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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 contexts

3. Differentiate between shares and debentures and apply appropriate accounting procedures 

Overview of Regulatory Framework for Financial Reporting in Australia

The journal entries have been shown below:

ChiHerbal Ltd.

General Journal

Date

Particulars

Dr./Cr.

 Amount ($)

 Amount ($)

2017

1-Aug

Cash Trust

Dr.

       2,300,000

To Share Application

Cr.

       2,300,000

(Cash received on application)

15-Aug

Share Application

Dr.

       1,500,000

Share Allotment

Dr.

       1,250,000

To Share Capital

Cr.

       2,750,000

(Being 500000 shares alloted)

Cash

Dr.

       2,300,000

To Cash Trust

Cr.

       2,300,000

(Being money received transferred)

Share Application

Dr.

           800,000

To Share Allotment

Cr.

           550,000

To Calls in Advance

Cr.

           250,000

(Allocation of Application money received amongst allotment and calls in advance)

Share Issues Costs / (Share capital)

Dr.

             36,000

To Cash

Cr.

             36,000

(Being prospectus, legal and stamp duty costs paid)

30-Aug

Cash

Dr.

           700,000

To Share Allotment

Cr.

           700,000

(Being cash received on share allotment)

2018

1-May

Call 1

Dr.

           750,000

To Share Capital

Cr.

           750,000

(Being call 1 of $1.5 per share done)

Calls in Advance

Dr.

           150,000

To Call 1

Cr.

           150,000

(Being Calls in Advance adjusted for 100000 shares)

15-Jun

Cash

Dr.

           577,500

To Call 1

Cr.

           577,500

(Being call 1 received)

1-Jul

Call 2

Dr.

           500,000

To Share Capital

Cr.

           500,000

(Being call 2 of $1.5 per share done)

Calls in Advance

Dr.

           100,000

To Call 2

Cr.

           100,000

(Being Calls in Advance adjusted for 100000 shares)

30-Jul

Cash

Dr.

           385,000

To Call 2

Cr.

           385,000

(Being call 2 received)

1-Sep

Share Capital

Dr.

           120,000

To Call 1

Cr.

             22,500

To Call 2

Cr.

             15,000

To Forfeited Shares Liability

Cr.

             82,500

(Being 15000 shares forfeited)

15-Sep

Cash

Dr.

             90,000

Forfeited Shares Liability

Dr.

             30,000

To Share Capital

Cr.

           120,000

(Being reissue of shares made)

Share Issues Costs / (Share capital)

Dr.

               4,000

To Cash

Cr.

               4,000

(Being brokerage costs paid)

30-Sep

Forfeited Shares Liability

Dr.

             52,500

To Cash

Cr.

             52,500

(Being balance returned to the former shareholders)

The journal entries and the requisite workings in regard with the same has been shown below:

Workings

Sl. No

Particulars

 Amount

1

Cost of Truck A

             90,000

Residual Value

             10,000

Depreciable Value

             80,000

Depreciable life

                       5

Depreciation each year

             16,000

2

Cost of Equipment

          140,000

Residual Value

                      -   

Depreciable Value

          140,000

Depreciable life (Years)

                     10

Depreciation each year

             14,000

Depreciation till 01st Sep

               2,333

Carrying Value as on 01st Sep

          137,667

Fair value of the equipment

          115,000

Downward Revaluation

             22,667

Remaining Life (years)

                       8

Depreciation per year

             14,375

3

Depreciation on Truck till 01st March

             14,667

Carrying Value as on 01st March

             75,333

Selling Value

             59,000

Loss on Sale of Truck

             16,333

4

Depreciation on Equipment

             11,979

(from 01st Sep'17 to 30th Jun'18)

Depreciation on Equipment

               2,333

(from 30th Jun'17 to 01st Sep'17)

Total Depreciation for the year

             14,313

5

Carrying Value of Equipment as on 30th Jun'18

          100,688

Fair value of the equipment

          120,000

Upward Revaluation

             19,313

ChiHerbal Ltd.

