Share Capital for Rippa Ltd
You are the financial accountant for Superstore Ltd, and are in the process of preparing its financial statements for the year ended 30 June 2018. Whilst preparing the financial statements, you become aware of the following situations:
- On 1 July 2017, the directors made a decision, using information obtained over the last couple of years, to revise the useful life of an item of manufacturing equipment. The equipment was acquired on 1 July 2015 for $800,000, and has been depreciated on a straight-line basis, based on an estimated useful life of 10 years and residual value of nil. Superstore Ltd uses the cost model for manufacturing equipment. The directors estimate that as at 1 July 2017, the equipment has a remaining useful life of 6 years and a residual value of nil. No depreciation has been recorded as yet for the year ended 30 June 2018 as the directors were unsure how to account for the change in the 2018 financial statements, and unsure whether the 2016 and 2017 financial statements will need to be revised as a result of the change.
- In June 2018, the accounts payable officer discovered that an invoice for repairs to equipment, with an amount due of $20,000, incurred in June 2017, had not been paid or provided for in the 2017 financial statements. The invoice was paid on 12 July 2018. The repairs are deductible for tax purposes. The accountant responsible for preparing the company’s income tax returns will amend the 2017 tax return, and the company will receive a tax refund of $6,000 as a result (30% x $20,000). No journal entries have been done as yet in the accounting records of Superstore Ltd, as the directors are unsure how to account for this situation, and what period adjustments need to be made in.
- Superstore Ltd holds shares in a listed public company, ABC Ltd, which are valued in the draft financial statements on 30 June 2018 at their market value on that date - $600,000. A major fall in the stock market occurred on 10 July 2018, and the value of Superstore’s shares in ABC Ltd declined to $250,000.
- On 21 July 2018, you discovered a cheque dated 20 April 2018 of $32,000 authorised by the company’s previous accountant, Max. The payment was for the purchase of a swimming pool at Max’s house. The payment had been recorded in the accounting system as an advertising expense. You advise the directors of this fraudulent activity, and they will investigate.
Assume that each event is material.
i) State the appropriate accounting treatment for each situation. Provide explanations and references to relevant paragraphs in the accounting standards to support your answers. Where adjustments to Superstore Ltd’s financial statements are required, explain which financial statements need to be adjusted (ie. 2016, 2017, 2018 or 2019).
ii) Prepare any note disclosures and adjusting journal entries that are needed in the 2018 financial statements for each situation.
Rippa Ltd was incorporated on 1 July 2017. The following transactions and events occurred during the year ended 30 June 2018:
1 Jul 2017: Rippa Ltd makes an offer to the public for investors to subscribe for 5,000,000 shares, at an issue price of $4.00 per share, with $2.50 payable on application, $1.00 being payable within one month of allotment, and $0.50 payable on a call to be made at a later date. The issue is underwritten at a commission of $12,000.
31 Jul 2017: Applications close, with applications received for 6,000,000 shares.
10 Aug 2017: 5,000,000 shares are allotted in proportion to the number of shares for which applications had been made. The surplus application money is offset against the amount payable on allotment.
12 Aug 2017: The underwriter’s commission is paid.
10 Sep 2017: All allotment money is received.
1 Feb 2018: The call is made, with money due by 28 February 2018.
28 Feb 2018: All call money is received except for holders of 40,000 shares who fail to meet the call.
20 Mar 2018: The shares on which call money was not received are forfeited and sold as fully paid. An amount of $3.20 is received for each share sold. Costs of the forfeiture and reissue amount to $4,000, and are paid.
25 Mar 2018: The balance of the Forfeited Shares Account is returned to the former shareholders.
i) Prepare the journal entries to record the transactions of Rippa Ltd up to and including that which took place on 25 March 2018. Show all relevant dates and narrations.
ii) After returning money to the former shareholders on 25 March 2018, one of the former shareholders has contacted you in relation to the amount of money that he received. He tells you that he paid the application money and allotment money for the shares that he had, so he should get an amount back of $3.50 per share. Explain why the amount returned to the former shareholders was not $3.50 per share, and prepare workings to show how the refund per share was calculated.
