Financial Accounting Process: Solution for ChiHerbal Ltd, ACCT6003

This document presents a comprehensive solution to a financial accounting assignment centered around ChiHerbal Ltd, a company transitioning from a private to a public structure. The solution meticulously details journal entries for share issues, including application receipts, share allotments, and call money transactions, addressing scenarios like share issue expenses and share forfeitures. Furthermore, it provides detailed accounting for non-current assets such as trucks and equipment, including depreciation calculations and the accounting treatment for asset revaluations and disposals. The assignment also delves into lease accounting, covering the present value of lease rentals, amortization schedules, and journal entries for both the lessee and lessor. Finally, it addresses the accounting for intangible assets, specifically focusing on the recognition and measurement of development costs for an online sales force, referencing AASB 138 guidelines.

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

1FINANCIAL ACCOUNTING PROCESS
Table of Contents
Solution to scenario 1:.....................................................................................................................2
Solution to Scenario 2:.....................................................................................................................4
Solution to Scenario 3:.....................................................................................................................6
Sub part (a):.................................................................................................................................6
Sub part (b):.................................................................................................................................8
Solution to Scenario 4:.....................................................................................................................8
Reference and bibliography:..........................................................................................................10

2FINANCIAL ACCOUNTING PROCESS
Solution to scenario 1:
ChiHerbal Ltd
Journal
Date Name of Accounts Debit Credit
1-Aug-17 Bank $ 2,300,000
Share Application $ 2,300,000
(To record receipt of application for 600,000 shares)
15-Aug-
17 Share Application $ 2,300,000
Share Capital $ 1,500,000
Allotment in Advance $ 550,000
Calls in Advance $ 250,000
(To record issue of 500,000 shares, 400,000 on pro
rata basis)
15-Aug-
17 Share Issue Expenses $ 36,000
Bank $ 36,000
(To record share issue expenses)
30-Aug-
17 Share Allotment $ 1,250,000
Share Capital $ 1,250,000
(To record allotment due)
30-Aug-
17 Bank $ 700,000
Allotment in Advance $ 550,000
Share Allotment $ 1,250,000
1-May-18 Share 1st Call $ 750,000
Share Capital $ 750,000
(To record 1st call due on 15 June)
15-Jun-18 Bank $ 577,500
Calls in Advance $ 150,000
Calls in Arrear $ 22,500
Share 1st Call $ 750,000

3FINANCIAL ACCOUNTING PROCESS
(To record receipt of share 1st call money, holder of
15,000 shares failed to pay)
1-Jul-18 Share 2nd Call $ 500,000
Share Capital $ 500,000
(To record 2nd call due on 30 July)
30-Jul-18 Bank $ 485,000
Calls in Arrear $ 15,000
Share 2nd Call $ 500,000
(To record receipt of share 2nd call money, holder of
15,000 shares failed to pay)
1-Sep-18 Share Capital $ 120,000
Calls in Arrear $ 37,500
Share Forfeiture $ 82,500
(To record forfeiture of 15,000 shares for non-
payment of call money)
15-Sep-18 Bank $ 90,000
Share Forfeiture $ 30,000
Share Capital $ 120,000
15-Sep-18 Share issue Expenses (Brokerage) $ 4,000
Bank $ 4,000
(To record payment of brokerage on re-issue of
shares)
15-Sep-18 Share Forfeiture $ 4,000
Share issue Expenses (Brokerage) $ 4,000
(To adjust the share issue expenses with the balance
in share forfeiture account)
30-Sep-18 Share Forfeiture $ 48,500
Bank $ 48,500
(To record the refund of balance in share forfeiture
account to the shareholders)

