Comprehensive Solution: Financial Management Assessment 2 - University

This document presents a comprehensive solution to a Financial Management assessment, addressing various accounting and financial reporting issues. The solution begins with an analysis of accounting estimates and the treatment of changes in useful asset life, followed by journal entries related to tax refunds, share price fluctuations, and incorrect expense recordings. It then delves into detailed journal entries for Rippa Ltd, covering share applications, allotments, underwriting commissions, and share forfeitures. The document further includes a current and deferred tax liability calculation, along with journal entries. It also provides a computation of revaluation gains/losses and deferred tax for Superstar Ltd, accompanied by the relevant journal entries. Finally, the solution concludes with an impairment loss calculation and allocation for Foodie Ltd, incorporating impairment loss journal entries.

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Author’s Note:

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FINANCIAL MANAGEMENT
Table of Contents
Assessment 2...................................................................................................................................2
Answer to Question 1......................................................................................................................2
Part 1............................................................................................................................................2
Part 2............................................................................................................................................2
Part 3............................................................................................................................................3
Part 4............................................................................................................................................3
Question 2........................................................................................................................................4
Requirement i...............................................................................................................................4
Requirement ii.............................................................................................................................5
Question 3........................................................................................................................................6
Question 4........................................................................................................................................8
Question 5......................................................................................................................................10
Reference.......................................................................................................................................12

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FINANCIAL MANAGEMENT
Assessment 2
Answer to Question 1
Part 1
The case study specifies that the management intends to revise the useful life of
manufacturing equipment. As per IAS 8, any change in the useful life of the asset will be treated
as a change in accounting estimate of the business and change will be incorporate prospectively.
This means that the treatment will affect the current estimate and future as well but not the past
records (Ahmed, Neel & Wang, 2013). Therefore, the director does not need to change financial
statement for 2016 or 2017, In current year the director need to change depreciation amount and
revise the balance sheet of the business.
Part 2
In this case, the management will be getting a refund of taxes for the year as the
management needs to include repair expenses which was not included earlier. The management
will be requiring to pass the following Journal entry
Retained Earnings A/c……………………………Dr 14,000
Deferred Tax Assets A/c…………………………Dr 6,000
To Account Payable A/c 20,000
(Being adjustment entry passed for omitted repair expenses)

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FINANCIAL MANAGEMENT
Part 3
The share price of ABC Ltd has fallen which was held by Superstore ltd and the
management needs to make required changes in the annual reports of the business. The journal
entry which the business needs to pass is shown below:
Unrealized Holding Loss A/c……………………………Dr 3,50,000
To Shares in ABC ltd 3,50,000
(Being fall in share price recorded)
Part 4
The accountant of Superstore ltd has wrongly recorded the expenses which was of
personal nature as advertisement expenses of the business. The management needs to pass
appropriate journal entry for the same which is shown below:
Cash A/c …………………………………………………Dr $ 32,000
To Advertisement A/c $ 32,000
(Being wrong entry reversed)
Advertisement A/c ………………………………..……….Dr $ 32,000
To Max A/c $
32,000
(Being adjustment entry passed)

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FINANCIAL MANAGEMENT
Question 2
Requirement i
Date Debit Credit
31/07/2017 Bank A/c. 15,000,000
Share Application A/c. 15,000,000
10/08/2017 Share Application A/c. 15,000,000
Share Allotment A/c. 2,500,000
Share Capital A/c. 12,500,000
Share Allotment A/c. 5,000,000
Share Capital A/c. 5,000,000
12/08/2017 Underwritting Commission A/c. 12,000
Bank A/c. 12,000
10/09/2017 Bank A/c. 2,500,000
Share Allotment A/c. 2,500,000
1/02/2018 Share Call A/c. 2,500,000
Share Capital A/c. 2,500,000
28/02/2018 Bank A/c. 2,480,000
Calls-in-Arrear A/c. 20,000
Share Call A/c. 2,500,000
20/03/2018 Share Capital A/c. 160,000
Calls-in-Arrear A/c. 20,000
Share Forfeiture A/c. 140,000
Bank A/c. 128,000
Share Forfeiture A/c. 32,000
Share Capital A/c. 160,000
Re-issuance Cost of Shares A/c. 4,000
Bank A/c. 4,000
25/03/2018 Share Forfeiture A/c. 108,000
Share Re-Issuing Cost A/c. 4,000
Bank A/c. 104,000
In the books of Rippa Ltd.
Journal Entries
(Application money for 6,000,000 shares received @$2.50 per share))
(Amount, left in Share Forfeiture fund returned to defaulter shareholders)
(Share re-issuance cost duly paid)
(Forfeited shares re-issued @$3.20 per share)
(Receipts from partly paid 40,000 shares forfeited)
(Call money duly received for 4,960,000 shares and call money for balance 40,000
shares remain unpaid)
(Call money for 5,000,000 shares @$0.50 per share credited to Share Capital)
(Balance allotment money for 2,50,000 shares received @$1.00 per share)
(Underwritting commission paid)
(Allotment money for 5,000,000 shares @$1.00 per share credited to Share Capital)
(Application money for 5,000,000 shares transferred to Share Capital and balance fund
transferred to Allotment fund)
Particulars

