Events After The Reporting Period For Financial Reporting

Provisions for Depreciation Computation and Disclosure

Describe about the Events after the Reporting Period for Financial Reporting.

Save Time On Research and Writing
Hire a Pro to Write You a 100% Plagiarism-Free Paper.
Get My Paper

The provisions as regards computation and discloser of deprecation are contained in the AASB 1021. In respect of the change in the rates and method of depreciation, the provisions of paragraph 6.3 this standard require that effect of such change must be given in the current year financial statements and the depreciation for the future years must be computed considering such changes (AASB 1021, 1997). Further, the standard also provides that the prior period financial statements should not be given any effect in respect of the changes in the rate and method of deprecation (AASB 1021, 1997). Applying these provisions to the current case of Rainyday Ltd, the depreciation for the financial year 2015-16 would change as has been worked out below:

S.No.

Description

Amount ($)

Save Time On Research and Writing
Hire a Pro to Write You a 100% Plagiarism-Free Paper.
Get My Paper

A

Cost of manufacturing equipment

   500,000.00

B

Life

10

C

Residual value

0

D

Depreciation per year (A-C/B)

     50,000.00

E

Depreciation for 2013-14 and 2014-15 (D*2)

   100,000.00

F

Written down value on 01.07.2015 (A-E)

   400,000.00

G

Revised life

6

H

Revised depreciation from 2015-16 and onwards (F/G)

     66,666.67         

Thus, it can be observed from the above that the depreciation for the financial year has changed from $50,000 to $66,666.67 as a result of change in the effective useful life of the equipment. The change in the depreciation is non-adjusting item for the previous financial years; therefore, the directors of Rainyday Ltd are advised not to make any adjustments in the accounts for this change for the previous financial years 2013-14 and 2014-15.

1(b) As per the provisions of the AASB 108, the adjustment for the errors and omissions of the previous periods is given in the current financial statements by restating the assets, liabilities, and the equity. Further, tax effect of such adjustment is accounted for in accordance with the provisions of AASB 112, “Income Taxes” (AASB 108, 2013). In the case of Rainyday Ltd, the repair expense of $25,000, which remained unaccounted in the year 2015, need to be adjusted in the books in the year 2016. The adjusting journal entries for Rainyday Ltd are given below:

Journal for Prior Period Adjustments: Rainyday Ltd 2015-16

Date

Description

Debit ($)

Credit ($)

5-Jul-16

Repair expense

25000

Cash

25000

30-Jun-16

Retained earnings

25000

Deferred tax

7500

Repair expense

25000

As per the provisions AASB 9, the measure fall in the fair value of the equity instrument is recognized in the financial statements (AASB 9, 2010). Further, the provisions of the AASB 110 entail that the events taking place after the closer of the financial year but before the finalization of the financial statements, should be adjusted (AASB 110, 2011). Therefore, Rainyday Ltd should adjust the loss of $350,000 ($800,000-$450,000) in the profit and loss account for the financial year 2015-16 by passing the following journal entry:

Journal: Rainyday Ltd 2015-16

Date

Description

Debit ($)

Credit ($)

30-June-16

Profit and loss account

350000

Equity investment account

350000    

1(d) In the current situation, the since the debtor of the company has gone bankrupt before the finalization of the financial statements, the event is adjusting nature as per the AASB 110 (AASB 110, 2011). Therefore, the RainydayLtd should write off the remaining amount $450,000 as well in the financial year 2015-16 itself by passing the following journal entry:

Journal: Rainyday Ltd 2015-16

Date

Description

Debit ($)

Credit ($)

30-June-16

Profit and loss account

450000

Bad debts 

450000

2.

Journal for share issue: Sunny Ltd

Date

Description

Debit ($)

Credit ($)

 

 

 

 

31-Jan-16

Cash Trust

  1,890,000.00

Application

  1,890,000.00

(For application money on ordinary shares received)

31-Jan-16

Cash

       30,000.00

Share options

       30,000.00

(Issue of 60000 share options
  at 50c each)

12-Feb-16

Application

  1,890,000.00

Share capital

  1,800,000.00

Share allotment

       90,000.00

(For shares allotted and excess money received on application adjusted toward allotment)

12-Mar-16

Cash

  1,890,000.00

Cash Trust

  1,890,000.00

(Transfer on allotment of shares)

