Share Capital for Rippa Ltd
According to “Paragraph 51 of AASB 116”, any revision in an asset’s useful life is to be considered as a change in accounting estimate, instead of accounting policy change (Aasb.gov.au, 2018). Hence, this does not mandate the need for retrospective restatement of accounts. The change would exert influence only on the financial statements of the prospective periods.
Book value as at 1st July 2017 = ${800,000 – 2 x (800,000/10)} = $640,000
Depreciation charges per annum for the remaining six years = $640,000/6 = $106,667
Finally, a disclosure about the change in accounting estimate is to be made as financial footnotes.
The due amount of $200,000 would be shown in the form of accounts payable under the section of current liabilities in the balance sheet statement as at 30th June 2018. Since the repairs expense belong to the period ended 30th June 2017, it is not possible to show the same in the form of expense in the income statement for the period ended 30th June 2018 in accordance with accounting, accrual and matching principles. Due to the closure of repairs expense account in 2017, retained earnings account would be used for adjustment that denotes the accumulated profits until date.
When an investment value falls after the reporting period, the event is stated to be non-adjusting. According to “Paragraph 21 of AASB 110”, these events need to be disclosed as notes to accounts, if they carry material amounts. In opposition, these events are required to be ignored (Aasb.gov.au, 2018). According to the provided scenario, significant fall in investments could be observed from $600,000 to $250,000 and this is extremely crucial for the financial statement users. Even though the fall in market value does not require any adjustment to the value of an asset for reporting in the 2018 balance sheet statement, disclosure needs to be made in notes to accounts. However, in 2019, there is need to write-off investments to $250,000 for which Superstore Limited has to register a loss. In that case, revenue or income statement account needs to be debited by $350,000 ($600,000 – $250,000), while investments account would be credited by $350,000.
In accordance with “Paragraph 8 of AASB 110”, a business organisation needs to account for adjusting events through adjustment of potential financial effects in the financial statements before finalisation and issuance (Aasb.gov.au, 2018). If an error or fraud is identified after the date of reporting, the event is said to be adjusting. In this scenario, the two accounts needing adjustments include Max and advertising expense.
In the Books of Superstar Limited
Statement of Profit or Loss and Other Comprehensive Income for Jackson Storm Ltd
Adjusting Journal Entries
For the year ended 2018
| Date | Particulars | Debit amount | Credit amount |
| 30-Jun-18 | |||
| 1 | Depreciation Expense Account……………………………………Dr | $ 106,667 | |
| To Accumulated Depreciation Account | $ 106,667 | ||
| 2 | Retained Earnings Account………………………………………….Dr | $ 14,000 | |
| Income Tax Refundable Account…………………………………..Dr | $ 6,000 | ||
| To Accounts Payable Account | $ 20,000 | ||
| 3 | No journal entry needed | $ – | |
| $ – | |||
| 4 | Max Account………………………………………………………………Dr | $ 32,000 | |
| To Advertising Expense Account | $ 32,000 |
In the Books of Rippa Limited
Journal Entries
For the year ended 30 June 2018
| Date | Particulars | Debit amount | Credit amount |
| 10-Aug-17 | Cash Account…………………………………………………Dr | $ 15,000,000 | |
| To Share Application Account | $ 15,000,000 | ||
