ACC204 Advanced Financial Accounting Assignment Help

ACC204 Advanced Financial Accounting Assignment Help

ACC204 Advanced Financial Accounting Assignment Help

Introduction

There are three tasks in the assignment. The entire three tasks are discussed with the use of journal entries in the books of accounts. A brief of the assigned task also described in the form of theory. The aim of defining each task in theory form was to make understand the each task easily. Journal entries for each task will be giving in the below assignment.

ACC204 Advanced Financial Accounting Assignment Help

Question1

Revaluation of fixed assets is the technique which describes the true and fair value of the fixed assets of the Company. It is the process of evaluation of the present value of the capital goods of the business. By this process of revaluation the carrying value of the fixed assets either decreases or increases (Lewis , 2012),. The decreasing and increasing amount of assets by revaluation is accumulated in the equity and depict in the balance sheet of the Company. Anderson private limited is an Australian Company. In Australia every Company follows the IRFS i.e. international financial reporting standards and Australian accounting standards issued by the Australian board. Company will revalue the fixed assets of the Company as per the Australian accounting standards. As per the IFRS the fixed assets should be initially recorded in the books of account at the purchase cost and after that two models can be apply by any Company which is cost model and revaluation model. In Revaluation model the initial cost of the assets at the time of purchase appreciated by adding the fair market value of the assets of the Company. This appreciated value is carried in the books of accounts of the Company.

According to Emmanuel et.al (2012), there are various advantages of revaluation of fixed assets which are given below:-

1. It helps to evaluate the true rate of return on capital employed.

2. Through this process Company can easily negotiate the fair price of assets of the Company before merger and acquisition by any other Company.

3. It also helps in reconstruction of the Company whether internal or external.

4. It also has advantage of issuing shares to the existing shareholders.

5. It also helps to get the fair market value of when Company will do sale and leaseback transaction.

6. Company takes loan from banks and financial institution by mortgaging its fixed assets. Revaluation of fixed assets will help them to get the loan amount of higher value.

7. Leverage ratio also get decreases by implementing revaluation model in the valuation of assets of the Company

8. When the assets value get decreases, revaluation method helps to conserve the funds for replacing the existing fixed assets of the Company.

Anderson private limited wants to bring the fair market value of fixed assets in the books of the Company. As per AASB 116 (2010) AASB 116 is applicable for property, plant and equipment.As per AASB- 116 after measuring the fair market value of property, plant and equipment, revalued amount will be carried after deducting accumulated depreciation. If there is increase in value of assets due to revaluation, then the increase amount will get accumulated in the equity in the balance Sheet. As per the list of property of Andersion Company there is upgrade revaluation in the valuation of land and building of Factory (NSW). It is not normal gain which will be not be shown in the income statement of the Company rather it will get credited and accumulated to the equity account called as a revaluation surplus ( Bobitan et.al (2013).. The revaluation amount will be calculated after deducting the accumulated depreciation from the assets and then deducting that amount from the current market value of the Company. This revaluation surplus will be credited with all the upward revaluations made from the assets of the Company until these assets are disposed of by the Company. There is downward revaluation in the building and land of the (QLD) factory of the Company. The revaluation surplus will get debited with decrease amount in the revaluation of building and plant of the Company.

a. Revaluation of fixed assets of Anderson Pvt. Ltd.

Investments in Companies

Carrying value($)

Current fair value($)

Revaluation($)

Property, plant and equipment

 

Factory(NSW)

 

Land

100000

150000

50000

Building(cost-Depreciation)
(70000-20000)

50000

80000

30000

Factory(old)

 

Land

150000

120000

-30000

Building(cost-Depreciation)
(125000-45000)

80000

70000

-10000

 

 

 

 

b). Journal Entries to be passed for revaluation of the assets of Anderson private limited are given below:-

Journal Entries (in $ )

Factory (NSW)

Dr.               Cr.

Land A/c         Dr.

50,000

 

To  Revaluation Surplus

 

50,000

 

 

 

Building A/c   Dr.

30,000

 

To Revaluation surplus

 

30,000

 

 

 

Factory (Old)

 

 

  Revaluation Surplus A/c  Dr.

30000

 

To Land A/c 

 

30000

 

 

 

Revaluation Surplus   Dr.

10000

 

To Building A/c

 

10000

     
In the above mentioned journal entries the revaluation surplus is going upward in the Factory (NSW) and revaluation surplus is going downward in the factory (old). The revaluation surplus is calculated after deducting the accumulated depreciation from the fixed assets of the Company.

Calculation of the net amount of revaluation surplus

 

Revaluation Surplus A/c

Opening balance

0

Credit made during the year

80000

Debit made during the year

40000

Closing Balance

40000

Showing Revaluation surplus in the Balance Sheet

Assets

 

Equity

 

Revaluation Surplus

40000

 

 

Liabilities

 

 

 

 

 

The gain calculated due to upward revaluation of the fixed assets of the Company is not normal and will be shown in the balance sheet of the Company. The gain from the upward revolution will be accumulated with the equity amount in the balance sheet.