Statement of Profit or Loss and Other Comprehensive Income for Jackson Storm Ltd
Jackson Storm Ltd commenced business on 1 July 2017, with share capital of $300,000. On 30 June 2018, the company presents its first Statement of Profit or Loss and Other Comprehensive Income, and first Statement of Financial Position. The statements are prepared before considering taxation. The following information is available:
|
Statement of Profit or Loss and Other Comprehensive Income (Extract) for the year ended 30 June 2018 |
||
|
$ |
$ |
|
|
Revenue |
2 150 000 |
|
|
Government grant (exempt from income tax) |
50 000 |
|
|
Expenses |
||
|
Cost of sales |
925 000 |
|
|
Advertising |
59 000 |
|
|
Annual leave |
25 000 |
|
|
Depreciation – equipment |
70 000 |
|
|
Depreciation – motor vehicles |
30 000 |
|
|
Doubtful debts expense |
34 000 |
|
|
Entertainment (not tax deductible) |
4 500 |
|
|
Insurance |
18 000 |
|
|
Rent |
78 000 |
|
|
Salaries |
335 000 |
|
|
Warranty expenses |
18 500 |
|
|
Other expenses |
47 200 |
1 644 200 |
|
Accounting profit before tax |
555 800 |
|
|
Statement of Financial Position (Extract) as at 30 June 2018 |
||
|
$ |
$ |
|
|
Assets |
||
|
Cash |
40 000 |
|
|
Inventory |
162 900 |
|
|
Accounts receivable |
250 000 |
|
|
Less: allowance for doubtful debts |
(32 000) |
218 000 |
|
Prepaid insurance |
7 000 |
|
|
Equipment – cost |
700 000 |
|
|
Less: accumulated depreciation |
(70 000) |
630 000 |
|
Motor vehicles – cost |
120 000 |
|
|
Less: accumulated depreciation |
(30 000) |
90 000 |
|
Total assets |
1 147 900 |
|
|
Liabilities |
||
|
Accounts payable |
54 600 |
|
|
Loan |
200 000 |
|
|
Provision for annual leave |
21 000 |
|
|
Provision for warranties |
16 500 |
|
|
Total liabilities |
292 100 |
|
|
Net assets |
855 800 |
|
|
Equity |
||
|
Share capital |
300 000 |
|
|
Retained earnings |
555 800 |
|
|
855 800 |
||
- The company purchased equipment at a cost of $700,000 on 1 July 2017. The equipment is depreciated over ten years for accounting purposes, and seven years for taxation purposes (using the straight-line basis of depreciation, and a residual value of nil).
- The company purchased motor vehicles at a cost of $120,000 on 1 July 2017. The motor vehicles are depreciated over four years for accounting purposes, and six years for taxation purposes (using the straight-line basis of depreciation, and a residual value of nil).
- Tax deductions for annual leave, warranties, insurance are available when the amounts are paid, and not as amounts are accrued.
- Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.
- Tax deductions are not available for doubtful debts. Tax deductions are only available when bad debts are written off.
- The tax rate is 30%.
i) Determine the balance of any current tax liability and deferred tax assets and deferred tax liabilities for Jackson Storm Ltd as at 30 June 2018, in accordance with AASB 112. Use appropriate worksheets and show all necessary workings.
ii) Prepare the journal entries to record the current tax liability and deferred tax assets and deferred tax liabilities.
You are the accountant for Superstar Ltd, and you are required to account for the company’s equipment for the years ended 30 June 2017 and 30 June 2018, which are measured using the revaluation model. The directors elect to depreciate equipment on a straight-line basis.
The first equipment has a carrying amount as follows, prior to any depreciation or revaluation being recognised for the year ended 30 June 2017:
|
Revalued amount (as at 30 June 2016): |
$60,000 |
|
Less: accumulated depreciation |
- |
|
Carrying amount |
$60,000 |
This equipment was revalued for the first time on 30 June 2016, from $70,000 to $60,000. The directors determined that as at 30 June 2016, this equipment had an estimated remaining useful life of 4 years, and an estimated residual value of $10,000.
The directors have determined that the fair value of this equipment on 30 June 2017 is $55,000. At 30 June 2017, this equipment had an estimated remaining useful life of 3 years, and the residual value remains unchanged at $10,000.
The directors have determined that the fair value of this equipment on 30 June 2018 is $44,000.