| (To record receipt of application money) | |||
| 10-Aug-17 | Share Application Account……………………………….Dr | $ 15,000,000 | |
| To Share Capital Account | $ 12,500,000 | ||
| To Share Allotment Account | $ 2,500,000 | ||
| (To record money transfer to share capital) | |||
| 12-Aug-17 | Underwriting Commission Account……………………Dr | $ 12,000 | |
| To Cash Account | $ 12,000 | ||
| (To record underwriting commission paid) | |||
| 10-Sep-17 | Share Allotment Account………………………………….Dr | $ 5,000,000 | |
| To Share Capital Account | $ 5,000,000 | ||
| (To record share allotment money due) | |||
| 10-Sep-17 | Cash Account………………………………………………….Dr | $ 2,500,000 | |
| Share Application Account……………………………….Dr | $ 2,500,000 | ||
| To Share Allotment Account | $ 5,000,000 | ||
| (To record receipt of allotment money) | |||
| 01-Feb-18 | Share First Call Account…………………………………..Dr | $ 2,500,000 | |
| To Share Capital Account | $ 2,500,000 | ||
| (To record share first call money due) | |||
| 28-Feb-18 | Cash Account…………………………………………………..Dr | $ 2,480,000 | |
| Call-in-Arrears Account……………………………………Dr | $ 20,000 | ||
| To Share First Call Account | $ 2,500,000 | ||
| (To record receipt of money from shares) | |||
| 20-Mar-18 | Share Capital Account………………………………………Dr | $ 160,000 | |
| To Share Forfeiture Account | $ 140,000 | ||
| To Call-in-Arrears Account | $ 20,000 | ||
| (To record forfeiture of shares) | |||
| 20-Mar-18 | Cash Account…………………………………………………..Dr | $ 128,000 | |
| Share Forfeiture Account…………………………………..Dr | $ 32,000 | ||
| To Share Capital Account | $ 160,000 | ||
| (To record reissue of shares) | |||
| 20-Mar-18 | Share Reissue Cost Account………………………………Dr | $ 4,000 | |
| To Cash Account | $ 4,000 | ||
| 25-Mar-18 | Share Forfeiture Account…………………………………..Dr | $ 108,000 | |
| To Share Reissue Cost Account | $ 4,000 | ||
| To Shareholders Account | $ 104,000 | ||
| (To record amount to be refunded to the shareholders) | |||
| 25-Mar-18 | Shareholders Account………………………………………..Dr | $ 104,000 | |
| To Cash Account | $ 104,000 | ||
| (To record amount refunded) |
Working Note:-
Shares applied, allotted, cash received related to application and excess cash received
| Number of shares applied for (A) | Number of shares allotted (B) | Total cash received (C) = (A) x $2.50 | Cash received related to application (D) = (B) x $2.50 | Excess cash received from application (E) = (C) – (D) |
| 6,000,000 | 5,000,000 | $ 15,000,000 | $ 12,500,000 | $ 2,500,000 |
The refunded amount was not identical to $3.50, as per the demand of one shareholder, since the individual has failed to make timely payment. As a result, there was forfeiture of shares and the organisation has to spend an excess of $4,000 for reissuance of the same. After reissuance of shares, only $3.20 would be obtained, instead of $4. Due to this, Rippa Limited has to suffer a loss of $0.80 ($4 – $3.20) along with reissuance cost of $0.10 ($4,000/40,000). Therefore, the shareholders have to bear the overall loss of $0.90 ($0.80 + $0.10). As a result, the shareholders would receive $2.60 per share, instead of $3.50 per share.
Statement of Financial Position for Jackson Storm Ltd
Calculation of Current Tax Liability:-
| Particulars | Amount |
| Revenue | $ 2,150,000 |
| Government grant | $ – |
| Total revenue | $ 2,150,000 |
| Expenses: | |
| Cost of sales | $ 925,000 |
| Advertising | $ 59,000 |
| Annual leave | $ 4,000 |
| Depreciation- Equipment | $ 100,000 |
| Depreciation- Motor Vehicles | $ 20,000 |
| Doubtful debts expense | $ 34,000 |
