impairment Loss 145,200
Allocated to Goodwill 15,000
Remaining impairment loss 130,200

Allocation to other assets in the ratio of carrying amounts.
Particulars Carrying amounts
Allocation of
impairment loss
Machinery 600,000 104,160
Patent 150,000 26,040
Carrying amounts 750,000 130,200
WN-3: Allocation of Impairment Loss as per Part (i) - assuming that the fair value
less costs to sell for the patent is determined at $135,000
The revised allocation of impairment loss is as follows:
Particulars
Carrying
amounts
Allocation of
impairment loss
Machinery 600,000 115,200
Patent 150,000 15,000
Carrying amounts 750,000 130,200
Explanation: Under part (i), a maximum amount of $15,000 (150,000-135,000) of
impairment loss can be allocated to Patent. Since, the carrying amount of patent is 150,000
and the fair value less cost of sell of Patent is $135,000.
On the other hand in part (ii), a maximum amount of $30,000 (150,000-120,000) of
impairment loss can be allocated to Patent as the fair value less cost of sell of Patent was
$120,000 and the carrying amount of patent was $150,000.