Question 2

a. Fair value of debenture at the time of issue will be:-

Fair value of debentures is the present market value of debentures. It is calculated by using various methods. In the below calculation the effective interest method is applied (Blankespoor et.al 2013). Fair value of debenture will help to calculate the accurate interest amount over the period of debentures.

As per AASB 9 (2012), Effective interest method is a method which is used to discount the debentures. This method is applied for those debentures which are to be sold at discount. The discount calculated is amortized and distributed throughout the debenture life. The accounting standard for Effective interest rate is AASB – 9. According to this standard the interest revenue can be calculated by amortizing the interest over the duration of the debenture.

According to Kimbrough, et.al (2010), there are various advantages of using effective interest method which are described below:-

1. Effective interest method is useful in finding out the right figure on the interest earned in any financial instrument.

2. It is most preferable over the straight line method which calculates accurate value of interest rate over the duration of the debenture issued.

3. It is commonly used by various businesses in case of issuing bonds like debentures.

Calculation of fair value of debentures

Fair Value = Face value * Present value factor for number of semiannual payments at market rate

= 10, 00,000*PV Factor @2%, 12 periods

= 10, 00,000*0.788= 788000

Date

Interest payment Stated
10,00,000*3%

Interest payment Stated
10,00,000*2%

Amortization of
Debentures
Discount

Credit
Balance
in Debentures Premium  Account

Credit
Balance
in Debentures Payable  Account

Book
Value
of the Debentures

 

Credit Cash

Debit
 Interest
Expense

Credit
Debentures Discount

 

 

 

1-Jul-15

 

 

 

212000

$1,000,000

$788,000

31-Dec-15

$30,000

$15,760

($14,240)

$197,760

$1,000,000

$802,240

30-Jun-16

$30,000

$16,045

($13,955)

$183,805

$1,000,000

$816,195

31-Dec-16

$30,000

$16,324

($13,676)

$170,129

$1,000,000

$829,871

30-Jun-17

$30,000

$16,597

($13,403)

$156,726

$1,000,000

$843,274

31-Dec-17

$30,000

$16,865

($13,135)

$143,592

$1,000,000

$856,408

30-Jun-18

$30,000

$17,128

($12,872)

$130,720

$1,000,000

$869,280

31-Dec-18

$30,000

$17,386

($12,614)

$118,105

$1,000,000

$881,895

30-Jun-19

$30,000

$17,638

($12,362)

$105,743

$1,000,000

$894,257

31-Dec-19

$30,000

$17,885

($12,115)

$93,628

$1,000,000

$906,372

30-Jun-20

$30,000

$18,127

($11,873)

$81,756

$1,000,000

$918,244

31-Dec-20

$30,000

$18,365

($11,635)

$70,121

$1,000,000

$929,879

 

 

 

 

 

 

 

(b) Provide Journal Entries

 Date

Journal Entries (in $ )

 

Account Name

Dr.               Cr.

 01 July, 2015

Bank A/c  Dr.

Discount A/c Dr.

$788000

$212000

 

 

To 6% Debentures A/c

 

$1000000

 

 

 

 

 31 December, 2015

Interest on Debentures A/c Dr.

$15760

 

 

To Bank A/c

To Discount A/c

 

$1520

$14240

 

    

 

 

30 June ,2016

Interest Expenses A/c Dr.

$ 16045

 

 

To Cash A/c

To Discount A/c

 

 $ 2090

$13955

Question 3

The percentage of completion method is used for construction companies. It is an accounting method used in work in progress evaluation. This method is used for contract of long term duration. The revenue is determined by using this method. In the starting years the estimated revenue, cost and profits are considered and in the last year the actual cost is deducted from the estimated profits calculated in the previous years (Egan, 2015 ). This method is used to recognize the revenue and gross profits in all the duration of the contracts. It is calculating the revenue of not only the applicable periods of the contract but also at the time of completion of contract.

a. Computing the gross profit for the year 2015:-

First we will find the percentage complete of the sun city Limited which is:-

% complete = Total Construction Costs to date/ Total estimated cost of the contract  

Total Construction Cost of Suncity for the year 2015= $ 1000000

Total estimated cost of the contract = $ 3800000

= 1000000/3800000*100= 26.31%

Then total expected revenue will then multiply by the percentage of completion calculated above so that we can know the total revenue that have been earned till 2015.

= Gross profit till 2015 = % complete * total estimated gross profit

Expected Gross Profit= Expected revenue – Expected Cost = $ 5000000 - $ 3800000 = 1200000

26.31 * 1200000 * 100 =$ 315720

Expected Gross profit = $315720

Computing the gross profit for the year 2016:-

First we will find the percentage complete of the sun city Limited which is:-

% complete = Total Construction Costs to date/ Total estimated cost of the contract 

Total Construction Cost of Suncity for the year 2016= $ 2800000

Total estimated cost of the contract = $ 4000000

= 2800000/4000000*100= 70%

Then total expected revenue will then multiply by the percentage of completion calculated above so that we can know the total revenue that have been earned till 2016.

