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ACCT6003 Financial Accounting Processes, Laureate International University

Part A Question

Scenario 1

Q.1 Preparing General Journal Entries To Record The Above Transactions

Date

 

 Particulars

Ref.no

Debit

      Credit

01/09/18

Redeemable preference share capital a/c

Premium of redemption preference share capital

                                    to preference shareholders

( 40000 preference share at 6% redeemable and 5% premium from the retained earning)

 

2400

2000

 

 

       4400

25/08/18

Preference shareholders a/c

                                      to bank a/c

(cheque issued  to preference shareholders)

 

4400

 

       4400

01/11/18

Cash at bank a/c (51200*.40)

                                to equity share application a/c

(application money received for right share issues)                    

 

194560

 

       194560

30/11/2018

 

 

Equity share application a/c

discount on issues of share a/c

                                      to equity share capital a/c

(ownership is given 1 share for 5 held)

 

 

194560

10240

 

 

 

        204800

 

20/12/16

Underwriters brokers a/c                                    

                                       to bank a/c

(underwriting commission paid)

 

4800

 

           4800

10/01/19

General reserve a/c

                                 Retained Earning A/c

(director transfer $56000 from retained earning to general reserve)

 

56000

      

   56000

28/02/19

Share application a/c

                                 share capital a/c

(Class 3 shares are issued at a price of $3.60)

 

201600

 

    201600

 

30/04/19

Share capital a/c

                                   share application a/c

(Unexercised option lapse)  

 

201600

                                 

       201600

31/05/19   

 

   Shares final call a/c

                                    share capital a/c

(the final call is paid up on partly paid up shares but 12000 share money due)

 

 

364800

 

     364800

18/06/19

 Share capital a/c

                                 Forfeited share a/c

                                  share final call a/c

(Forfeiture of 12000 shares of $4 each due to non payment of final call of $1.60 per share)

 

48000

        

               28800

               19200

26/06/19

Bank a/c

Forfeited a/c

                                    share capital a/c

(forfeited share are reissued at discount price)

 

43200

  4800

 

 

          48000

26/06/19

Forfeited shares a/c

                                     capital reserve a/c

(after reissue of share forfeiture a/c transferred to capital reserve account)

 

4800

 

             4800

27/16/19

Share holders a/c

                                            forfeited share a/c

 

(pay refund to formal holders of forfeiture shares)

 

4800

 

         4800

Working note:-

Portfolio value before right issue= 320000*4=1280000 $

  1. of right shares=  (256000 *1/5)= 51200

cost of purchasing new share using the rights=51200*3.80= 194560

b. Preparing The Equity Section of Chiherbals Statement of Financial Position :-

Shareholders  Equity

  Amount (in $)

64000 shares of ordinary class 1 shares issued at $4                            

256000

256000 rights shareholders of class 1 issued 3.80$

972800

Scenario 2

a. Journal entries of  ChiHerbal Ltd and classifies Residential land and Factory land as different classes of assets.:-

Date

                                   particulars

Debit

  Credit

30/06/18

  Residential land a/c

                                   to revaluation surplus

(Upward adjustment of $176000 is required to building a/c)

 

176000

 

 

 

176000

30/06/18

Depreciation a/c

Revaluation deficit a/c

                                              to factory land a/c

(downward adjustment of  $320000 is required for factory land)

                            

160000

320000

 

 

 

  480000

 

30/06/18

Building account a/c

                                           to revaluation surplus

(Upward adjustment of $160000 is required to building a/c)

160000

 

   160000

B. Preparing the journal entries and revaluation of truck.

1.Cost of truck= 480000   

2.Salvage value= 220000  

  1. useful life of the year = 8 years

cost of the truck-salvage value=  260000

annual depreciation amount= 260000/7 =37143

Date

                             Particulars

   Debit

   Credit

 

01/07/16

 Depreciation a/c

                             to truck a/c

(depreciation charged for the first year)

37143

 

 

 

    37143

01/07/17

Depreciation a/c

                             to truck a/c

(depreciation charged for the second year)

 

37143

 

     37143

01/07/17

 

Truck a/c

                          to P/L a/c

( truck evaluation was 400000 but in books the valuation is 405714 so profit transfer to P/L account)  

5714

 

 

 

 

5714

 

01/07/18

 

Depreciation a/c

                           to truck a/c

(after the revalued value new depreciation amount must be charged)

36333

 

36333

01/07/18

 Bank a/c

depreciation a/c

                                                 to truck

                                                 to gain of disposal

(disposal of truck)

220000

110619

 

 

155095

175524

Scenario 3

A) preparing the journal entries for the lease transaction  the book of lessor(Easy rental):

Date

Particulars

Debit

Credit

30/06/19

Chi herbal

                             to motor vehicle

( journal entries for leasing the vehicle)

83200

 

83200

30/06/20

 Cash

                   Chi herbal(24000-2400)

                  finance income(24000%6)  

(the reduction in lease shall reduce over next year)

24000

 

 

 

 21600

   2400

B. Preparing the journal entries for the lessee transaction in the book of lessee

Date

 Particulars

Debit

Credit

30/06/19

 Leased motor vehicle a/c

                      to easy rental Ltd.

(leased motor vehicle from easy rental Ltd.)

83200

 

83200

30/06/20

 

 

 Easy rental Ltd

interest expenses

                                  to cash

(interest paid and implicit cost record in the book of chi herbal).

21600

   2400

 

 

 

24000

Scenario 4

Date

 

                Particulars

Debit

  Credit

2016

Research and development expenses a/c

                                                      to bank a/c

( R&D cost are recognize the as an expense during the  period )

350000

 

  350000

 

2017

 

 Legal expenses a/c

                                            to bank a/c

(Expenses incurred during the patent for new bags)

22000

 

22000

 

2018

Advertising cost a/c

                                             to bank a/c

(large marketing campaign for new bags)

650000

 

650000

2018

Bank a/c

                                             to sales a/c

(total order of $2 million received within four months)

2000000

 

2000000

 

 

Research and development shall be accounted for in the accordance with paragraph 54-62.  it means in process of research and development expenditure should recognized as an expense during the period. Prototype may the result in the physical substance with research and development activities. Expenditure on start-up activities like advertising and promotional activities considered in the AASB 116 and paragraph 18-67. patent in five years would be amortized over the five year of its useful life but in that scenario chi herbals have the patent only for 4 years. For the residual value at 60% of its fair value and it can be reviewed in AASB136 .

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