General Journal

Date

Particulars

Dr./Cr.

 Amount ($)

 Amount ($)

2017

1-Apr

Vehicle - Truck A

Dr.

             90,000

To Cash

Cr.

             90,000

(Being cash paid for truck)

30-Jun

Depreciation on Truck A

Dr.

               4,000

To Accumulated Depreciation on Truck A

Cr.

               4,000

(Being depreciation on truck charged)

30-Jun

Equipment

Dr.

           140,000

To Cash

Cr.

           140,000

(Being cash paid for equipment)

31-Aug

Repair and Maintenance

Dr.

               2,500

To Cash

Cr.

               2,500

(Being transmission repairs and oil change for Truck A

1-Sep

Revaluation Loss (WN -2)

Dr.

             22,667

To Equipment

Cr.

             22,667

(Being equipment revalued at fair value)

2018

1-Mar

Depreciation on Truck A

Dr.

             10,667

To Accumulated Depreciation on Truck A

Cr.

             10,667

(Being depreciation on truck charged)

1-Mar

Cash (WN- 3)

Dr.

             59,000

Accumulated Depreciation on Truck A

Dr.

             14,667

Loss of sale of Truck A

Dr.

             16,333

To Vehicle - Truck A

Cr.

             90,000

(Being truck sold at loss)

30-Jun

Depreciation on Equipment (WN -4)

Dr.

             14,313

To Accumulated Depreciation on Equipment

Cr.

             14,313

(Being depreciation on equipment charged)

30-Jun

Equipment (WN -5)

Dr.

             19,313

To Revaluation Loss (WN -5)

Cr.

             19,313

(Being equipment revalued at fair value)

The journal entries, workings and the schedule of the lease payments and receipts for the entire lease term has also been shown below:

Inputs for the question

Economic Life of Asset (in years)

7

Lease term (in years)

5

Interest Rate

9%

Fair value (cash cost) of asset

35322

Annual lease payment

8000

Carrying value of asset

31000

Estimated Residual value of asset

3000

Guaranteed Residual value at end of lease term

2160

Workings for the lessee

Present Value of Minimum lease payments

33918

(n=5 years, I=9%)

Present Value of Guaranteed residual value

1404

(n=5 years, I=9%)

Total Lease Liability

35321

Workings for the lessor

Carrying value of asset

31000

Present value of the estimated Residual value of asset

1641

(n=7 years, I=9%)

Guaranteed present residual value by lessee

1404

Amount to be recovered from lessee

31237

First install met amount

8000

Amount to be recovered in 4 instalments

23237

PV factor of annuity due (I=9%, n=4 years)

3.2397

Annual Payment Required

7173

Lease Schedule: ChiHerbal Ltd.

Date

Lease Payment

Interest Expense

Reduction in Liability

Lease Liability

1/7/2017

      35,321.38

1/7/2017

        8,000.00

                     -   

        8,000.00

      27,321.38

30/06/2018

        8,000.00

        2,458.92

        5,541.08

      21,780.31

30/06/2019

        8,000.00

        1,960.23

        6,039.77

      15,800.54

30/06/2020

        8,000.00

        1,422.05

        6,577.95

        9,322.58

30/06/2021

        8,000.00

            839.03

        7,160.97

        2,161.62

ChiHerbal Ltd.

General Journal

Date

Particulars

Dr./Cr.

 Amount ($)

 Amount ($)

2017

1-Jul

Leased Machine under capital lease

Dr.

              35,321

To Lease liability

Cr.

              35,321

(Being lease liability Booked)

1-Jul

Lease Liability

Dr.

8000

To Cash

Cr.

8000

(Being lease instalment paid)

2018

30-Jun

Lease Liability

Dr.

          5,541.08

Interest Payable

Dr.

          2,458.92

To cash

Cr.

          8,000.00

(Being lease instalment paid)

2019

30-Jun

Lease Liability

Dr.

