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Question:
On 1 July 2017, ChiHerbal Ltd was registered and offered 500,000 ordinary shares to the public at an issue price of $7, payable as follows. As per the company’s constitution, all surplus money from application would be transferred to allotment and/or calls accounts.
$3 on application (due by 1 August 2017)
$2.5 on allotment (due by 30 August 2017)
$1.5 on Call 1 (due by 15 June 2018)
$1 on Call 2 (due by 30 July 2018)

Application has been closed and by 1 August 2017, 600,000 shares have been applied for of which applicants for 100,000 shares forwarded the full $8 per share, and the reminder paid application money only.On 15 August, directors decided to allot shares in full to applicants who had paid the full amount and to all remaining applications on a pro rata basis.The cost of publishing prospectus and stamp duty ($29,000) was also paid on 15 August. Other legal fees of $7,000 were paid on this date too.

All outstanding allotment money was received by the due date above.The Call 1 was made on 1 May 2018 with money due by 15 June. Subsequently Call 2 was made on 1 July 2018 with money due by 30 July 2018. All money was received on the due dates except for the holder of 15,000 shares who failed to meet both call 1 & 2. On 1 September 2018, as
provided for in the constitution, the directors decided to forfeit these shares. They were reissued, on 15 September 2018, as paid to $8 for $6 cash with a brokerage fee of $4,000. The balance of the forfeited shares account (after the reissuing share costs) was returned to the former shareholder on 30 September 2018.

Required
Prepare the journal entries to record the transactions of ChiHerbal Ltd up to and including that which took place on 30 September 2018. (Show all workings and narrations are compulsory)
Scenario 2 Property, Plant and Equipment
The end of the reporting period for ChiHerbal Ltd is 30 June. The company depreciates all depreciable assets using the straight-line method.
Answer:
Scenario 1- Financing company operations

Date

 

1/7/2017

 

 

 

1/8/2017

 

 

 

 

1/8/2017

 

 

 

 

 

15/8/2017

 

 

 

 

30/8/2017

 

 

 

1/05/2018

 

 

 

15/06/2018

 

 

 

15/06/2018

 

 

 

15/06/2018

Particulars

 

Bank A/c

To Equity Share Application A/c

(Being cash received on applications)

 

Equity Share Application A/c

 Equity Share Allotment  A/c

 To Equity Share Capital

(Being 500000 shares allotted)

 

Equity Share Application A/c

To Equity Share Allotment A/c

To Calls in Advance A/c

(Being allocation of application across allotment and calls in advance)

 

Share issue costs  A/c

To Bank

(Being payment done on prospectus, stamp duty and legal fees)

 

 Bank A/c

To Equity Share Allotment A/C

(Being cash received on allotment)

 

Call 1 A/c

To Equity Share Capital

( Being call of $ 1.5 per share)

 

Calls in Advance A/c

To Call 1

( Transfer of calls received in advance)

 

Bank A/c

To Call 1 A/c

( Being cash received on 485000 shares)

 

Equity Share Capital A/c

To  Call 1

       Share Forfeiture A/c

(Being 15000 shares forfeited)

 

LF

Dr

 

2100000

 

 

 

1500000

1250000

 

 

 

600000

 

 

 

 

 

36000

 

 

 

 

600000

 

 

 

750000

 

 

 

150000

 

 

 

727500

 

 

 

105000

 

Cr

 

 

21000000

 

 

 

 

2750000

 

 

 

350000

250000

 

 

 

 

36000

 

 

 

 

600000

 

 

 

750000

 

 

 

150000

 

 

 

727500

 

 

 

22500

82500

 

15/06/2018

 

 

 

 

1/07/2018

 

 

 

30/07/2018

 

 

 

30/07/2018

 

 

 

30/07/2018

 

 

 

 

1/9/2018

 

 

 

 

1/9/2018

Bank A/c

Share Forfeiture A/c

To Share Capital A/c

( Reissue of shares forfeited)

 

Call 2 A/c

To Equity Share Capital

(Being call on $ 1 per share)

 

Calls in Advance A/c

To Call 2

(Transfer of calls received in advance)

 

Bank A/c

To Call 2 A/c

(Being cash received on 48500 shares)

 

Equity Share Capital A/c

To Call 2

      Share Forfeiture A/c

(Being 15000 shares forfeited)

