Situation involving Rippa Ltd

The case which is given in the question shows that the management of Superstore ltd wants to revise the useful life of a manufacturing equipment which was depreciated on a straight-line basis. A change in the useful life of the asset is treated as a change in accounting estimate and International Accounting Standard (IAS) 8, states that any change in accounting estimate is to be treated with prospective effect which means the accounting estimate will be applicable in for the current period and future periods but past records are not to be changed (Shalev, Zhang & Zhang, 2013). Therefore, the director needs to revise the depreciation amount based on new useful life of asset. The directors do not need to make changes in past records of 2016 and 2017 and only needs to change the depreciation amount which is shown in annual reports.

Requirement 2

In this case, the management of the company has missed out to record an invoice of $ 20,000 which is for repair of equipment. The management of the company needs to record the same in the books of accounts for which appropriate adjustment entry is to be passed which is shown below:

Retained Earnings A/c……………………………Dr            14,000

Deferred Tax Assets A/c…………………………Dr              6,000

                                            To Account Payable A/c                                         20,000

(Being invoice relating to repair expenses recorded)

Requirement 3

The case shows that there is a fall in the shares prices of ABC ltd in which Superstore ltd has holdings. The shares price of ABC ltd which was shown in the books of accounts of Superstore ltd as on 30^th June is $ 6,00,000 which had declined to $ 2,50,000 in 10^th July 2018. The management needs to make appropriate changes in books of accounts by passing the following journal entry:

Unrealized Holding Loss A/c……………………………Dr      3,50,000

                                                            To Shares in ABC ltd                                  3,50,000

(Being changes in shares prices of ABC Ltd recorded in Books of Superstore ltd)

Requirement 4

The case which is given in the question shows that the accountant of Superstore ltd has recorded personal expenses of the accountant as advertisement expenses of the business which needs to be adjusted. The management needs to reverse the advertisement entry and pass necessary Journal entry in this respect. The Journal entries are shown below:

Cash A/c …………………………………………………Dr        $ 32,000

                                                                To Advertisement A/c                          $ 32,000

(Being advertisement entry reversed)

Advertisement A/c ………………………………..……….Dr          $ 32,000

                                                   To Max A/c                                                               $ 32,000

(Being appropriate adjustment entry passed)

Answer to Question 2 

 Requirement ii

As per the case which is provided, the management has forfeited the shares of shareholders who have not paid the call moneys and paid up to allotment. One of the shareholders whose share was forfeited claims to have received lesser amount of share money as the shareholder had paid application and call money which was in total $ 3.50 per share. The management has to incur cost of reissue of shares and cost which is related to forfeiture of share (Libby, 2017). These costs have been transferred to the shareholders as it is the fault of the shareholder that such costs have been incurred by the management in the first place. The original costs of shares were $ 4 per share and the management had to sell the shares at $ 3.20 per shares and therefore a loss is incurred. In addition to this, $ 4000 shares are incurred during the year.

 

 

 

 

 

Reference

Libby, R. (2017). Accounting and human information processing. In The Routledge Companion to Behavioural Accounting Research (pp. 42-54). Routledge.

Shalev, R. O. N., Zhang, I. X., & Zhang, Y. (2013). CEO compensation and fair value accounting: Evidence from purchase price allocation. Journal of Accounting Research, 51(4), 819-854.