          6,039.77

Interest Payable

Dr.

          1,960.23

To cash

Cr.

          8,000.00

(Being lease instalment paid)

 

Lease Schedule: Cessnock Ltd.

Date

Lease Payment

Interest Expense

Reduction in Liability

Lease Liability

1/7/2017

      31,237.22

1/7/2017

        8,000.00

                     -   

        8,000.00

      23,237.22

30/06/2018

        7,172.64

        2,091.35

        5,081.29

      18,155.92

30/06/2019

        7,172.64

        1,634.03

        5,538.61

      12,617.31

30/06/2020

        7,172.64

        1,135.56

        6,037.09

        6,580.22

30/06/2021

        7,172.64

            592.22

        6,580.42

              (0.20)

Cessnock Ltd.

General Journal

Date

Particulars

Dr./Cr.

 Amount ($)

 Amount ($)

2017

1-Jul

Lease Receivable

Dr.

              31,237

To Leased Machine

Cr.

              31,237

(Being lease receivable recorded)

1-Jul

Cash

Dr.

          8,000.00

To Lease Receivable

Cr.

8000

(Being lease instalment received)

2018

30-Jun

Interest Receivable

Dr.

          2,091.35

To Interest Revenue

Cr.

          2,091.35

(Being interest revenue recorded)

30-Jun

Cash

Dr.

          9,263.99

To Interest Receivable

Cr.

          2,091.35

To Lease Receivable

Cr.

          7,172.64

(Being lease instalment received)

2018

30-Jun

Interest Receivable

Dr.

          1,634.03

To Interest Revenue

Cr.

          1,634.03

(Being interest revenue recorded)

30-Jun

Cash

Dr.

          8,806.68

To Interest Receivable

Cr.

          1,634.03

To Lease Receivable

Cr.

          7,172.64

(Being lease instalment paid)

In the given case, the company ChiHerbal Ltd has undertaken a project for the online sales team under which the all the sales representatives of the company will be equipped with special hologram projecting equipment which would be able to project the accurate image of the item ordered by the customers. But the same is still under progress in spite that the company expected it to go live by the end of 2017. Errors have been detected during the experimental testing phase and therefore the application for patent has been delayed. The company is now considering to sell it to other company in the marketplace but the marketing department of the company has confirmed that there is no conclusive evidence of existence of for such a market for new product now. The question here is whether this expenses can be capitalised in the books of company as developmental expenses or should be charged off to expense.

As per AASB 138, Para 51 on the intangible assets, an internally generated asset can qualify for recognition only if it has identifiable future economic benefits flowing to the entity and where the cost of generating the asset can be determined reliably. As per Para 52, All the expenses can be broadly classified into two parts: the research phase and the development phase. If the entity is not able to distinguish between the research and the development phase, the entire thing is treated as research cost and charged off to the profit and loss account. As per Para 57, any expense can be categorised as development expense if it satisfies all the following criteria’s namely:

  1. The technical feasibility of the use of the asset has been done.
  2. The intention to develop such an asset is clear.
  3. The ability to sell or use the intangible asset is established.
  4. It is capable enough of generating future economic benefit
  5. The cost incurred to develop it can be reliably measured
  6. Adequate technical, financial and other resources are there to use or sell it.

In the given case though the intension and the use of the asset us clear and also the cost incurred to develop the same is available but adequate research has not been made to check if the market for same exists or not and hence it does not qualifies as an asset. Therefore, in case the technology is not being used by the company, it should be charged off to profit and loss account as the research expense.

Choy, Y. K., 2018. Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis. Ecological Economics, p. 145.

Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business. Financial Environment and Business Development, 4(3), pp. 103-112.

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My Assignment Help. Regulatory Framework And Accounting Principles For Financial Reporting In Australia Essay. [Internet]. My Assignment Help. 2021 [cited 28 March 2024]. Available from: https://myassignmenthelp.com/free-samples/acct6003-financial-accounting-process/plant-and-equipment.html.

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