Accounting 15 Assignment: Financial Accounting Concepts

This accounting assignment solution addresses several key areas of financial accounting. It begins by discussing the importance of annual reports and the accounting treatment of litigation settlements, including journal entries and financial statement presentation. The assignment then delves into lease accounting, calculating the fair value of a recording studio, creating amortization schedules, and preparing journal entries for lease transactions, including the impact of a guaranteed residual value. Further, the solution covers long service leave calculations and journal entries. A cash flow statement is prepared, detailing cash flows from operating, investing, and financing activities. Finally, the assignment tackles foreign exchange transactions, preparing journal entries to account for currency fluctuations on purchases, engine contracts, and hedging activities. The solution concludes with a reference list of relevant accounting literature.

Running Head: ACCOUNTING
Accounting
Name of the Student:
Name of the University:
Authors Note:

1ACCOUNTING
Table of Contents
Answer to question 1:......................................................................................................................2
Answer to question 2:......................................................................................................................3
Part 1:...........................................................................................................................................3
Part 2:...........................................................................................................................................3
Part 3:...........................................................................................................................................4
Part 4:...........................................................................................................................................5
Answer to question 3:......................................................................................................................7
Part 1:...........................................................................................................................................7
Part 2:...........................................................................................................................................7
Answer to question 4:......................................................................................................................8
Answer to question 5:....................................................................................................................10
Reference.......................................................................................................................................16

2ACCOUNTING
Answer to question 1:
The Annual Reports are prepared to show the basic information of an organization to help
the stakeholders of an organization to assess the financial position and operating performance of
such organization properly (May 2013). Settlement because of litigation outcome in a court
against a company or out of court settlement by a company to squash a litigation before, during
or after the court proceeding; it involves outflow of resources from an organization and inflow of
resources to another organization (Weil et al. 2013). Both the organizations need to disclose the
matter in their annual reports, to be specific in the financial statements to ensure that the
financial position and operating results are correctly reelected in the financial statements.
The CBA has settled the “CBA in payout on toxic products” case with the investors for
$50 Million in addition to $1.5 Million to the International Litigation Partners. It is imperative
that the effects of these payments are shown in the financial statements of the company to reflect
the true and correct picture of its financial position and operating performance in its financial
statements (Edwards 2013). Thus, the payment shall be shown in the Income statement of the
company as litigation expenses and subsequently shall be shown in the form of reduced bank
balance in the Balance sheet of the company (Beatty and Liao 2014). Both these effects shall be
provided in the financial statements of the company in the year of payment. Apart from that, a
separate disclosure shall also be made in the notes to the accounts to let the users of the statement
know of the nature of this huge expenditure along with necessary explanation.

3ACCOUNTING
Answer to question 2:
Part 1:
Fair value of portable sound studio Total
Year 0 1 2 3
Lease rent 50,000.0
0
50,000.
00
50,000.0
0
50,000.0
0
PV factor @8% 1.0
0
0.
93
0.8
6
0.7
9
Present value of lease
rent
50,000.0
0
46,296.
30
42,866.9
4
39,691.6
1
178,854.8
5
Add: Present value of guaranteed residual valued 27,223.3
3
Fair value of portable recording studio 206,078.1
8
Part 2:
Schedule incorporating accrued interest in lease payments
Installment Outstanding
Year Principal Interest @8%
0 50,000.00 128,854.85
1 39,691.61 10,308.39 89,163.24
2 42,866.94 7,133.06 46,296.30

4ACCOUNTING
3 46,296.30 3,703.70 -
178,854.85 21,145.15
Part 3:
Journal entries
Date Particulars Debit ($) Credit ($)
01.07.201
9
Leased asset A/C -------Dr. 178,854.
85
Lessor Ltd 178,854.
85
(Being the asset taken on lease from Lessor Ltd.)
01.07.201
9
Lessor Ltd. A/c--------Dr. 50,000.
00
Bank 50,000.
00
(Being the lease payment made)
30.06.202
0
Interest on financial lease A/c-----Dr. 10,308.
39
Lessor Ltd 10,308.
39

