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ACCT6003 Financial Accounting Processes
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ACCT6003 Financial Accounting Processes
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Course Code: ACCT6003
University: Laureate International Universities
MyAssignmentHelp.com is not sponsored or endorsed by this college or university
Country: United States
Questions:
1. Explain the regulatory framework that governs financial reporting in Australia with emphasis on the Conceptual Framework for financial reporting 2. Apply accounting principles and standards when accounting for non-current assets, revenue and liabilities and recognise the judgements required in a range of diverse business contexts3. Differentiate between shares and debentures and apply appropriate accounting procedures
Answers:
Financing Company Operations
Date
Account Title
Debit
Credit
31-Jul-12
Cash
627,000.00
Application
627,000.00
(Being cash received on applications of shares)
3-Aug-12
Application
627,000.00
Share capital
533,500.00
Share allotment
93,500.00
(Being shares allotted and the excess money received on application adjusted against allotment)
10-Aug-12
Allotment
271,600.00
Share capital
271,600.00
(Being allotment money due)
10-Aug-12
Cash
178,100.00
Allotment
178,100.00
(Being allotment money received)
11-Aug-12
Miscellaneous expenses
780.00
Preliminary expenses
1,100.00
Cash
1,880.00
(Being incorporation expenses and share issue cost recorded)
3-Dec-12
Share first call
130,950.00
Share capital
130,950.00
(Being first call on the shares made)
3-Dec-12
Cash
116,100.00
Share first call
116,100.00
(Being first call received except on 11000 shares)
3-Apr-13
Share second call
130,950.00
Share capital
130,950.00
(Being second call on the shares made)
3-Apr-13
Cash
109,080.00
Share second call
109,080.00
(Being second call received except on 16200 shares)
10-Jun-13
Share capital
178,200.00
Share forfeited
141,480.00
Share first call
14,850.00
Share second call
21,870.00
(Being 16200 shares forfeited)
25-Jun-13
Cash
162,000.00
Share forfeited
16,200.00
Share capital
178,200.00
(Being forfeited shares re-issued at $10)
25-Jun-13
Share forfeited
300.00
Share re-issue costs
300.00
(Being re-issue cost of shares charged to share forfeited account)
Equity Section of ChiHerbal’s Statement of Financial Position
80800 equity shares fully paid up-issued at $11
888,800.00
16200 equity shares fully paid-issued at $10
162,000.00
Capital reserve
124,980.00
Pre-incorporation expenses
(1,880.00)
Total
1,173,900.00
Scenario-3 (a):
Part-a: As per AASB 117, the parties to the lease classify the lease as finance lease when all the risks and rewards related to the assets being leased are transferred by the Lessor to the Lessee. In the current case, lease terms are 5 years which covers the substantial life duration of the asset. Further, there is heavy penalty on lease cancellation. Thus, these circumstances indicate that the lease should be classified as Finance Lease in the books of Lessor and Lessee both (AASB 117, 2009).
Scenario-3 (b):
Present value of minimum lease payments
Year
Minimum lease payments
PVF@9%
Present value
1
8,400.00
0.9174
7,706.42
2
8,400.00
0.8417
7,070.11
3
8,400.00
0.7722
6,486.34
4
8,400.00
0.7084
5,950.77
5
8,400.00
0.6499
5,459.42
5
3,800.00
0.6499
2,469.74
Total
45,800.00
35,142.81
Schedule of Lease Payments
Year
Opening balance
Minimum lease payment
Finance charge
Reduction in outstanding
Closing balance
2016
35,142.81
8,400.00
3,162.85
5,237.15
29,905.66
2017
29,905.66
8,400.00
2,691.51
5,708.49
24,197.17
2018
24,197.17
8,400.00
2,177.75
6,222.25
17,974.92
2019
17,974.92
8,400.00
1,617.74
6,782.26
11,192.66
2020
11,192.66
8,400.00
1,007.34
7,392.66
3,800.00
Date
Account Title
Debit
Credit
30-Jun-16
Machine on lease
35,142.81
Lessor Ltd
35,142.81
(Being machine taken on lease recorded)
30-Jun-16
Machine on lease-depreciation
7,028.56
Accumulated depreciation
7,028.56
(Being depreciation expense on machine taken on lease recorded)
30-Jun-16
Lessor Ltd
5,237.15
Finance charge
3,162.85
Cash
8,400.00
(Being lease rent for year 2015-16 paid)
30-Jun-16
Profit and loss statement
10,191.41
Finance charge
3,162.85
Machine on lease-depreciation
7,028.56
(Being finance charge and depreciation expense charged to profit and loss statement)
30-Jun-17
Machine on lease-depreciation
7,028.56
Accumulated depreciation
7,028.56
(Being depreciation expense on machine taken on lease recorded)
30-Jun-17
Lessor Ltd
5,708.49
Finance charge
2,691.51