| Entertainment | $ – |
| Insurance | $ 25,000 |
| Rent | $ 78,000 |
| Salaries | $ 335,000 |
| Warranty expenses | $ 2,000 |
| Other expenses | $ 47,200 |
| Total expenses | $ 1,629,200 |
| Profit before tax | $ 520,800 |
| Tax @30% | $ 156,240 |
| Profit after tax | $ 364,560 |
Calculation of Deferred Tax Assets and Deferred Tax liabilities:-
| Particulars | Carrying amount | Tax base | Difference | Asset/(Liability) |
| Assets: | ||||
| Cash | $ 40,000 | $ 40,000 | $ – | |
| Inventory | $ 162,900 | $ 162,900 | $ – | |
| Accounts receivable (net of allowance) | $ 218,000 | $ 216,000 | $ 2,000 | $ -600 |
| Prepaid insurance | $ 7,000 | $ 7,000 | $ – | |
| Equipment cost (net) | $ 630,000 | $ 600,000 | $ 30,000 | $ -9,000 |
| Motor vehicles (net) | $ 90,000 | $ 100,000 | $ -10,000 | $ 3,000 |
| Liabilities: | ||||
| Accounts payable | $ 54,600 | $ 54,600 | $ – | |
| Loan | $ 200,000 | $ 200,000 | $ – | |
| Provision for annual leave | $ 21,000 | $ 4,000 | $ 17,000 | $ 5,100 |
| Provision for warranties | $ 16,500 | $ 2,000 | $ 14,500 | $ 4,350 |
| Deferred tax assets | $ 12,450 | |||
| Deferred tax liabilities | $ 9,600 |
In the Books of Jackson Storm Limited
Journal Entries
For the year ended 30 June 2018
| Serial Number | Particulars | Debit amount | Credit amount |
| 1 | Tax Expense Account………………………………………………..Dr | $ 156,240 | |
| To Current Tax Liability Account | $ 156,240 | ||
| (To record current tax liability) | |||
| 2 | Deferred Tax Expense Account…………………………………..Dr | $ 600 | |
| To Deferred Tax Liability Account | $ 600 | ||
| (To record deferred tax liability on temporary difference between carrying amount and tax base of accounts receivable) | |||
| 3 | Deferred Tax Expense Account…………………………………..Dr | $ 9,000 | |
| To Deferred Tax Liability Account | $ 9,000 | ||
| (To record deferred tax liability on temporary difference between carrying amount and tax base of equipment) | |||
| 4 | Deferred Tax Asset Account……………………………………….Dr | $ 3,000 | |
| To Deferred Tax Income Account | $ 3,000 | ||
| (To record deferred tax asset on temporary difference between carrying amount and tax base of motor vehicles) | |||
| 5 | Deferred Tax Asset Account……………………………………….Dr | $ 5,100 | |
| To Deferred Tax Income Account | $ 5,100 | ||
| (To record deferred tax asset on temporary difference between carrying amount and tax base of provision for leave) | |||
| 6 | Deferred Tax Asset Account……………………………………….Dr | $ 4,350 | |
| To Deferred Tax Income Account | $ 4,350 | ||
| (To record deferred tax asset on temporary difference between carrying amount and tax base of provision for warranties) |
In the Books of Superstar Limited
Journal Entries
For the years ended 30 June 2017 and 30 June 2018
| Date | Particulars | Debit amount | Credit amount |
| 30-Jun-17 | Depreciation Expense Account……………………………………………………..Dr | $ 12,500 | |
| To Accumulated Depreciation- Equipment 1 Account | $ 12,500 | ||
| 30-Jun-17 | Equipment 1 Account…………………………………………………………………..Dr | $ 7,500 | |
| To Gain on Revaluation of Equipment 1 Account | $ 7,500 | ||
| 30-Jun-17 | Gain on Revaluation of Equipment 1 Account………………………………….Dr | $ 7,500 | |
| To Asset Revaluation Reserve Account | $ 7,500 | ||
| 30-Jun-17 | Depreciation Expense Account……………………………………………………..Dr | 4,000 | |
| To Accumulated Depreciation- Equipment 2 Account | 4,000 | ||
| 30-Jun-17 | Equipment 2 Account…………………………………………………………………..Dr | $ 2,000 | |
| To Gain on Revaluation of Equipment 2 Account | $ 2,000 | ||