= Gross profit till 2016 = % complete * total estimated gross profit

Expected Gross Profit= Expected revenue – Expected Cost = $ 5000000 - $ 4000000 = $1000000

70 * 1000000 * 100 = $ 700000

Expected Gross profit for the year 2016 = $ 700000 - $ 315720 =$ 384280

Computing the gross profit for the year 2017:-

For the year 2017 the gross profit will be calculated as given below:-

Gross profit = Revenue - Total Cost – previous year recognized in 2016 and 2015

= $ 5000000 - $ 4000000 = $ 1000000 – $ 315720 – $ 384280 = $ 300000

b. Prepare Journal entries for the year 2015 financial year using percentage completion method

 Date

Journal Entries (in $ )

 2015

Account Name

Dr.               Cr.

 

Work in progress  A/c Dr.

$1000000

 

 

To Accounts payable  A/c

 

$1000000

       
 

Contract Receivable

 $ 1200000

 

 

           To Progress Billing

 

$ 1200000

       
 

Construction in process

Construction Expenses

$ 315500

$ 1000000

 
 

      To Construction Revenue

 

$ 1315500

2016

Construction in Progress A/c

$ 1800000

 
 

     To A/c Payable

 

$ 1800000

 

Construction Revenue Dr.

$ 2000000

 

 

To Progress Billing

 

$2000000

 

Construction in progress A/c Dr.

Construction Expenses

$384500

$1800000

 

 

To  Construction Revenue 

 

$2184500

2017

Construction in Progress A/c Dr.

Construction Expenses

$ 300000

$ 1200000

 
 

To Construction revenue

 

$ 1500000

 

Construction in Progress

$ 1000000

 
 

To profit and loss A/c

 

$1000000

       
       

C. Prepare Journal Entries for the financial 2015, assuming the stage of completion cannot be reliable assessed.

Date

Journal Entries (in $ )

 2015

Account Name

Dr.               Cr.

 

Work in progress  Dr.

$1000000

 

 

To Accounts payable  A/c

 

$1000000

 

Accounts Receivable  A/c Dr.

$1200000

 
 

To Billings

 

$1200000

 

Bank A/c Dr.

$1100000

 

 

To  Accounts Receivable 

 

$1100000

       

 Date

Journal Entries (in $ )

 2016

Account Name

Dr.               Cr.

 

Work in progress  Dr.

$1800000

 

 

To Accounts payable  A/c

 

$1800000

   

 

 

 

Accounts Receivable  A/c Dr.

$2000000

 

 

To Billings

 

$2000000

 

Bank A/c Dr.

$1900000

 

 

To  Accounts Receivable 

 

$1900000

       
       

 Date

Journal Entries (in $ )

 2017

Account Name

Dr.               Cr.

 

Work in progress  Dr.

$1200000

 

 

To Accounts payable  A/c

 

$1200000

 

Accounts Receivable  A/c Dr.

$1800000

 
 

To Billings

 

$1800000

 

Bank A/c Dr.

$2000000

 

 

To  Accounts Receivable 

 

$2000000

 

Billings A/c Dr.

$5000000

 
 

To Construction revenue

 

 $5000000

 

Cost of Construction A/c  Dr.

$4000000

 

 

To work in progress

 

$4000000

       

Conclusion

The entire above task were mainly focusing on the accounting journal entries for different purposes in different Companies. The discussion is made on the various advantages of the revaluation of fixed assets and their journal entries in the books of accounts. In the above task the fair value of debenture was also calculated and journal entries were also passed for the same. The above task also described the percentage of completion and how journal entries for long duration contracts can be made.

References:-

AASB 116  (2010)“Property, Plant and Equipment” Compiled AASB Standard – RDR Early Application Only, pp-1-34

AASB 9 (2012) “Financial Instruments” Australian Accounting Standard Board, pp-1-8

Blankespoor, E., Linsmeier, T. J., Petroni, K. R., & Shakespeare, C. (2013). Fair value accounting for financial instruments: Does it improve the association between bank leverage and credit risk? The Accounting Review, 88(4), 1143. doi:10.2308/accr-50419

Bobitan , N., Costuleanu , C., & Dumitrescu, D. (2013). the differences between revaluation and assets impairment. Anale. Seria ?tiin?e Economice. Timi?oara, (XIX), 64-72.

Egan, T. (2015,). Contract - accounting - limitation of liability, Rhode Island Lawyers Weekly

Emmanuel Iatridis, G., & Kilirgiotis, G. (2012). Incentives for fixed asset revaluations: The UK evidence. Journal of Applied Accounting Research, 13(1), 5-20.

Kimbrough, S., Kuo, A., & Lau, H. (2010). Effective heuristic methods for finding non-optimal solutions of interest in constrained optimization models, Paper presented at the 295-296.

Lewis B.(2012), “Asset Revaluation or Impairment: Understanding the Accounting for Fixed Assets” COLLABORATE, pp-1-7