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In the Books ChiHerbal Ltd.
Share Application A/c.
(Being share application money received for 600000 shares)
Share Capital A/c.
(Being application fund transferred to Share Capital A/c. for 500000 shares)
(Being excess share application money refunded)
Share Issuance Cost A/c.
(Being cost of share issue paid)
Share Allotment A/c.
(Being share allotment due)
(Being due allotment money received and balance adjusted from the excess appliation fund)
Share Final Call A/c.
(Being final call money due)
(Being due final call money received, except 20000 shares, and balance adjusted from excess application fund)
Forfeited Share Liability A/c.
(Being the 20000 shares forfeited accordingly)
(Being the application and allotment money received from forfeited shares refunded)
as on 30/06/2015
Authorised Equity Shares - 500,000 shares @ $5 per share
Issued & Outstanding Equity Shares - 480,000 shares @ $5 per share
Total Equity Capital
In the books of ChiHerbal Ltd.
Depreciation Expenses A/c.
Accumulated Depreciation- Machine A A/c.
Accumulated Depreciation- Machine B A/c.
(Being depreciation charged for 6 months on Machine A and Machine B)
Machine A A/c.
Gain on Revaluation A/C.
(Being gain on revaluation recorded for Machine A)
Loss on Devaluation A/c.
Machine B A/c.
(Being loss on devaluation recorded for Machine B)
Asset Revaluation Reserve A/c.
(Being gain on revaluation transferred to Assets Revaluation Reserve A/c.)
(Being loss on devaluation transferred to Assets Revaluation Reserve A/c.)
(Being depreciation charged on Machine A and Machine B)
(Being loss on devaluation of machine A & B recorded)
Computation of Accummulated Depreciation:
Cost of Machine
Expected Life (in years)
Depreciation Schedule for Machine A:
Depreciation Schedule for Machine B:
Proof of Implicit Rate:
Less: Annual Insurance &Maintanence Cost
No. of Annual Installment
Required Rate of Return
Present Value of Lease Liability
PV of 1st Installment
PV of 2nd Installment
PV of 3rd Installment
PV of 4th Installment
Total PV of Installment
Schedule of Lease Payment:
Lease Assets A/c.
Lease Liability A/c.
(Being asset required from lease)
Interest on Lease A/c.
Insurance & Maintenance Charges A/c.
Interest Payable A/c.
Accrued Expenses A/c.
(Being annual interest on lease and insurance & maintenance charges due)
Depreciation on Leased Assets A/c.
Accum. Depreciation A/c.
(Being depreciation charged on leased asset)
(Being annual lease payment paid including interest on lease, insurance & maintenance charges and partly lease principal)
Lease Obligation A/c.
(Being lease obligation paid for the shortfall between the residual price and selling price)
Schedule of Lease Receipt:
In the books of Darlington Ltd.
Lease Receivables A/c.
(Being asset given in lease)
Lease Expenses A/c.
(Being expenses paid for lease agreement)
Interest Receivables A/c.
Interest Income A/c.
(Being annual interest on lease, insurance & maintenance charges for the asset and the part principal amount due)
(Being annual interest on lease, insurance & maintenance charges for the asset and the part principal amount received)
Lease Obligation Ac.
(Being the shortfall between the residual value and selling price of the asset received from lessee)
Loss on Sale of Assets A/c.
(Being the assets sold at loss)
According to the paragraph 54 of AASB 138, if the research & development activity does not ensure any future economic benefit, expenditure on such activities should be considered as expense rather than asset. The research activities of ChiHerbal in the year 2013 did not provide any specific chemical, which could be used for synthesizing the product. Hence, it should also be treated as expenses.
In the year 2014, the research & development activity had successfully identified the three chemicals, required for the main product. Hence, as the explanation, stated in the paragraph 57 of AASB 138, the activity can be included in development phase and the cost incurred for the activity should be treated as intangible asset. In 2015, the company had developed the formula of the final product from the selected three chemicals through further research. Hence, the cost, incurred for conducting the research, should be considered as the cost of internally generated intangible asset as per the paragraph 65 of AASB 138. Paragraph 57 of AASB 138 takes into account development phase of an internal project undertaken by organization. As per this paragraph, if the organization or entity is able to demonstrate the following six categories, then they can recognize the intangible assets generated from development of any internal project.
The probable future economic benefits generated by intangible assets are identified by entity because research phase is less advanced that development phase.
The journal entries for the stated transactions are given below:
Research & Development Expenses A/c.
(Being the expenses for research & development paid)
Profit & Loss A/c.
(Being research & development expenses transferred to P/L A/c.)
(Being patent devloped from the research & development internally)
Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia
Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning
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