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FINANCIAL MANAGEMENT
Requirement ii
The case of Rippa ltd shows that one of the shareholders who had paid share application
money and share allotment money which came to a combine amount of $ 3.50 per share had
received lesser amount. This is because the expenses which the management has incurred due to
forfeiture of shares and also reissue of forfeited shares are passed on to the buyer as it is the fault
of the shareholder for which the company has incurred expenses in the first place (Hribar, Kravet
& Wilson, 2014). The original cost for shares was $ 4 per share, however the management had to
incur cost of reissue $ 4,000 and also sell such shares at 3.20 which is the cost that is recovered
from the shareholder.

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FINANCIAL MANAGEMENT
Question 3
Particulars Amount Amount
Accounting profit before tax 555,800
Add:
Doubtful Debt Expense 34,000
Entertainment 4,500
Annual Leave 25,000
Warranty Expense 18,500
Depreciation on Equipment for accounting
purpose
70,000
Depreciation on Motor Vehicle for
accounting purpose
30,000
Insurance 18,000 200,000
755,800
Less:
Government Grant 50,000
Bad debt expense 2,000
Annual Leave Paid 4,000
Insurance Paid 25,000
Warranty Expense Paid 2,000
Depreciation on Equipment for Tax purpose 100,000
Depreciation on Motor Vehicle for Tax
Purpose
20,000 203,000
Taxable income 552,800
Tax on taxable income @30% 165,840
Less: 30% Tax paid on Sales Revenue 645,000
Income Tax Refundable -479,160
Worksheet for Curret Tax Liability/(Refundable):

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FINANCIAL MANAGEMENT
Particulars Carrying
Amount
Tax Base Taxable
Temp’y
Diffs
Deductible
Temp’y
Diffs$ $ $ $
Assets
Cash 40,000 40,000
Accounts Receivables 250,000 250,000
Allowance for Doubtful Debts -32,000 0 32,000
Inventories 162,900 162,900
Prepaid Insurance 7,000 7,000
Motor Vehicles 120,000 120,000
Accumulated Depreciation -30,000 -20,000 10,000
Equipment 700,000 700,000
Accumulated Depreciation -70,000 -100,000 -30,000
Liabilities
Accounts Payables 54,600 54,600
Provision for Warranties 16,500 16,500
Provision for Annual Leave 21,000 21,000
Loan Payable 200,000 200,000
Total Temporary
differences
7,000 49,500
Deferred tax liability (30% ) 2,100
Deferred tax asset (30% ) 14,850
Deferred Tax Worksheet:
Journals Entries

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FINANCIAL MANAGEMENT
Dr. Cr.
Date Particulars Amount Amount
30/06/2018 Income Tax Expense A/c. 165,840
Tax Receivables A/c. 479,160
Tax paid in advance A/c 645,000
(Income tax expenses adjusterd with advance tax
paid and income tax refundable recorded)
Deferred Tax Assets A/c. 14,850
Deferred Tax Liability A/c. 2,100
Income Tax Expense A/c. 12,750
(Deferred tax assets and deferred tax liabilities
recorded)
Profit & loss A/c. 163,740
Income Tax Expense A/c. 163,740
(Income tax expense transferred to P/L A/c.)
Question 4
Year
Opening
Balance
Estimated
Life (in
years)
Residua
l Value
Depreciatio
n p.a.
Closing
Balance
Fair
Value
Gain/(Loss) in
revaluation/sale
Tax
Expenses
42,916 60,000 4 10,000 12,500 47,500 55,000 7,500 2,250
43,281 55,000 3 10,000 15,000 40,000 44,000 4,000 1,200
42,916 20,000 4 4,000 4,000 16,000 18,000 2,000 600
43,100 18,000 3 6,000 2,000 16,000 13,000 -3,000
Equipment 1:
Equipment 2:
Computation of Revaluation Gain/(Loss) & Deferred Tax:
Journal Entries