12-Mar-16

Allotment

     600,000.00

Share capital

     600,000.00

(Allotment money due on 600000 shares)

12-Mar-16

Cash

     493,000.00

Allotment

     493,000.00

[Allotment money received on 580000 shares=$580000-$90000)]

20-Mar-16

Share capital

       80,000.00

Share forfeited (630000/600000*20000)=21000 shares*$3

 

       63,000.00

Allotment

       17,000.00

(20000 shares forfeited)

5-Apr-16

Cash

       74,000.00

Share forfeited ($4-$3.70)*20000

         6,000.00

Share capital

       80,000.00

(20000 forfeited shares reissued @ $3.70 per share)

5-Apr-16

Share forfeited ($63000-$6000)

       57,000.00

Share re-issue costs

         3,600.00

Cash

       53,400.00

(Balance in share forfeit after meeting reissue cost paid back)

30-Jun-16

Cash (50000*$4.2)

     210,000.00

Share capital

     210,000.00

(50000 shares issued against 50000 options allotted)

30-Jun-16

Share options

       30,000.00

Share capital

       25,000.00

Lapsed options reserve

         5,000.00

 (Write-off of options exercised, and lapsed)

 

3.

Computation of current tax

Amount ($)

Amount ($)

Accounting profit before tax

  190,750.00

Add: Adjustments for taxation purpose

Depreciation – equipment (Accounting)

           40,000.00

Depreciation – motor vehicles (Accounting)

           15,000.00

Entertainment expenses (not tax deductible)

             4,500.00

Provision for annual leave

           11,000.00

Provision for warranties

             6,900.00

Rent payable

             6,000.00

    83,400.00

Less: Adjustments for taxation purpose

Prepaid insurance

             3,000.00

Government grant (exempt from income tax)

           30,000.00

Depreciation – equipment (taxation)

           60,000.00

Depreciation – motor vehicles (taxation)

           12,000.00

Taxable profit

  169,150.00

Tax Rate

30%

Current Tax

    50,745.00

Temporary Differences

Tax base

Carrying amount

Taxable temporary differences (liability)

Deductible temporary differences (asset)

Prepaid insurance

                –  

      3,000.00

               3,000.00

Equipment

  340,000.00

  360,000.00

             20,000.00

Motor vehicles

    48,000.00

    45,000.00

                 3,000.00

Provision for annual leave

                –  

    11,000.00

               11,000.00

Provision for warranties

                –  

      6,900.00

                 6,900.00

Rent payable

                –  

      6,000.00

                 6,000.00

Total

             23,000.00

               26,900.00

Deferred Tax Asset/ liability

 

Amount ($)

Deductible temporary differences (asset)

    26,900.00

Less: Taxable temporary differences (liability)

    23,000.00

      3,900.00

Tax Rate

30%

Deferred Tax Asset

      1,170.00

Journal Entries

S.No.

Description

Debit ($)

Credit ($)

1

Deferred tax asset

      1,170.00

Profit and Loss

               1,170.00

2

Profit and Loss

    50,745.00

Current tax

             50,745.00

4

Journal Entries

Date

Description

Debit ($)

Credit ($)

1-Jul-13

Equipment

  800,000.00

Cash

  800,000.00

30-Jun-14

Depreciation expense

  152,000.00

Accumulated depreciation-equipment

  152,000.00

[($800000-$40000)/5]

30-Jun-14

Accumulated depreciation-equipment

  152,000.00

Equipment

  152,000.00

30-Jun-14

Profit and loss

  152,000.00

Depreciation expense

  152,000.00

1-Jul-14

Equipment

    82,000.00

Revaluation reserve

    82,000.00

$800,000-$152,000=$648,000 (WDV)

($730,000-$648,000= Revaluation reserve)

30-Jun-15

Depreciation expense

  115,000.00

Accumulated depreciation-equipment

  115,000.00

[$730000-$40000]/6

30-Jun-15

Accumulated depreciation-equipment

  115,000.00

Equipment

  115,000.00

30-Jun-15

Profit and loss

  115,000.00

Depreciation expense

  115,000.00

30-Jun-16

Profit and loss

  201,333.33

Revaluation reserve ($82000/6)

    13,666.67

Impairment loss [($730000-$115000)-$400000]