5ACCOUNTING
(Being interest charged on lease amount due)
30.06.202
0
Depreciation A/c-----Dr. 34,713.
71
Leased Asset 34,713.
71
(Being depreciation on leased asset charged
using straight line method)
01.07.202
0
Lessor Ltd. A/c--------Dr. 50,000.
00
Bank 50,000.
00
(Being the lease payment made)
Part 4:
In case at the time of termination of the lease the fair value of portable recording studio is
$25000 then Hopeful Limited will have to return the asset as per the terms and conditions of the
lease agreement to Lessor Limited along with an additional cash of (40000.00 – 25000.00)
=$15000.00 to compensate for the guaranteed residual value.
Journal entries
Dat
e
Particulars Debit ($) Credit ($)

6ACCOUNTING
Long service leave expenses A/c--------Dr. 15,064.
10
Provision for long service leave 15,064.
10
(Being the provision for long service leave is created)
Profit and Loss A/c--------Dr. 15,064.
10
Long service leave expenses A/c 15,064.
10
(Being the expenses for long-service leave adjusted against
revenue)

7ACCOUNTING
Answer to question 3:
Part 1:
Question 3:
Current obligation of Alexandra Bay for long-service leave
Name of employees Salary ($)
Mike Black 48,760 2 10 9,376.88 1,563 724 15% 109
Jan White 46,866 4 8 9,012.76 3,004 1749 20% 350
Years of
service
Years left for
long service
Eligible
entitilement
if 12 years
completed ($)
Accumulated
Obligation ($)
Present
Value of the
Obligation
($)
Probability
of Payment
Long Service
Leave
Liability ($)
The salary is the projected salary based on the inflation rate and it is multiplied with the
number of years for long service leave.
Part 2:
Journal entries
Date Particulars Debit ($) Credit ($)
Long service leave expenses A/c--------Dr.
3,814.20
Provision for long service leave
3,814.20
(Being the provision for long service leave is created)
Profit and Loss A/c--------Dr.
3,814.20
Long service leave expenses A/c
3,814.20
(Being the expenses for long-service leave adjusted
against revenue)

8ACCOUNTING
Answer to question 4:
Cash flow statement
Particulars Amount ($) Amount ($)
Cash flow from operating activities:
Profit Before Tax 365,000.00
Add/ (Less)
Dividend income (51,000.00)
Interests 315,000.00
Depreciation on Building 40,000.00
Depreciation on plant and equipment 100,000.00
Inventory write off 50,000.00
Provision for doubtful debts 35,000.00
Provision for employee entitlement
bad debts 90,000.00
Decrease in working capital 324,000.00
903,000.00 903,000.00
1,268,000.00
Less: Income tax paid 55,000.00
1,213,000.00

9ACCOUNTING
Cash flow from investing activities:
Investment acquired (80,000.00)
Plant and equipment sold 20,000.00
Land sold 75,000.00
Investment in squash Limited (250,000.00)
(235,000.00)
Investment brought (318,000.00)
(788,000.00)
Cash flow from financing activities:
Interest paid (315,000.00)
Dividend income 51,000.00
Repayment of borrowings (300,000.00)
(564,000.00)
Net cash flow from business (139,000.00)
Add; Opening cash balance 274,000.00
Closing cash and cash equivalent 135,000.00
Answer to question 5:
Journal entries
Date Particulars Debit ($) Credit ($)

10ACCOUNTING
a)
30.04.1
8
Purchases 35,294.1
2
Hong Kong company 35,294.1
2
(Being the purchase order given)
30.05.1
8
Effects of foreign exchange rate changes 247.3
9
Profit and Loss A/c 247.3
9
(Being effects of changes in exchange rate
recorded)
Hong Kong company 247.3
9
Effects of foreign exchange rate changes 247.3
9
(Being effects of changes in exchange rate
adjusted)
Hong Kong company 11,682.2
4
Bank 11,682.2

11ACCOUNTING
4
(Being first installment paid)
30.06.1
8
Effects of foreign exchange rate changes 81.6
0
Profit and Loss A/c 81.6
0
(Being effects of changes in exchange rate
recorded)
Hong Kong company 81.6
0
Effects of foreign exchange rate changes 81.6
0
(Being effects of changes in exchange rate
adjusted)
Hong Kong company 11,641.4
4
Bank 11,641.4
4
(Being first installment paid)