Cash
8,400.00
(Being lease rent for year 2016-17 paid)
30-Jun-17
Profit and loss statement
9,720.07
Finance charge
2,691.51
Machine on lease-depreciation
7,028.56
(Being finance charge and depreciation expense charged to profit and loss statement)
30-Jun-18
Machine on lease-depreciation
7,028.56
Accumulated depreciation
7,028.56
(Being depreciation expense on machine taken on lease recorded)
30-Jun-18
Lessor Ltd
6,222.25
Finance charge
2,177.75
Cash
8,400.00
(Being lease rent for year 2017-18 paid)
30-Jun-18
Profit and loss statement
9,206.31
Finance charge
2,177.75
Machine on lease-depreciation
7,028.56
(Being finance charge and depreciation expense charged to profit and loss statement)
30-Jun-19
Machine on lease-depreciation
7,028.56
Accumulated depreciation
7,028.56
(Being depreciation expense on machine taken on lease recorded)
30-Jun-19
Lessor Ltd
6,782.26
Finance charge
1,617.74
Cash
8,400.00
(Being lease rent for year 2018-19 paid)
30-Jun-19
Profit and loss statement
8,646.30
Finance charge
1,617.74
Machine on lease-depreciation
7,028.56
(Being finance charge and depreciation expense charged to profit and loss statement)
30-Jun-20
Machine on lease-depreciation
7,028.56
Accumulated depreciation
7,028.56
(Being depreciation expense on machine taken on lease recorded)
30-Jun-20
Lessor Ltd
7,392.66
Finance charge
1,007.34
Cash
8,400.00
(Being lease rent for year 2019-20 paid)
30-Jun-20
Profit and loss statement
8,035.90
Finance charge
1,007.34
Machine on lease-depreciation
7,028.56
(Being finance charge and depreciation expense charged to profit and loss statement)
Scenario-3 (c):
Net investment computation
Year
Lease rent
PVF@9%
Present value
1
8,400.00
0.9174
7,706.42
2
8,400.00
0.8417
7,070.11
3
8,400.00
0.7722
6,486.34
4
8,400.00
0.7084
5,950.77
5
8,400.00
0.6499
5,459.42
5
7,600.00
0.6499
4,939.48
Total
49,600.00
37,612.55
Schedule of lease receipts
Year
Opening balance
Minimum lease payment
Finance income
Reduction in outstanding
Closing balance
2016
37,612.55
8,400.00
3,385.13
5,014.87
32,597.68
2017
32,597.68
8,400.00
2,933.79
5,466.21
27,131.47
2018
27,131.47
8,400.00
2,441.83
5,958.17
21,173.30
2019
21,173.30
8,400.00
1,905.60
6,494.40
14,678.90
2020
14,678.90
8,400.00
1,321.10
7,078.90
7,600.00
Date
Account Title
Debit
Credit
30-Jun-16
Lease receivables
37,612.55
Machine on lease
37,612.55
(Being machine given on lease)
30-Jun-16
Cash
8,400.00
Lease receivables
5,014.87
Finance income
3,385.13
(Being lease rent received)
30-Jun-16
Finance income
3,385.13
Profit and loss
3,385.13
(Being finance income charged to profit and loss)
30-Jun-17
Cash
8,400.00
Lease receivables
5,466.21
Finance income
2,933.79
(Being lease rent received)
30-Jun-17
Finance income
2,933.79
Profit and loss
2,933.79
(Being finance income charged to profit and loss)
30-Jun-18
Cash
8,400.00
Lease receivables
5,958.17
Finance income
2,441.83
(Being lease rent received)
30-Jun-18
Finance income
2,441.83
Profit and loss
2,441.83
(Being finance income charged to profit and loss)
30-Jun-19
Cash
8,400.00
Lease receivables
6,494.40
Finance income
1,905.60
(Being lease rent received)
30-Jun-19
Finance income
1,905.60
Profit and loss
1,905.60
(Being finance income charged to profit and loss)
30-Jun-20
Cash
8,400.00
Lease receivables
7,078.90
Finance income
1,321.10
(Being lease rent received)
30-Jun-20
Finance income
1,321.10
Profit and loss
1,321.10
(Being finance income charged to profit and loss)
Scenario-3 (d)
Note to the financial statements for ChiHerbal Ltd as at 30 June 2016
Description
Amount
Net carrying amount of machine
28,114.25
Lessor ltd-current liabilities
5,708.49
Lessor ltd-non-current liabilities
24,197.17
PV of lease rent-due in 1 year (8400*1/(1+9%)^1)
7706.422
PV of lease rent-due in 2-5 year (8400*3)*(1/(1+9%)^1)
23119.266
Depreciation-2016
7,028.56
Finance charge-2016
3,162.85
Note to the financial statements for Lessor Ltd as at 30 June 2016
Description
Amount
Lease receivables
32,597.68
Finance income
3,385.13
PV of lease rent-due in 1 year (8400*1/(1+9%)^1)
7706.422
PV of lease rent-due in 2-5 year (8400*3)*(1/(1+9%)^1)
23119.266
Scenario-2: Property, Plant and Equipment
Date
Account Title
Debit
Credit
2015-16
1-Aug
Motor Vehicle-MV 1
126,000.00
Cash
126,000.00
(Being motor vehicle MV1 purchased in cash)
1-Aug
Motor Vehicle-MV 1
1,250.00
Cash
1,250.00
(Being expense on recondition MV 1’s engine is capitalized)
Note: As per provisions of AASB 116, the expenses which increase the capacity of the property, plant, equipment are capitalized (AASB 116, 2009).
