Required journal entries
|
Date |
Account description |
Amount |
Amount |
|
01-07-14 |
Equipment |
800,000.00 |
|
|
Cash |
800,000.00 |
||
|
Equipment purchased |
|||
|
30-06-15 |
Depreciation expenses |
152,000.00 |
|
|
Accumulated depreciation |
152,000.00 |
||
|
Depreciation charged |
|||
|
30-06-15 |
Profit and loss account |
152,000.00 |
|
|
Depreciation Expenses |
152,000.00 |
||
|
Expenses transferred to Profit and loss account |
|||
|
01-07-15 |
Accumulated depreciation |
152,000.00 |
|
|
Income tax expenses (OCI) |
24,600.00 |
||
|
Equipment |
70,000.00 |
||
|
Gain on revaluation (OCI) |
82,000.00 |
||
|
Deferred Tax liability |
24,600.00 |
||
|
Equipment revalued |
|||
|
01-07-15 |
Gain on revaluation (OCI) |
82,000.00 |
|
|
Income tax expenses (OCI) |
24,600.00 |
||
|
Asset Revaluation Surplus |
57,400.00 |
||
|
Revaluation profit transferred to asset revaluation surplus |
|||
|
30-06-16 |
Depreciation expenses |
121,666.67 |
|
|
Accumulated depreciation |
121,666.67 |
||
|
Depreciation charged |
|||
|
30-06-16 |
Profit and loss account |
121,666.67 |
|
|
Depreciation Expenses |
121,666.67 |
||
|
Expenses transferred to Profit and loss account |
|||
|
30-06-17 |
Depreciation expenses |
121,666.67 |
|
|
Accumulated depreciation |
121,666.67 |
||
|
Depreciation charged |
|||
|
30-06-17 |
Profit and loss account |
121,666.67 |
|
|
Depreciation Expenses |
121,666.67 |
||
|
Expenses transferred to Profit and loss account |
|||
|
30-06-17 |
Accumulated depreciation |
243,333.33 |
|
|
Loss on revaluation (OCI) |
82,000.00 |
||
|
Deferred Tax liability |
1,400.00 |
||
|
Loss on revaluation (P&L) |
4,666.67 |
||
|
Equipment |
330,000.00 |
||
|
Income tax expenses (OCI) |
1,400.00 |
||
|
Equipment revalued |
|||
|
30-06-17 |
Asset Revaluation Surplus |
57,400.00 |
|
|
Loss on revaluation (P&L) |
23,200.00 |
||
|
Income tax expenses (OCI) |
1,400.00 |
||
|
Loss on revaluation (OCI) |
82,000.00 |
||
|
Revaluation loss transferred to Revaluation loss chargeable to profit and loss account |
|||
|
30-09-17 |
Depreciation expenses |
25,000.00 |
|
|
Accumulated depreciation |
25,000.00 |
||
|
Depreciation charged |
|||
|
30-09-17 |
Accumulated depreciation |
25,000.00 |
|
|
cash |
390,000.00 |
||
|
Equipment |
400,000.00 |
||
|
Profit on sale of equipment |
15,000.00 |
||
|
Equipment sold |
|||
|
30-09-17 |
Profit and loss account |
52,866.67 |
|
|
Loss on revaluation |
27,866.67 |
||
|
Depreciation Expenses |
25,000.00 |
||
|
expenses transferred to profit and loss account |
|||
|
30-09-17 |
Profit on sale of equipment |
15,000.00 |
|
|
Profit and loss account |
15,000.00 |
||
|
profits transferred to profit and loss account |
Working Notes
Depreciation calculations
|
30-06-15 |
30-06-16 |
30-06-17 |
30-09-17 |
|
|
Cost/ Fair value |
800,000.00 |
730,000.00 |
730,000.00 |
400,000.00 |
|
Life of asset (in years) |
5 |
6 |
6 |
4 |
|
Salvage value |
40,000.00 |
– |
– |
– |
|
Depreciation expenses for year |
152,000.00 |
121,666.67 |
121,666.67 |
|
|
Depreciation expenses for 3 months |
25,000.00 |
Tax effect
|
01-07-15 |
30-06-17 |
|
|
Carrying value after revaluation |
730000 |
400000 |
|
Carrying value before revaluation |
648000 |
486,666.67 |
|
Taxable temporary difference |
82000 |
86,666.67 |
|
Taxable temporary difference (opening balance) |
0 |
82000 |
|
Taxable temporary difference (Closing balance) |
82000 |
4,666.67 |
|
Deferred tax asset/ liability |
24600 |
1,400.00 |
- As per AASB 116 whenever life of asset changed then this will change will treated as prospective change hence, there will be no any change in the previous year financial statements. Only financial statements after such change will be effected from such change (Australian Accounting Standards Board, 2017). In the given condition,
|
Purchase cost of asset as on 1 July 2013 |
500,000.00 |
|
Life |
10 |
|
Depreciation |
50,000.00 |
|
Accumulated depreciation till 30 June 2015 |
100,000.00 |
|
Life revalued |
|
|
Remaining life as on 1 July 2015 |
6 |
|
Depreciation per year after 1 July 2015 |
66,666.67 |
After such change in life of asset, company requires to charge depreciation $66,666.67 per year and in financial statements for year ending on 30 June 2016, company requires to disclose change in remaining life of asset, effect of such change in the yearly depreciation and reason of such change.
