MANAGEMT 7126OL Accounting And Financial Management

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MANAGEMT 7126OL Accounting And Financial Management

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MANAGEMT 7126OL Accounting And Financial Management

1 Download7 Pages / 1,628 Words

Course Code: MANAGEMT7126OL
University: The University Of Adelaide

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Country: Australia

Questions:
1) Prepare the journal entires to recognitse the long-service leave expense for 30 June 2019 b) Prepare the note disclosure regarding the long-service leave provisions for 30 June 2019.

Answers:
Requirement-A

Step 1: Estimating the number of employees who are expected to become eligible for LSL

Years of Service

Probability LSL will Vest

No of employees

Expected Number of Entitledemployees

 

 

(1)

(2)

(3)

(4)= 2*3

 

 

3

30%

1

0.3

 

 

5

40%

1

0.4

 

 

7

80%

1

0.8

 

 

11

100%

1

Note-2

 

 

13

100%

1

Note-2

 

 

 

Step 2: Estimate the projected salaries

 

 

 

 

 

Current salary*(1+inflation rate)^n

 

 

 

 

 

 

 

 

Years of Service

Expected Number of Entitledemployees

Current Salary

Inflation rate

Period untilLSL vests

Projectedsalary

3

0.3

     54,000.00

2.50%

7

64189.03

5

0.4

     80,000.00

2.50%

5

90512.66

7

0.8

   105,000.00

2.50%

3

113073.5

 

Step 3: Determine the accumulated benefit

 

 

Years of employment/Years required for LSL x weeks of paid leave x projected salaries Years required for LSL 52

Years of Service

Projectedsalary

Unit credit (Years of employment/Years required for LSL)

LSL weeks /52

Accumulatedbenefit

3

                64,189.03

                0.30

                  0.29

       5,554.82

5

                90,512.66

                0.50

                  0.29

    13,054.71

7

              113,073.52

                0.70

                  0.29

    22,832.15

 

Step 4: Measure the present value of the accumulated benefit

 

accumulated benefit/(1 + i)n

 

 

 

 

 

Years of Service

Accumulatedbenefit

Discount factor

Present value

3

                   5,554.82

                0.81

          4,516.58

5

                13,054.71

                0.86

       11,266.58

7

                22,832.15

                0.92

       21,109.11

 

 

 

       36,892.27

 

Note-1: Rate of discount is taken based on yield on government bond. Yield on bond being taken based on years of service remaining to vesting period

 

 

 

 

 

 

 

 

 

 

Note-2: In case of Yu Lew, the vesting condition of 10 years has been satisfied, so, no expense on this as it is due for payment. In the case of Adrian Toomes, the vesting conditions have already been satisfied and he has completed the payment perido as well so no expense to be recognized it is already debt due on company

 

Journal entries

 

 

 

S. No.

Account title

Debit

Credit

30-Jun-19

Long service leave expense

     36,892.27

 

 

Provision for Long service leave expense

 

       36,892.27

 

(Provision for long service leave expense created on 30 June 2009)

 

 

 

 

 

 

30-Jun-19

Profit and loss account

     36,892.27

 

 

Long service leave expense

 

       36,892.27

 

(Long service leave expense for 2009 charged to profit and loss account)

 

 

 
Requirement-B

Note disclosure regarding the long-service leave

 

 

 

 

 

 

 

 

 

Opening in provision account

                62,400.00

 

 

 

 

Add: Current year expense

                36,892.27

 

 

 

 

Balance at the end

                99,292.27

 

 

 

 

 

 

 

 

 

 

Discount rate

Bond yield based on number of years

 

 

Phineas Mason

3.000%

 

 

 

 

Herman Schultz

2.990%

 

 

 

 

Jackson Brice

2.650%

 

 

 

 

Notes:

 

 

 

 

 

Assumed that benefits of Adrian Toomes have been paid

 

 

Assumed that plan assets of amount equal to benefits paid to Adrian Toomes have been disposed off

Case-B
Requirement-A

Determination of expense to be recognized each year

 

2019

2020

2021

2022

A. No of employees entitled

360

344

336

403

 

(450-20-70)

(450-20-11-75)

(450-20-11-8-75)

(450-20-11-8-8)

B. Options per employee

230

230

230

230

 

 

 

 

 

C. Total options (A*B)

82800

79120

77280

92690

 

 

 

 

 

D. Fair value

3.9

3.9

3.9

3.9

 

 

 

 