 

Bank A/c

Share Forfeiture A/c

To Equity Share Capital

(Reissue of shares forfeited)

 

Share Forfeiture A/c

To Bank A/c

(Refund to former shareholders)

 

 

75000

30000

 

 

 

500000

 

 

 

100000

 

 

 

485000

 

 

 

120000

 

 

 

 

90000

30000

 

 

 

127500

 

 

105000

 

 

 

500000

 

 

 

100000

 

 

 

485000

 

 

 

15000

105000

 

 

 

120000

 

 

 

 

127500

Working Notes-

No. of Shares applied for

No. of Shares Allotted

Money Received

Application

Allotment

 1st Call

2nd call

100 000

100 000

800000

300000

250000

150000

100000

500 000

  400 000

1300000

12000000

  100000

           -

 

600 000

500 000

2100000

$1500000

$350000

$15000

10000

Scenario 2- Property, plant and equipment

Date

Particulars

LF

Dr

Cr

 

 

1/4/2017

 

 

 

 

30/06/2017

 

 

 

30/06/2017

 

 

 

 

31/8/2017

 

 

 

1/9/2017

 

 

 

 

1/3/2018

 

 

 

30/6/2018

 

 

 

 

30/6/2018

 

 

Truck A A/C Dr

To Cash A/c

(Being truck bought for cash $ 90000)

 

Equipment A/c  Dr

To Cash A/c

(Being equipment bought for cash)

 

Depreciation on Truck A A/c Dr

To Profit and Loss A/c

(Being depreciation provided at year end)

 

Truck A  A/c Dr

To Cash A/c

(Being expenses debited to truck)

 

Asset Revaluation Surplus A/c Dr

To  Equipment A/c

(Being reduced value of equipment transferred to asset revaluation A/c)

 

Truck A A/c Dr

To Cash A/c

(Being truck A sold in cash)

 

Equipment A/c Dr

To Asset Revaluation Surplus A/c

(Being increased value of equipment transferred to asset revaluation)

 

Depreciation on Equipment A/c Dr

To Profit and Loss A/c

(Being Depreciation provided at year end)

 

 

 

90000

 

 

 

 

140000

 

 

 

4000

 

 

 

 

2500

 

 

 

22667

 

 

 

 

59000

 

 

 

16979

 

 

 

 

 

11979

 

 

 

90000

 

 

 

 

140000

 

 

 

4000

 

 

 

 

2500

 

 

 

22667

 

 

 

 

59000

 

 

 

16979

 

 

 

 

 

119379


Workings

Cost of equipment on 30th June                   1,40,000

Less: Depreciation for 2 months                     23333

(1,40,000/10= 14000 * 2/12)

WDV on 1st September                                  1,37,667

Less: Fair Value on 1st September                   115000

Amount to be debited to Asset Revaluation    22667

Fair Value of Equipment on 1st September          115000

Less: Depreciation for yr end  ( 10 months)         11979

WDV on 30th June                                                 103021

Fair Value of the equipment on 30th June,2018    120000

Amount to be credited to Asset Revaluation (1,20,000-1,03,021)=16979

Calculation of Depreciation

2017- on Truck A- (90000-10000)/5 * 3/12 = 4000

2018- on equipment- (115000)/8 * 10/12- 11979

Scenario 3- Lease

  1. a) Lease payments

 PV OF Chiherbal Ltd- 8000* 3.8896 + 2160 * 0.6499= 32520

                                      Schedule of lease payments

Date

MLP

Interest expense

Liability reduction

Liability reduction

1st July 2017

 

1st July 2017

 

1st July,2018

 

1st July, 2019

 

1st July, 2020

 

1st July,2021

 

1st July, 2022

 

 

8000

 

8000

 

8000

 

8000

 

8000

 

2160

 

 

 

 

 

2207

 

1685

 

1117

 

498

 

4133

 

 

8000

 

5793

 

6315

 

6883

 

7502

 

(1973)

 

 

32520

 

24520

 

18727

 

12412

 

5529

 

(1973)

 


 

Date

Particulars

 

Dr

Cr

30th June,2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30th June,2019

Leased Machine A/c Dr

   To Lease Liability A/c

(Being initial recognition of finance lease)

 

Lease liability A/c Dr

    To Cash A/c

(Being Initial lease liability recognised)

