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This ACC204 Financial Accounting Assignment Help is relating to accounting which is followed by Australian companies. There are three tasks in this assignment. Each task has its own specification and own criteria that is required for solving these tasks. First task is relating to revaluation where assets will be revaluated and relevant journal entries will be passed. Second task is relating to calculation of fair value of debentures and passing relevant journal entries. Third task is relating to completion of a project and so profit for each year from such project will be calculated and relevant journal entries will be passed.
Anderson Pty Ltd is an Australia based company which is dealing in manufacturing of floating devices for babies and toddlers. Over the past few years business of the company has earned profits and directors of the company have kept the payment of dividends so that Anderson Pty Ltd can diversify company into other activities. In this case directors of the company wants to revalue the assets of company law and want to pass relevant journal entries for this.
List of property, plant and machinery is as follows.
Investments in companies | Carrying Value ($) | Current fair value ($) |
Property, plant and equipment |
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Factory (NSW) |
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|
Land | 100 000 | 150 000 |
Buildings |
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|
– Cost | 70 000 | 80 000 |
– Accumulated depreciation | (20 000) | – |
Factory (Old) |
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Land | 150 000 | 120 000 |
Buildings |
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|
– Cost | 125 000 | 70 000 |
– Accumulated depreciation | (45 000) | – |
Revaluation of assets:This technique is used by business to get a fair and true view of assets of the company. Through revaluation of assets, business can know the fair value of all those assets which they are holding in their balance sheet. The main purpose of revaluation is to record the assets in a fair value in the books of accounts so that business can decide that whether it need to invest in such asset or need to sell it. These decisions are taken by business on the basis of revaluating the assets for determination of their true and fair value. According to Hu, et. al., (2015), AASB 116 provides the provisions that are required to be followed when an Australian Company is dealing with the revaluation of assets.
There are certain reasons for which assets are been revalued such as to identify the fair value of assets, to issue shares to the existing shareholders, to disclose the fair value of the assets of the company in the books of accounts. Revaluation is also necessary in case where companies wants to decrease their leverage ratio. Revaluation is also necessary for the companies to enable internal and external reconstruction (Hu, et. al., 2015).
Revaluation of the assets will be as follows
Investment in companies | Carrying value ($) | Current fair value ($) | Revaluation value ($) |
Property, plant and equipment |
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Factory (NSW) |
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Land | 1,00,000 | 1,50,000 | 50,000 |
Building (cost-Depreciation) | 50000 | 80000 | 30000 |
Factory(old) |
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Land | 150000 | 120000 | (30000) |
Building(cost-Depreciation) | 80000 | 70000 | (10000) |
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Journal entries that are required to be passed for the above revaluation of assets are as follows
Factory (NSW) |
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Land a/c | Dr. | 50,000 |
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To Revaluation a/c | Cr. |
| 50,000 |
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Building A/c | Dr. | 30,000 |
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To Revaluation a/c | Cr. |
| 30,000 |
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Factory (Old) |
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Revaluation A/c | Dr. | 30000 |
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To Land A/c | Cr. |
| 30000 |
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Revaluation Surplus | Dr. | 10000 |
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To Building A/c | Cr. |
| 10000 |
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In the above statement entries that are required to be passed in the case of revaluation of assets has been passed. According to Sun (2015), in this statement it can be seen that if there is an increase in value of assets revaluation a/c has been credited. Value of land and building in Factory (NSW) has been increased so in both these cases revaluation a/c has been credited. If there is a decrease in value of assets then revaluation account has been debited. Value of land and building has been decreased in the case of Factory (Old) so in both these cases revaluation a/c has been debited (Sun, 2015).
Calculation of net amount of revaluation a/c
Revaluation a/ | |
Opening balance | 0 |
Credit made during the year | 80000 |
Debit made during the year | 40000 |
Closing balance | 40000 |
This statement shows the balance of revaluation account that the opening balance of revaluation a/c was nil and further the increase in the value of revaluation a/c was added and then decrease in the value of revaluation a/c was subtracted from this balance. This calculation showed the closing balance of revaluation reserve.
