Issues in Financial Accounting

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Report on Issues in Financial Accounting

ASSIGNMENT 1

QUESTION 1

a) Journal entries as per AASB 116

Depreciation

Cost of assets 245000

Depreciation (245000-35000/7) 30000

= 215000

Date

Particulars

Amount

30-June-2013

Balance of machine at 2012

215000

 

Depreciation

30000

 

Balance at 2013

185000

30-June-2014

Balance at 2013

185000

 

Depreciation

30000

 

Balance at end of 2014

155000

30-June -2015

Balance at 2014

155000

 

Depreciation

30000

 

Balance at end of 2015

125000

30-June-2016

Balance at 2015

125000

 

Depreciation

30000

 

Balance at end of 2016

95000

Journal entries

Date

Particular

Debit

Credit

30-June-2013

Machinery A/c Dr

185000

 
 

Depreciation a/c Dr

30000

 
 

To Cisco Ltd

 

215000

Narration

(Being machine valued at fair value)

  

30-June-2014

Machinery A/c Dr

155000

 
 

Depreciation a/c Dr

30000

 
 

To Cisco Ltd

 

185000

 

(Being machine valued at fair value)

  

30-June-2015

Machinery A/c Dr

125000

 
 

Depreciation a/c Dr

30000

 
 

To Cisco Ltd

 

155000

 

(Being machine valued at fair value)

  

b) AASB 116 and AASB 136

Machinery A/c Dr 95000

Depreciation a/c Dr30000

To Cisco Ltd 125000

Measurement of recoverable amount

=Fair value-cost to sell-value in use

= 104000-600-98000

= 5400

There will be no impairment of assets in this scenraio where in accordance with AASB 136 impairment of assets the the recoverable amount is less than the carrying amount of 95000.

c) Other assessment undertake by cisco

Cisco Ltd should comply with the framework of AASB 108 which deals in ensuring the changes in estimates in the accounts. The depreciation method currently used by an entity is Straight line method if changes to WDV are required to fulfill this standard requirements.

QUESTION 2

A. Appropriate Journal entries for Ajax Ltd for the year of 2012, 2013 and 2014

Date

Particular

Debit

Credit

30 June 2011

Machinery A/c Dr

320000

 
 

To cash a/c

 

320000

30-June-2012

Depreciation a/c Dr

40000

 
 

To machinery a/c

 

40000

30-June-2013

Depreciation a/c Dr

40000

 
 

To machinery a/c

 

40000

30-June-2014

Depreciation a/c Dr

40000

 
 

To machinery a/c

 

40000

B. Journal entries for accumulated depreciation

Date

Particular

Debit

Credit

30 June 2014

Depreciation expense a/c Dr

40000

 
 

To accumulated depreciation a/c

 

40000

30-June-2015

Depreciation a/c Dr

40000

 
 

To machinery a/c

 

40000

Journal entries for impairment losses

Date

Particular

Debit

Credit

30 June 2014

Impairment loss a/c Dr

90000

 
 

To accumulated depreciation a/c

 

90000

In 2015, recoverable amount is higher than carrying figure so there is no journal entry has been made.

C. Explaining the reasons for impairment

In 2014, carrying amount is $200000, whereas recoverable amount implies for $110000. Hence, carrying amount is higher than recoverable cost which shows the loss of $90000.

Carrying cost – recoverable amount

$200000 – $110000 = $90000

D. Presenting the amount of plant and equipment in balance sheet

In balance sheet, revaluate amount of plant and equipment is recorded by business entity after doing final reversal.

QUESTION 3

Interpreting the technical requirements and importance of international accounting standards

International Accounting standards have high level of importance which ensures high level transparency and standardization in the financial statements. Hence, final accounts which are prepared according to IFRS are highly reliable in nature and thereby helps stakeholders in making decisions (Florou, Kosi and Pope, 2017). However, technical knowledge is highly required among the individuals or accounting personnel to deal with the aspects of International Accounting Standards such as IAS 12 and 26 etc. In this, accounting personnel must have ability to recognize deferred tax assets and liabilities. Moreover, assets, revenue received in advance, other liabilities, unrecognized items; consolidated financial statements are the main bases of taxation (Warren, 2016). By taking into consideration all such bases accounting personnel can assess or determine the tax liability. In addition to this, in IAS 12 contains rules regarding the measurement of deferred tax. Along with this, tax rate are also varied from one year to another. In this, accounting personnel is required to update with changing rules and policies. Through this, finance manager and accounting personnel would become able to determine suitable tax liability.

 

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In addition to this, IAS 26 serves information about retirement plans which can be distinguished into two types such as defined benefit and contribution plan. Hence, it clearly presents information about the recording, measurement and disclosure of information regarding the retirement benefit plans. Hence, for effective presentation accounting personnel must have knowledge regarding the rules and regulations which are related to it (Bond, Govendir and Wells, 2016). Thus, by considering all such aspects it can be said that technical and conceptual knowledge is highly required for dealing with the standards more effectively and efficiently. Moreover, reporting and measurement aspect of pension plan is highly differing from one standard to another (McPhail, Macdonald and Ferguson, 2016). For instance: UK GAAP has different rules in relation to treatment on pension benefits in against to IAS. Hence, conceptual understanding and knowledge is highly required for dealing with the amount of retirement benefits and deferred tax amount.

There are several key issues which are associated with financial reporting enumerated below:

  • Reporting needs and requirements are mentioned in the regulations which business entity requires following for ensuring transparency in the final accounts. However, sometimes is not possible for the business organization to comply with all the rules to the large extent.
  • Further, some government authorities have framed and introduced legislation which entail that companies are not obliged to prepare financial statements according to accounting standards. Moreover, sometimes treasurer directives also enforce accounting standard which company has to follow for the preparation of financial statements.

References

  • Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136.Accounting & Finance.
  • Florou, A., Kosi, U. and Pope, P.F., 2017. Are international accounting standards more credit relevant than domestic standards?.Accounting and Business Research.47(1). pp.1-29.
  • McPhail, K., Macdonald, K. and Ferguson, J., 2016. Should the international accounting standards board have responsibility for human rights?.Accounting, Auditing & Accountability Journal.29(4). pp.594-616.
  • Warren, C. M., 2016. The impact of International Accounting Standards Board (IASB)/International Financial Reporting Standard 16 (IFRS 16).Property Management.34(3).