 

Lease liability A/c Dr

Interest expense A/c Dr

     To Cash A/c

(Being first lease payment paid)

 

Depreciation Expense  A/c Dr

To Accumulated Depreciation A/c

(Being depreciation provided at year end between 31st December and 30th June)

 

 

Lease Liability A/c Dr

Interest expense A/c Dr

To Cash A/c

(Being second lease payment paid)

 

Depreciation Expense A/c Dr

To Accumulated Depreciation

 

 

 

32520

 

 

 

 

8000

 

 

5793

2207

 

 

 

2069

 

 

 

 

 

6315

1685

 

 

 

4337

 

 

 

 

32520

 

 

 

 

8000

 

 

 

8000

 

 

 

2069

 

 

 

 

 

 

8000

 

 

 

4337

 

 

 

 

ChiHerbal Ltd

Journal entries

Date

MLR

Interest Revenue@ 9%

Receivable

reduction

Receivable

Balance

1st July 2017

 

1st July 2017

 

1st July,2018

 

1st July, 2019

 

1st July, 2020

 

1st July,2021

 

 

 

 

8000

 

8000

 

8000

 

8000

 

8000

 

 

 

 

 

 

 

2459

 

1960

 

1417

 

824

 

 

 

 

8000

 

5541

 

6040

 

6583

 

7176

 

 

 

 

35322

 

27322

 

21781

 

15741

 

9158

 

1982

 

 

 

Cessnock Ltd(lessor)

Schedule of Lease receipts

 

Particulars

 

Dr

Cr

30th June, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

30th June,2019

 

Lease Receivable A/c Dr

   To Sales A/c

(Being Initial recognition of lease receivable)

 

Cost of Sales A/c Dr

To Inventory

(Being recording sale of machine)

 

Cash A/c Dr

To Lease Receivable A/c

To Interest receivable

(Being 1st payment received)

 

Cash A/c Dr

To Lease Receivable A/c

To Interest receivable

(Being 2nd  payment received)

 

 

 

 

1

35322

 

 

 

 

31000

 

 

 

8000

 

 

 

 

 

8000

 

 

 

 

 

35322

 

 

 

 

31000

 

 

 

5541

2459

 

 

 

 

1960

6040

 

 

 

 

 

Cessnock Ltd

Journal entries

scenario 4-Intangible Assets

Amount  of  development cost- 500000 + 380000= 880000

According to IAS 38 ,  both the cost of  software development 380000 and cost of computer equipment  are capitalised while the cost of computer equipment is recognized as an expense(Lim, Macias & Moeller 2018).

According to IAS 38 any operating cost or cost of hardware are capitalised.Also internally developed charge or expense relating to technological feasibility, probable future benefits  and the ability to use and sell the software form a part of capitalised expenditure. Hence the above costs has been treated as capitalized(Saunders & Brynjolfsson,2016).

References:

Lim, S. C., Macias, A. J., & Moeller, T. (2018). Intangible assets and capital structure.

Saunders, A., & Brynjolfsson, E. (2016). Valuing Information Technology Related Intangible Assets. Mis Quarterly40

Cite This Work

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My Assignment Help. (2021). Journal Entries And Scenarios For ChiHerbal Ltd. Retrieved from https://myassignmenthelp.com/free-samples/acct6003-financial-accounting-processes/above-costs.html.

"Journal Entries And Scenarios For ChiHerbal Ltd." My Assignment Help, 2021, https://myassignmenthelp.com/free-samples/acct6003-financial-accounting-processes/above-costs.html.

My Assignment Help (2021) Journal Entries And Scenarios For ChiHerbal Ltd [Online]. Available from: https://myassignmenthelp.com/free-samples/acct6003-financial-accounting-processes/above-costs.html
[Accessed 16 June 2024].

My Assignment Help. 'Journal Entries And Scenarios For ChiHerbal Ltd' (My Assignment Help, 2021) <https://myassignmenthelp.com/free-samples/acct6003-financial-accounting-processes/above-costs.html> accessed 16 June 2024.

My Assignment Help. Journal Entries And Scenarios For ChiHerbal Ltd [Internet]. My Assignment Help. 2021 [cited 16 June 2024]. Available from: https://myassignmenthelp.com/free-samples/acct6003-financial-accounting-processes/above-costs.html.

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