According to Strouhal (2015), Positive balance of revaluation is treated as revaluation surplus so this will be treated as an asset for the company. As a result of this revaluation surplus will be disclosed in the asset side of the balance sheet. This revaluation surplus is a result of increase in the value of revaluation of assets. Hence this revaluation reserve will be shown in the asset side of the balance sheet of Anderson Pty Ltd. (Strouhal, 2015).
This task has concluded that sometimes it becomes necessary for the business to revalue their assets so that they can identify the true and fair value of assets of the business management. In this task assets of Anderson Pty Ltd were revalued and then journal entries for such revaluation are passed. This task has also explained the impact of revaluation on the balance sheet of the company.
Kruger Limited privately issued $1 million in six year debentures on July 01, 2015. Interest rate for these debentures each six months at a coupon rate of 6% per annum. When these debentures were issued the market requires a rate of 4%. These debentures are accounted for effective interest method as per the provisions of AASB 9.
Calculation of fair value of debentures is as flows (at the time of issues) is as follows.
Date | Interest payment Stated | Interest payment Stated | Amortization of | Credit | Credit | Book |
| Credit Cash | Debit | Credit |
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|
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1-Jul-15 |
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| 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 | $929,879 |
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Fair value of debentures= Face value*PV factor for number of semiannual payments at market rate (Laing & Dunbar, 2015)
= 10,00,000*PV factor @ 2%, 12 months
= 10,00,000*0.788
=788000
(i) 1 July 2015
|
| Amount ($) | Amount ($) |
Bank a/c | Dr. | 788000 |
|
Discount a/c | Dr. | 212000 |
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To 6% Debenture a/c | Cr. |
| 1000000 |
(ii) 31 December 2015
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| Amount ($) | Amount ($) |
Interest on debenture a/c | Dr. | 15760 |
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To Bank a/c | Cr. |
| 1520 |
To Discount a/c | Cr. |
| 14240 |
(iii) 30 June 2015
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| Amount ($) | Amount ($) |
Interest expense a/c | Dr. | 16045 |
|
To Cash a/c | Cr. |
| 2090 |
To Discount a/c | Cr. |
| 13955 |
Above are the entries that are to be passed on the respective mentioned date (Milliman, 2015).
This task has explained the method that is to be followed to calculate the fair value of debentures which were issued earlier. Provisions relating to debentures are mentioned in AASB 9. This task has also showed the calculation for fair value of debentures. Relevant journal entries relating to specified dates are also passed in this task.
Sun City Limited commenced construction business of a multi-purpose water park on 1st July 2014 for Pretoria Limited. Sun City signed a fixed price contract for revenues of $50million. Pretoria asset control the asset throughout the period of construction and this project is expected to get complete by the end of 2017. Expected cost on the commencement of construction project is $38 million. It is expected that the cost of construction project can change during the project. Data related to the project is as follows.
| 2015 ($m) | 2016 ($m) | 2017($m) |
---|---|---|---|
Costs for the year | 10 | 18 | 12 |
Costs incurred to date | 10 | 28 | 40 |
Estimated costs to complete | 28 | 12 | – |
Progress billings during the year | 12 | 20 | 18 |
Cash collected during the year | 11 | 19 | 20 |
Gross profit for year 2015
Firstly we need to find the percentage of the project completed so far and for this formula will be applied which is as follows.
Project completion %= Total Construction Costs till date/ Estimated cost of the contract
Total Construction Cost of Sun City for the year 2015= $ 1000000
Total estimated cost of the contract = $ 3800000
= 1000000/3800000*100= 26.31%
Hence this 26.31% represents that the project is completed till this % in 2015. According to Drake, (2013), after this total expected revenue from the project will be multiplied by percentage of completion of project so that revenue earned till 2015 can be calculated on the basis of this (Drake, 2013).
Calculation of gross profit till 2015= Project completion %* Total estimated gross profit
Expected gross profit = Expected Gross Profit= Expected revenue – Expected Cost
= $ 5000000 - $ 3800000 = 1200000
Gross profit till 2015= 26.31 * 1200000 * 100 =$ 315720
Gross profit till 2015= $315720
Gross profit for year 2016
For this firstly we need to calculate the project completion percentage which will be calculated as follows.