30-Oct
Equipment
34,000.00
Cash
34,000.00
(Being equipment purchased in cash)
31-Dec
Repair expense
900.00
Cash
900.00
(Being repair expense on motor vehicle MV1 paid)
30-Jun
Depreciation Expense-Motor Vehicle MV1
21,850.00
Depreciation Expense-Equipment
3,275.00
Accumulated Depreciation
25,125.00
(Being depreciation expense on motor vehicle MV1 (126000+1250-18000/5) and equipment (34000-1250/10) recorded)
30-Jun
Profit and Loss account
26,025.00
Repair expense
900.00
Depreciation Expense-Motor Vehicle MV1
21,850.00
Depreciation Expense-Equipment
3,275.00
(Being expenses charged to profit and loss account)
2016-17
13-Jul
Motor Vehicle-MV 1
340.00
Cash
340.00
(Being expense on replace a damaged bumper bar is capitalized)
1-Dec
Motor Vehicle-MV 2
272,000.00
Motor Vehicle-MV 1
102,000.00
Cash
170,000.00
(Being motor vehicle MV1 exchanged with motor vehicle MV2)
1-Dec
Loss of exchange of MV1
3,740.00
Profit and Loss account
3,740.00
(Being loss on exchange of motor vehicle MV1 charged to profit and loss account)
30-Jun
Depreciation Expense-Motor Vehicle MV2
34,000.00
Depreciation Expense-Equipment
3,275.00
Accumulated Depreciation
37,275.00
(Being depreciation expense on motor vehicle MV2 (272000-34000/7) and equipment (34000-1250/10) recorded)
30-Jun
Equipment
3,212.00
Revaluation Reserve
3,212.00
(Being equipment revalued upward by 3212 (30662-(34000-3275*2))
30-Jun
Profit and Loss account
37,275.00
Depreciation Expense-Motor Vehicle MV2
34,000.00
Depreciation Expense-Equipment
3,275.00
(Being depreciation expense charged to profit and loss account)
As per the provisions of AASB 138, an entity should not recognize the internally generated in intangible asset unless it meets the criteria as set out in the paragraphs 54-64 of the standard (AASB, 138). The standard provides that the expenses incurred on development of the intangible assets classified into two broad categories such as research phase expenses and development phase expenses. The expenses incurred in the research phase are all charged to the income statement considering them of revenues nature. It is considered that the intangible asset does not exists until the research phase of the entire process is over, thus, the expenses incurred in this phase can not be capitalized recognizing the intangible asset (AASB, 138).
The development begins once the research phase is over. The activities performed in the research phase are substantial in nature and it becomes near possible that the intangible asset arises in this phase. Commonly, the activities such as designing prototype, testing models, and preparing application for registration etc are carried out in the development phase. However, the entity is required to assess referring to the stage of development that whether an intangible asset has arisen which will give benefits over more than one accounting period (AASB, 138). This assessment of the entity will be based on certain facts as stipulated below:
First of all the expenditure incurred should be easily measurable.
Further, the entity should demonstrate that the project is technically feasible.
Further, there must be concrete evidence that the entity will be benefited by the intangible asset over the period of time (AASB, 138).
After applying the above test, if the entity concludes that the intangible asset arises, the expenses incurred in the development phase and after that will be capitalized as the cost of intangible asset. Therefore, referring to the above discussed provisions of AASB 138, the accounting treatment of the expenses incurred on the development of a filtering system by ChiHerbal Ltd is discussed below:
Year
Expense
Amount ($)
Phase
Accounting Treatment
2012-14
Conduct research activities to develop a filtering system
$385,500
Research Phase
Charge to profit and loss statement
2014-15
Design and construct a prototype for a filter
$228,000
Development phase
Capitalize as intangible asset
2015-16
Test models of a filter
$76,500
Development phase
Capitalize as intangible asset
2016-17
Incur costs in preparing a patent application
$18,000
Development phase
Capitalize as intangible asset
2017-18
Conduct research to modify design of a filter
$51,000
Development phase
Capitalize as intangible asset
2018-19
Pay legal fees for protecting patent against copies
$22,500
Development phase
Capitalize as intangible asset
References
AASB 116. 2009. Property, Plant, and Equipment. [Online]. Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04_COMPjun09_07-09.pdf [Accessed on: 24 March 2017].
AASB 117. 2009. Leases. [Online]. Available at: https://www.aasb.gov.au/admin/file/content102/c3/AASB117_07-04_ERDRjun10_07-09.pdf [Accessed on: 24 March 2017].
AASB 138. Intangible Assets. [Online]. Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-18.pdf [Accessed on: 24 March 2017].
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