 

E. Total expense cumulative (C*D)

322920

308568

301392

361491

 

 

 

 

 

F. Expense to be recognized

80730

150696

69966

60099

 

Journal entries

S. No.

Account title

Debit

Credit

30-Jun-19

ESOP expense

80730

 

 

ESOP outstanding-liability

 

80730

 

(employee stock option expense recognized)

 

 

 

 

 

 

 

Profit and loss account

80730

 

 

ESOP expense

 

80730

 

(expense transferred to profit and loss account)

 

 

 

 

 

 

30-Jun-20

ESOP expense

150696

 

 

ESOP outstanding-liability

 

150696

 

(employee stock option expense recognized)

 

 

 

 

 

 

 

Profit and loss account

150696

 

 

ESOP expense

 

150696

 

(expense transferred to profit and loss account)

 

 

 

 

 

 

30-Jun-21

ESOP expense

69966

 

 

ESOP outstanding-liability

 

69966

 

(employee stock option expense recognized)

 

 

 

 

 

 

 

Profit and loss account

69966

 

 

ESOP expense

 

69966

 

(expense transferred to profit and loss account)

 

 

 

 

 

 

30-Jun-22

ESOP expense

60099

 

 

ESOP outstanding-liability

 

60099

 

(employee stock option expense recognized)

 

 

 

 

 

 

 

Profit and loss account

60099

 

 

ESOP expense

 

60099

 

(expense transferred to profit and loss account)

 

 

 

 

 

 

30-Jun-23

Bank

483000

 

 

ESOP outstanding-liability

269100

 

 

Share capital

 

69000

 

Share premium

 

683100

 

(Equity shares issued to 300 employees exercising the option)

 

 

 

 

 

 

 

ESOP outstanding-liability

92391

 

 

General reserve

 

92391

 

(Remaining balance in ESOP outstanding-liability account transferred to general reserve)

 

 

 Requirement-B

If three more employees leave on 31 Dec 2022, it will not affect the answer in part-A in any way. The amount of expenditure would remain same as the employees are leaving after the vesting period. Also, if it is assumed that these three employees were among 103 employees who did not exercise the option, the change will not affect the amount transferred to general reserve account too.

Case-C
As per the ruling given in AASB 138, the expenditure incurred on the in house developed intangible assets should be recognized in the statement of profit and loss account in the year of incurrence itself until development phase of the intangible being developed is started. This means that the expenditure after starting the development phase activities of the intangible being developed can be capitalized. However, this is also subject to certain conditions.  
Based on the above ruling, the accounting treatment of the expenditure incurred on development of a motion- sensing system by StarK Ltd is given below:
Expenses to be charged to profit and loss account (Research phase)
All expenses incurred during the research phase would be charged to the statement of profit and loss account. The project started on 01 August 2017. The research phase of this project continued till May 2018 until company developed a prototype of the motion-sensing system. The expenditure incurred till May 2018 would be charged to profit and loss of the current year i.e. 2017-18. Thus, salary paid in September 2017 of 319000, cost of basic model production of 215000 incurred in November 2017, a $103000 incurred in January 2018 and another $93000 incurred in January 2018 would be charged to the profit and loss account. Further, a sum of $230000 incurred in April 2018 for incorporating new design would also be charged to the profit and loss account. So, a total of $960,000 would be charged to profit and loss account in 2017-18.
Expenses to be capitalized (Development phase)
The expenses incurred in the development phase can be capitalized to meeting the asset recognition criteria as set out in the framework. The framework states that an item can be recognized as asset in books if future economic benefits are expected to flow from its use in future years. In May 2018, Stark Ltd had developed a prototype of the system which shows that the system would be successfully available to the company for future economic benefits. Thus, expenses of $112,000, $38,000, and $40,000 resulting in total of 190,000 to be capitalized as intangible assets and these expenses would be amortized on yearly basis.  
References
AASB 119, 2018, Employee benefits, Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB119_09-11_COMPjun14_07-14.pdf accessed on 13 September 2018.
AASB 138, 2018, Intangible assets, Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-18.pdf accessed on 13 September 2018.
AASB 2, 2018, Share based payments, Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB2_07-04_COMPjul09_01-10.pdf accessed on 13 September 2018.
Conceptual framework, 2018, Conceptual Framework for Financial Reporting, Available at: https://www.aasb.gov.au/admin/file/content105/c9/ACCED264_06-15.pdf accessed on 13 September 2018.

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