The second equipment at has a carrying amount as follows, prior to any depreciation or revaluation being recognised for the year ended 30 June 2017:
|
Revalued amount (as at 30 June 2016): |
$20,000 |
|
Less: accumulated depreciation |
- |
|
Carrying amount |
$20,000 |
This equipment has been revalued a number of times, with revaluation decrements amounting to $1,000 being previously recognised in profit or loss. The directors determined that as at 30 June 2016, this equipment had an estimated remaining useful life of 4 years, and an estimated residual value of $4,000.
The directors have determined that the fair value of this equipment on 30 June 2017 is $18,000. At 30 June 2017, this equipment had an estimated remaining useful life of 3 years, and the residual value has been revised to $6,000.
This equipment is sold on 31 December 2017 for $13,000.
Prepare the necessary journal entries to account for each of the above equipment for the years ended 30 June 2017 and 30 June 2018 (including entries for depreciation, revaluations, and any disposals). Show all relevant workings. Note: you are not required to account for income tax associated with revaluations.
Foodie Ltd has two separate cash generating units, ‘Fizzy Drinks’ and ‘Ice creamery’. At 30 June 2018, the carrying amounts of the assets of the units, valued pursuant to the cost model, are as follows:
|
Fizzy Drinks |
Ice creamery |
|
|
$ |
$ |
|
|
Cash |
18,000 |
14,000 |
|
Inventory |
34,000 |
25,000 |
|
Fixtures and fittings |
25,000 |
35,000 |
|
Accumulated depreciation – fixtures and fittings |
(5,000) |
(10,000) |
|
Equipment |
165,000 |
25,000 |
|
Accumulated depreciation – equipment |
(55,000) |
(15,000) |
|
Land and buildings |
650,000 |
185,000 |
|
Accumulated depreciation – buildings |
(25,000) |
(6,000) |
|
Patent |
25,000 |
- |
|
Goodwill |
40,000 |
15,000 |
|
Total |
872,000 |
268,000 |
The inventory is recorded at the lower of cost and net realisable value. The patent has a fair value less costs to sell of $20,000. The land and buildings of ‘Fizzy Drinks’ have a fair value less costs to sell of $620,000, and the land and buildings of ‘Ice creamery’ have a fair value less costs to sell of $175,000.
On 30 June 2018, the directors of Foodie Ltd estimate that the fair value less cost to sell for ‘Fizzy Drinks’ and ‘Ice creamery’ amount to $750,000 and $260,000 respectively. The value in use of ‘Fizzy Drinks’ and ‘Ice creamery’ are estimated at $810,000 and $240,000 respectively.
Determine the impairment loss (if any) to be recognised by Foodie Ltd for each of its cash generating units as at 30 June 2018, and determine how the impairment loss (if any) is to be allocated. Prepare the journal entries to account for the impairment loss/losses (if any). Show all workings and provide references to the relevant accounting standard to support your answer.
This assessment task will assess the following learning outcome/s:
- be able to prepare basic financial statements for reporting entities.
- be able to discuss critically and comprehensively the statutory and professional requirements upon which published financial statements are based.
- be able to explain the form and content of financial statements.
- be able to interpret and apply generally accepted accounting principles and specific financial reporting standards relating to concepts of recognition, measurement, disclosure, revaluation and impairment of key financial statement elements.
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 LimitedStatement 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) |
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
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My Assignment Help (2020) Financial Accounting Situations For Superstore Ltd, Jackson Storm Ltd, And Foodie Ltd Essay. [Online]. Available from: https://myassignmenthelp.com/free-samples/bfa201-financial-accounting/share-capital.html
[Accessed 26 April 2024].
My Assignment Help. 'Financial Accounting Situations For Superstore Ltd, Jackson Storm Ltd, And Foodie Ltd Essay.' (My Assignment Help, 2020) <https://myassignmenthelp.com/free-samples/bfa201-financial-accounting/share-capital.html> accessed 26 April 2024.
My Assignment Help. Financial Accounting Situations For Superstore Ltd, Jackson Storm Ltd, And Foodie Ltd Essay. [Internet]. My Assignment Help. 2020 [cited 26 April 2024]. Available from: https://myassignmenthelp.com/free-samples/bfa201-financial-accounting/share-capital.html.
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