- In the given case, company made tax deductable repairs during the year ending in June 2015 and no accounting treatment made by company at the date of transaction as well as at the closing of financial year. This transaction requires the recording of repair expenditure and when reduction of tax expenses due to repairs expenses (AASB, no year). Hence in the accounting year ending on June company requires to make these journal entries,
|
Account description |
Amount |
Amount |
|
Repairs expenses |
25,000.00 |
|
|
Accounts payable |
25,000.00 |
|
|
Profit and loss account |
25,000.00 |
|
|
Repairs expenses |
25,000.00 |
When such entry will made then tax expenses will automatically reduce. On July 2015 when company made payment for the expenses then journal entry will be,
|
Account description |
Amount |
Amount |
|
Accounts payable |
25,000.00 |
|
|
Cash |
25,000.00 |
- Impairment loss refers to the loss which incurred due to excess carrying amount of asset over recoverable amount (Damodaran, 2012). In the present case carting amount of investment asset is $800,000 and recoverable amount is $450,000, it means there is a impairment loss of $350,000. In such case company requires to pass entry for recording impairment loss i.e.,
|
Account description |
Amount |
Amount |
|
Impairment loss |
350,000.00 |
|
|
Investment in Bobsmith Ltd. |
350,000.00 |
- Whenever present obligation is present before the closure of financial stamen then for such obligation company requires to create provision (AASB, 2010). When any obligation arises then company requires to make treatment of such obligation. In the present case company make an estimate of 50% provisions for doubtful debts for the year ended on 30 June 2016 and before finalization of accounts for the year ended on 30 June 2016, company come to know that 100% debt will be irrecoverable. In such situation the company comes to know regarding the 100% loss of debts in July 2016 hence company requires to make treatment for such expenses in accounts for year ended on 30 June 2017. So, company requires to made an accounting journal entry in the accounts for the period ended on 30 June 2017. The ornal entry will be,
|
Account description |
Amount |
Amount |
|
Bad debts expenses |
450,000.00 |
|
|
Debtor |
450,000.00 |
|
|
Provision for doubtful debts |
450,000.00 |
|
|
Bad debts expenses |
450,000.00 |
Calculation of current tax expenditure
|
Account description |
Amount |
Amount |
|
Revenue |
751,000.00 |
|
|
Expenses: |
||
|
Cost of sales |
325,000.00 |
|
|
Annual leave |
13,000.00 |
|
|
Depreciation – equipment |
40,000.00 |
|
|
Depreciation – motor vehicles |
15,000.00 |
|
|
Doubtful debts expense |
6,000.00 |
|
|
Insurance |
10,000.00 |
|
|
Rent |
26,000.00 |
|
|
Salaries |
125,000.00 |
|
|
Warranty expenses |
8,500.00 |
|
|
Other expenses |
17,250.00 |
|
|
Total expenses |
585,750.00 |
|
|
Taxable Profit before tax |
165,250.00 |
|
|
Current tax expenditure |
49,575.00 |
Calculation of deferred tax Asset
|
Timing difference |
|
|
Depreciation equipment |
20,000.00 |
|
Depreciation motor vehicle |
(3,000.00) |
|
Annual leave |
(11,000.00) |
|
Rent |
(6,000.00) |
|
Warranty expenses |
(6,900.00) |
|
Taxable temporary difference |
(6,900.00) |
|
Taxable temporary difference (opening balance) |
– |
|
Taxable temporary difference (Closing balance) |
(6,900.00) |
|
Deferred tax Asset |
2,070.00 |
Required journal entry
|
Account description |
Amount |
Amount |
|
Income tax expense |
49,575.00 |
|
|
Deferred tax asset |
2,070.00 |
|
|
Income tax payable |
51,645.00 |
References
- AASB, A. A. S. 116.Property, Plant and Equipment, Australian Accounting Standards Board, Melbourne.
- AASB, A. A. S. 137.Provisions, Contingent Liabilities and Contingent Assets, Australian Accounting Standards Board, Melbourne.
- AASB, A. A. S. 101.Presentation of Financial Statements, Australian Accounting Standards Board, Melbourne.
- AASB, A. A. S. 112.Income taxes, Australian Accounting Standards Board, Melbourne.
- Bond, D., Govendir, B., & Wells, P. (2016). An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136. Accounting & Finance, 56(1), 259-288. https://dx.doi.org/10.1111/acfi.12194
- Australian Accounting Standards Board. (2017). https://www.aasb.gov.au. Retrieved 9 May 2017, from https://www.aasb.gov.au/admin/file/content102/c3/AASB116_07-04_ERDRjun10_07-09.pdf
- Damodaran, A. (2012).Investment valuation: Tools and techniques for determining the value of any asset (Vol. 666). John Wiley & Sons.
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