4FINANCIAL ACCOUNTING PROCESS
Solution to Scenario 2:
ChiHerbal Ltd
Journal
Date Name of Accounts Debit Credit
1-Apr-17 Truck A $ 90,000
Cash $ 90,000
(To record purchase of Truck A)
30-Jun-17 Equipment $ 140,000
Cash $ 140,000
(To record purchase of equipment)
42916 Depreciation Expense-Truck A $ 4,000
Accumulated Depreciation $ 4,000
(To record depreciation on Truck A)
42978 Truck Expenses $ 2,500
Cash $ 2,500
(To record payment of Truck repair and oil expenses)
42979 Loss on revaluation of equipment $ 25,000
Equipment $ 25,000
(To record revaluation of equipment at fair value)
1-Mar-18 Cash $ 59,000
Loss on sale of Truck A $ 16,333
Depreciation Expense-Truck A $ 10,667
Accumulated Depreciation $ 4,000
Truck A $ 90,000
(To record Sale of Truck-A)
43281 Depreciation Expense-Equipment $ 11,979
Accumulated Depreciation-Equipment $ 11,979
(To record Depreciation expense on Truck A)

5FINANCIAL ACCOUNTING PROCESS
Supporting Workings and Calculations:
Computation of Depreciation on Truck A:
Date
1-Apr-17 Purchased (Cost) 90,000
Residual Value (10,000)
Depreciable Amount 80,000
Expected life of the Truck in years 5
Annual Depreciation 16,000
30-Jun-17
Depreciation for the year ended 30 June
17 4,000
Computation of Profit or Loss on sale of Truck A:
1-Apr-17 Cost Price 90,000
30-Jun-17
Depreciation for the year ended 30 June
17 (4,000)
1-Jul-17 WDV as on 1 July 17 86,000
1-Mar-18 Depreciation till 1 March 18 (10,667)
1-Mar-18 Cost on the date of sale 75,333
1-Mar-18 Sales proceeds (59,000)
1-Mar-18 Loss on sale of Truck A 16,333
Computation of Depreciation on Equipment:
1-Sep-17 Book Value 115,000
Residual Value -
Depreciable Amount 115,000
Expected life of the Truck in years 8
Annual Depreciation 14,375
30-Jun-18
Depreciation for the year ended 30 June
18 11,979

6FINANCIAL ACCOUNTING PROCESS
Solution to Scenario 3:
Sub part (a):
Computation of Present Value of Lease Rentals:
Yea
r Annual Lease Rentals Present Value factor @9% PV of Lease Rentals
1 $ 8,000 0.91743119 $ 7,339
2 $ 8,000 0.84167999 $ 6,733
3 $ 8,000 0.77218348 $ 6,177
4 $ 8,000 0.70842521 $ 5,667
5 $ 8,000 0.64993139 $ 5,199
5 $ 2,160 0.64993139 $ 1,404
Total Present Value of Lease rentals $ 32,521
Lease liability amortization schedule
Year
Beginning
balance of the
lease liability
Cash
Payment
Interest
Expense
Lease liability
to be amortized
Ending balance
of lease liability
1 $ 32,521 $ 8,000 $ 2,927 $ 5,073 $ 27,448
2 $ 27,448 $ 8,000 $ 2,470 $ 5,530 $ 21,918
3 $ 21,918 $ 8,000 $ 1,973 $ 6,027 $ 15,891
4 $ 15,891 $ 8,000 $ 1,430 $ 6,570 $ 9,321
5 $ 9,321 $ 8,000 $ 839 $ 7,161 $ 2,160
Computation of Annual Depreciation:
Value of lease liability to be recognized $ 32,521
Value of lease asset to be recognized $ 32,521
Guaranteed Residual Value $ 2,160
Depreciable Amount $ 30,361
Term of lease 5
Depreciation per Annum $ 6,072

7FINANCIAL ACCOUNTING PROCESS
ChiHerbal Ltd
Journal
Date Name of Accounts Debit Credit
1-Jul-17 Right to use Assets $ 32,521
Lease Liability $ 32,521
(To record Lease assets and to recognize the lease
liability)
30-Jun-18 Interest Payable $ 2,927
Lease Liability $ 5,073
Cash $ 8,000
(To record payment of lease rental and to amortize
lease liability)
30-Jun-18 Interest Expense $ 2,927
Interest Payable $ 2,927
(To record Interest expense)
43281 Depreciation Expense $ 6,072
Accumulated Depreciation $ 6,072
(To record Depreciation expense)
43646 Interest Payable $ 2,470
Lease Liability $ 5,530
Cash $ 8,000
(To record payment of lease rental and to amortize
lease liability)
43646 Interest Expense $ 2,470
Interest Payable $ 2,470
(To record Interest expense)
43646 Depreciation Expense $ 6,072
Accumulated Depreciation $ 6,072
(To record Depreciation expense)