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FINANCIAL MANAGEMENT
Dr. Cr
Date Particulars Amount Amount
42,916 Depreciation Expense A/c. 16,500
Accumulated Depreciation- Equipment 1 A/c. 12,500
Accumulated Depreciation- Equipment 2 A/c. 4,000
(Depreciation charged on equipment 1 and equipment
2)
Accumulated Depreciation- Equipment 1 A/c. 12,500
Revaluation Gain A/c. 7,500
Equipment 1 A/c. 5,000
(Equipment 1 revalued at fair value and gain on
revaluation recorded)
Accumulated Depreciation- Equipment 2 A/c. 4,000
Revaluation Gain A/c. 2,000
Equipment 2 A/c. 2,000
(Equipment 2 revalued at fair value and gain on
revaluation recorded)
Revaluation Gain A/c. 9,500
Asset Revaluation Reserve A/c. 9,500
(Gain on revaluation transferred to asset revaluation
reserve)
Deferred Tax Assets A/c. 3,450
Income Tax Expense A/c. 3,450
(Deferred tax recorded for the asset revaluation)
43,100 Depreciation Expense A/c. 2,000
Accumulated Depreciation- Equipment 2 A/c. 2,000
(Depreciation charged on Equipment 2)
Bank A/c. 13,000
Accumulated Depreciation- Equipment 2 A/c. 2,000
Loss on Sale of Equipment A/c. 3,000
Equipment 2 A/c. 18,000
(Equipment 2 sold at loss)
43,281 Depreciation Expense A/c. 15,000
Accumulated Depreciation- Equipment 1 A/c. 15,000
(Depreciation charged on equipment 1)
Accumulated Depreciation- Equipment 1 A/c. 15,000
Revaluation Gain A/c. 4,000
Equipment 1 A/c. 11,000
(Equipment 1 revalued at fair value and gain on
revaluation recorded)
Deferred Tax Assets A/c. 1,200
Income Tax Expense A/c. 1,200
(Deferred tax recorded for the asset revaluation)
Revaluation Gain A/c. 4,000
Journal Entries
In the books of Superstar Ltd.

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FINANCIAL MANAGEMENT
Question 5
Particulars Fizzy Drinks Ice Creamery
Fair Value,less, Cost to Sell 750,000 260,000
Value in Use 810,000 240,000
Recoverable Amount 810,000 260,000
(Higher of Fair Value & Value in
use)
Less: Carrying Amount of CGU 872,000 268,000
Total Impairment Gain/(Loss) -62,000 -8,000
Calculation of Impairment Loss:
Particulars
Carrying
Amount Fair Value
Impairmen
t Loss
Carrying
Amount Fair Value
Impairment
Loss TOTAL
Total Impairment Loss 62,000 8,000 0
Less:
Goodwill 40,000 0 40,000 15,000 7,000 8,000 48,000
Patent 25,000 20,000 5,000 32,000 5,000
Land & Buildings 625,000 620,000 5,000 600,000 5,000
Balance Impairment Loss 12,000 0
Allocation of Specified Impairment Loss:
Fizzy Drinks Ice Creamery

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FINANCIAL MANAGEMENT
Particulars
Carrying
Amount
Net Carrying
Amount
Weightag
e
Impairment
Loss
Balance Impairment Loss 12,000
Fixture & Fittings 25,000
Less: Accum. Depreciation -5,000 20,000 0 1,846
Equipment 165,000
Less: Accum. Depreciation -55,000 110,000 1 10,154
Total 130,000 130,000 1 12,000
Impairment Loss Allocation as per Weightage:
Journal Entries
Dr. Cr.
Date Particulars Amount Amount
43,281 Loss on Impairment A/c. 70,000
Goodwill A/c. 48,000
Patent A/c. 5,000
Land & Buildings A/c. 5,000
Fixture & Fittings A/c. 1,846
Equipment A/c. 10,154
(Being assets under the specific cash
generating unit impaired)
Profit & Loss A/c. 70,000
Loss on Impairment A/c. 70,000
(Being impairment loss transferred to P/L A/c.)
In the books of Foodie Ltd.
Journal Entries

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FINANCIAL MANAGEMENT
Reference
Ahmed, A. S., Neel, M., & Wang, D. (2013). Does mandatory adoption of IFRS improve
accounting quality? Preliminary evidence. Contemporary Accounting Research, 30(4),
1344-1372.
Hribar, P., Kravet, T., & Wilson, R. (2014). A new measure of accounting quality. Review of
Accounting Studies, 19(1), 506-538.