| 30-Jun-17 | Gain on Revaluation of Equipment 2 Account………………………………….Dr | $ 2,000 | |
| To Asset Revaluation Reserve Account | $ 2,000 | ||
| 31-Dec-17 | Depreciation Expense Account……………………………………………………..Dr | $ 2,000 | |
| To Accumulated Depreciation- Equipment 2 Account | $ 2,000 | ||
| 31-Dec-17 | Cash Account……………………………………………………………………………..Dr | $ 13,000 | |
| Loss on Sale of Equipment 2 Account…………………………………………….Dr | $ 3,000 | ||
| To Equipment 2 Account | $ 16,000 | ||
| 30-Jun-18 | Depreciation Expense Account……………………………………………………..Dr | $ 15,000 | |
| To Accumulated Depreciation- Equipment 1 Account | $ 15,000 | ||
| 30-Jun-18 | Equipment 1 Account…………………………………………………………………..Dr | $ 4,000 | |
| To Gain on Revaluation of Equipment 1 Account | $ 4,000 | ||
| 30-Jun-18 | Gain on Revaluation of Equipment 1 Account………………………………….Dr | $ 4,000 | |
| To Asset Revaluation Reserve Account | $ 4,000 |
Equipment 1:
| Particulars | Units |
| Revalued amount on 30 June 2016 | $ 60,000 |
| Residual value | $ 10,000 |
| Useful life (in years) | 4 |
| Depreciation per year | $ 12,500 |
| Carrying amount | $ 47,500 |
| Fair value on 30 June 2017 | $ 55,000 |
| Revaluation gain | $ 7,500 |
| At 30 Jume 2018: | |
| Revalued amount on 30 June 2017 | $ 55,000 |
| Residual value | $ 10,000 |
| Useful life (in years) | 3 |
| Depreciation per year | $ 15,000 |
| Carrying amount | $ 40,000 |
| Fair value on 30 June 2018 | $ 44,000 |
| Revaluation gain | $ 4,000 |
Equipment 2:
| Particulars | Units |
| Revalued amount | $ 20,000 |
| Residual value | $ 4,000 |
| Useful life (in years) | 4 |
| Depreciation per year | 4,000 |
| Carrying amount | $ 16,000 |
| Fair value on 30 June 2017 | $ 18,000 |
| Revaluation gain | $ 2,000 |
| Revalued amount on 30 June 2017 | $ 18,000 |
| Less: Accumulated depreciation | $ 2,000 |
| Carrying amount | $ 16,000 |
| Less: Cash proceeds from sale | $ 13,000 |
| Loss on sale | $ 3,000 |
| Particulars | Fizzy Drinks | Ice Creamery |
| Fair value | $ 750,000 | $ 260,000 |
| Value in use | $ 810,000 | $ 240,000 |
| Recoverable amount | $ 810,000 | $ 260,000 |
| Carrying amount | $ 872,000 | $ 268,000 |
| Impairment loss | $ 62,000 | $ 8,000 |
Apportionment of Impairment Loss for Fizzy Drinks:-
| Particulars | Carrying amount (in $) | Pro-rata | Impairment Loss Allocated (in $) |
| Goodwill | 40,000 | 40,000 | |
| Fixtures and Fittings | 20,000 | 2.60% | 571 |
| Equipment | 110,000 | 14.29% | 3,143 |
| Land and Building | 620,000 | 80.52% | 17,714 |
| Patent | 20,000 | 2.60% | 571 |
| Total | 770,000 | 100% | 62,000 |
In the books of Superstar Limited
Journal Entries
For the year ended as on 30 June 2018
| Date | Particulars | Debit | Credit |
| Amount (in $) | Amount (in $) | ||
| 30-Jun-18 | Impairment Loss Account……………Dr | 70,000 | |
| To Goodwill- Ice Creamery Account | 8,000 | ||
| To Goodwill- Fizzy Drinks Account | 40,000 | ||
| To Fixtures and Fittings- Fizzy Drinks Account | 571 | ||
| To Equipment-Fizzy Drinks Account | 3,143 | ||
| To Land and Building- Fizzy Drinks Account | 17,714 | ||
| To Patent- Fizzy Drinks Account | 571 | ||
| (To record impairment loss) | |||
| 30-Jun-15 | Income Statement Account………………..Dr | 70,000 | |
| To Impairment Loss Account | 70,000 | ||
| (Value of impairment loss reallocated to the income statement) |
References:
Aasb.gov.au. (2018). Retrieved 16 September 2018, from https://www.aasb.gov.au/admin/file/content102/c3/AASB136_07-04_ERDRjun10_07-09.pdf
Aasb.gov.au. (2018). Retrieved 16 September 2018, from https://www.aasb.gov.au/admin/file/content105/c9/AASB110_08-15.pdf