8FINANCIAL ACCOUNTING PROCESS
Sub part (b):
Cessnock Ltd
Journal
Date Name of Accounts Debit Credit
1-Jul-17 Lease receivables $ 40,000
Leased Equipment $ 31,000
Unearned Revenue $ 9,000
(To record leasing of assets for 5 years)
30-Jun-18 Cash $ 8,000
Lease Receivables $ 8,000
(To record receipt of lease rentals)
30-Jun-18 Unearned Revenue $ 2,927
Interest Revenue $ 2,927
(To recognize interest on lease)
43646 Cash $ 8,000
Lease Receivables $ 8,000
(To record receipt of lease rentals)
43646 Unearned Revenue $ 2,470
Interest Revenue $ 2,470
(To recognize interest on lease)
Solution to Scenario 4:
Intangible assets are those things, which do not have any physical existence but have
some future economic benefits. The AASB 138 deals with the accounting and measurement of
intangible assets. It sets certain criteria, based on which an intangible assets needs to be
recognized in the books of accounts. It emphasizes on three aspects of an intangible assets to be
recognized in the financial books of account, the identifiablity, control and future economic
benefit. If and intangible fulfils all those three criteria then only it can be recognized as an
intangible assets in the books of accounts. Here, identifiability means, it can be identified

9FINANCIAL ACCOUNTING PROCESS
separately and the control means it can be used as per the discretion of the company and it can be
utilized in intended purpose. Lastly, the it should have some future economic benefits (AASB
138, 2019).
In the given case study of ChiHarbal is planning to develop a special online sales force,
which they will be selling to various clients, and hence it is identifiable, the company has the
control over such a sales force and the team can generate some future economic benefits, hence it
should be recognised in the books of accounts. In the following table the measurement of such an
intangible asset have been shown.
Computation of Value of intangible assets:
Software Development Costs $ 380,000
Consultant's Fees $ 620,000
Depreciation of Computer
equipment $ 100,000
Development cost of Intangible $ 1,100,000
As per section 18 Measurement recognition of intangible assets, if the development of
such an intangible asset has been completed then, all the relevant costs incurred in developing
such an asset should be capitalised, it should never be recognised as an expense (AASB 138,
2019).

10FINANCIAL ACCOUNTING PROCESS
Reference and bibliography:
Australian Accounting Standard Board. (2019). AASB 138 [Ebook]. Australia. Retrieved from
https://www.aasb.gov.au/admin/file/content105/c9/AASB138_07-04_COMPjun14_07-
14.pdf
Barone, E., Birt, J., & Moya, S. (2014). Lease accounting: A review of recent
literature. Accounting in Europe, 11(1), 35-54.
Ji, X. D., & Lu, W. (2014). The value relevance and reliability of intangible assets: Evidence
from Australia before and after adopting IFRS. Asian Review of Accounting, 22(3), 182-
216.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2016). Intermediate Accounting, Binder Ready
Version. John Wiley & Sons.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2016). Intermediate Accounting, Binder Ready
Version. John Wiley & Sons.
Kurawa, J. M., & Kabara, A. S. (2014, April). Impact of corporate governance on voluntary
disclosure by firms in the downstream sector of the Nigerian petroleum industry.
In World Business Research Conference (pp. 21-23).
Muller, N. Z. (2014). Boosting GDP growth by accounting for the
environment. Science, 345(6199), 873-874.

11FINANCIAL ACCOUNTING PROCESS
Wong, K., & Joshi, M. (2015). The impact of lease capitalisation on financial statements and key
ratios: Evidence from Australia. Australasian Accounting, Business and Finance
Journal, 9(3), 27-44.