  215,000.00

30-Jun-16

Impairment loss

  215,000.00

Equipment

  215,000.00

30-Jun-16

Depreciation expense

    72,000.00

Accumulated depreciation-equipment

    72,000.00

[($400000-$40000)/5]

30-Jun-16

Accumulated depreciation-equipment

    72,000.00

Equipment

    72,000.00

30-Jun-16

Profit and loss

    72,000.00

Depreciation expense

    72,000.00

30-Sep-16

Cash

  390,000.00

Accumulated depreciation

  339,000.00

Loss on disposal

    71,000.00

Equipment

  800,000.00

30-Sep-16

Revaluation reserve ($82000-$13666.70)

    68,333.33

Profit and loss

      2,666.67

Loss on disposal

    71,000.00

5. As per the provisions of the AASB 136, the allocation of the impairment loss of a cash generating unit is made first to the goodwill and then to the other assets in the proportion of their carrying amounts. However, it should be kept in mind that the allocation of the impairment loss in such a manner does not result in excess of the amount that would have been calculated considering a particular asset singly (AASB 136, 2010). In accordance with the relevant provisions of AASB 136, the computation and allocation of the impairment loss of CGUs of Movies Ltd is presented below:

Computation of impairment loss for cash generating units

Cash Generating Units

Cinema ($)

DVD Sales ($)

A. Fair value less cost to sell

       780,000.00

          318,000.00

B. Value in use

       900,000.00

          290,000.00

C. Recoverable value (higher of A and B)

       900,000.00

          318,000.00

D. Carrying amount of cash generating unit

    1,019,000.00

          326,000.00

E. Impairment loss (D-C)

       119,000.00

              8,000.00

Allocation of impairment loss: Cinema

Carrying amount ($)

Impairment loss allocated

Max limit (individual impairment)

Goodwill

         45,000.00

              5,301.98

Furniture and fittings

       205,000.00

            24,153.47

Electrical equipment

       110,000.00

            12,960.40

Land and buildings

       625,000.00

            73,638.61

  75,000.00

Licence

         25,000.00

              2,945.54

    1,000.00

    1,010,000.00

          119,000.00

Allocation of impairment loss: DVD Sales

 

Carrying amount ($)

Impairment loss allocated

Max limit (individual impairment)

 

Furniture and fittings

         25,000.00

                 873.36

 

Electrical equipment

         10,000.00

                 349.34

 

**Land and buildings

       179,000.00

              6,253.28

    4,000.00

 

Goodwill

         15,000.00

                 524.02

 

       229,000.00

              8,000.00

 

**Note: In case of land and building, the impairment loss considering land and building as single asset comes to $4,000, but the in CGU allocation it comes to $6,253.28. As per provisions of AASB 136, max amount that can be allocated would be $4000 only.

 
 
 

Journal Entries

Date

Description

Debit ($)

Credit ($)

30-Jun-16

Profit and loss

          127,000.00

 

 

Impairment loss-Cinema

 

  119,000.00

Impairment loss-DVD Sales

      8,000.00

30-Jun-16

Impairment loss-Cinema

          119,000.00

Goodwill

      5,301.98

Furniture and fittings

    24,153.47

Electrical equipment

    12,960.40

Land and buildings

    73,638.61

Licence

      2,945.54

30-Jun-16

Impairment loss-DVD Sales

              5,746.72

Furniture and fittings

         873.36

Electrical equipment

         349.34

**Land and buildings

      4,000.00

Goodwill

         524.02

References

AASB 110. (2011). Events after the Reporting Period. Retrieved September 13, 2016, from https://www.aasb.gov.au/admin/file/content105/c9/AASB110_07-04_COMPdec09_01-11.pdf

AASB 136. (2010). Impairment of Assets. Retrieved September 13, 2016, from https://www.aasb.gov.au/admin/file/content105/c9/AASB136_07-04_COMPjun09_01-10.pdf

AASB 1021. (1997). Deprecation. Retrieved September 13, 2016, from https://www.aasb.gov.au/admin/file/content102/c3/AASB1021_8-97.pdf

AASB 108. (2013). Deprecation. Retrieved September 13, 2016, from https://www.aasb.gov.au/admin/file/content105/c9/AASB108_07-04_COMPdec09_01-11.pdf

AASB 9. (2010). Financial Instruments. Retrieved September 13, 2016, from https://www.aasb.gov.au/admin/file/content105/c9/AASB9_12-10.pdf