Project completion %= Total Construction Costs to date/ Estimated cost of the contract
Total Construction Cost of Sun City for the year 2015= $ 2800000
Total estimated cost of the contract = $ 4000000
= 2800000/4000000*100= 70%
Hence this 70% represents that the project is completed till this 70% in 2016. After this total expected revenue from the project will be multiplied by percentage of completion of project so that revenue earned till 2016 can be calculated on the basis of this.
According to Dziadosz et al., (2015), calculation of gross profit till 2016= Project completion %* Total estimated gross profit
Expected gross profit = Expected Gross Profit= Expected revenue – Expected Cost
= $ 5000000 - $ 4000000 = 1000000
Gross profit till 2016= 1000000 *70 * 100 =$ 700000
So the expected gross profit for the year 2016 is $700000- $315720
= $384280
Gross profit till 2016= $384280
Gross profit for year 2017
Gross profit for the year 2017 will be calculated as follows.
Gross profit for 2017= Total cost- profit recognized in the year 2016 and 2015 (Dziadosz, et. al., 2015)
Total cost = $5000000- $4000000
Total cost = $1000000
Profit in previous years = $ 315720 – $ 384280= $700000
Profit for the year 2017= $ 1000000-$ 700000
Profit for the year 2017= $ 300000
Journal entries for 2015 using the percentage completion method are as follows.
Journal |
| Amount ($) | Amount ($) |
Work in progress a/c | Dr. | 10,00,000 |
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To Accounts payable a/c | Cr. |
| 10,00,000 |
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Contract Receivable a/c | Dr. | 12,00,000 |
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To Progress Billing a/c | Cr. |
| 12,00,000 |
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Construction in process a/c | Dr. | 315500 |
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Construction Expenses a/c | Dr. | 1000000 |
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To Construction Revenue a/c | Cr |
| 1315500 |
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Journal entries for 2015 on assumption that stage of completion cannot be reliably assessed are as follows (Hathorn, 2011)
Journal |
| Amount ($) | Amount ($) |
Work in progress a/c | Dr. | 10,00,000 |
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To Accounts payable a/c | Cr. |
| 10,00,000 |
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Accounts Receivable a/c | Dr. | 12,00,000 |
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To Billing a/c | Cr. |
| 12,00,000 |
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Bank A/c | Dr. | 315500 |
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To Accounts Receivable a/c | Cr |
| 1315500 |
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This task is has concluded the implementation of a project that a project is likely to get completed in a specified time and so through this profits from that project for each year can also be calculated. This will help in identifying the expected profit from such project every year or also in the end year when project will gets completed. In this task relevant journal entries relating to the project has also been passed.
Drake, R. (2013). Delving into debentures. Equity, 27(2), 14.
Dziadosz, A., Tomczyk, A., & Kapli?ski, O. (2015). Financial risk estimation in construction contracts. Procedia Engineering, 122, 120-128.
Hathorn, J. (2011). Accounting for unprofitable construction contracts: a teaching note. Journal of Finance and Accountancy, 7, 1.
Hu, F., Percy, M. & Yao, D., (2015).Asset revaluations and earnings management: Evidence from Australian companies. Corporate Ownership and Control, 13(1), 930-939.
Laing, G., & Dunbar, K. (2015). EVA (TM) EPS, ROA and ROE as Measures of Performance in Australian Banks: A Longitudinal Study. Journal of Applied Management Accounting Research, 13(1), 41.
Milliman, (2015). Discount Rate for Australian Employee Benefits Liability Valuation. Milliman Report. Pp 1-84.
Strouhal, J. (2015). Historical Costs or Fair Value in Accounting: Impact on Selected Financial Ratios. Journal of Economics, Business, and Management, 3(5), 560-564.
Sun, L., (2015). Fair Value and Volatility in the Cases of Assets Securitization, Derivative Hedging and Loan Loss Provisioning. Theoretical Economics Letters, 5(05), 670-682.