Financial Statements Preparation And Accounting Transactions

Accounting Transactions

Deferred Tax Worksheet

Figure 1: (Statement showing Deferred Tax Worksheet)

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Journal Entries Relating to Current and Deferred Tax Assets and Liabilities

Figure 2: (Statement showing Journal Entries)

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Figure 3: (Table Showing Journal Entries)

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Figure 4: (Statement showing Revaluation Fain/Loss and Deferred Tax)

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The case study states that the accountant of Jacky ltd faces the following circumstances while preparing the financial accounts of the business. The situations which arises are explained below in details:

1. As per the situation which arises in the question, on the basis of the regular review which is to be done on the depreciable assets and useful life of the assets as per AASB 116, the directors of the company identify that change in the useful life of the asset is required (Hu, Percy and Yao 2015). The equipment which is the concern for the directors was purchased in 2013 and at that time it was estimated that the useful life of the equipment will be of 10 years and the residual value of the equipment is considered to be nil (Benkedjouh et al.2013). The equipment which Jacky ltd purchased was for $ 5,00,000 in 2013. The equipment was depreciated on a straight-line basis as per the policy of the company (Del Giudice, Manganelli and De Paola 2016). As per para 51 of AASB 116, the residual value and useful life of the assets is to be reviewed at least once in a financial year and if the review results are different from the estimated results. Then such a change shall be regarded as a change in accounting estimated and will be recorded in financial statements and such a change shall be considered as a change in accounting estimate as per AASB 108 Accounting Policies, Change in Accounting Estimates and Errors (Henderson et al. 2015). Therefore, the change in depreciation model and change in estimates need to be recorded in the financial statements (Edmonds et al. 2016).
2. As per the situation which is provided in the case of Jacky ltd, the account payable officers recognized that an invoice of $ 25,000 was not recorded in the books of accounts which was incurred during the month of June and the payment for which was made in the month of July. The management of the Jacky ltd needs to record the transaction in the month of June itself and thereby include in the financial statements of the year. The principle of accrual basis requires the business to recognize transactions as and when they accrue and therefore the expenses of $ 25,000 needs to be included in the books of accounts of the business (Weil, Schipper and Francis 2013). The expenses which are incurred by the business is also subjected to tax provisions and deductions during the year. The accountant of Jacky ltd needs to passes necessary journal entries for the purpose of recording the transactions which are related to the expenses which are incurred during the year.

As per the situation which is mentioned in the case, the management of Jacky ltd holds shares in the Bobsmith Ltd which is of the value of $ 8,00,000. This holding of shares are to be taken as investments which are made by Jacky ltd and the same will be shown in the balance sheet of Jacky ltd (Needles, Powers and Crosson 2013). The value of such holdings of Jacky Ltd falls before the financial statement is finalized and the value of the shareholdings of Jacky ltd in Bobsmith ltd falls from $ 8,00,000 to $ 4,50,000. The business will be incurring in an unrealized loss for the fall in the stock prices of the business (Macve 2015). The transaction which the business needs to pass in such a situation is given below:

As per the case which is given in the case study, Jacky ltd has a major debtor which has filed for bankruptcy from which the company will be receiving debt of $ 9,00,000 for which the business has made a provision of $ 4,50,000. The business needs to amend the financial statements of the business and record the loss which the business will be suffering as the debtor is unable to pay any debts and thus the same will be considered as bad debts of the company. The business will be passing the given below entry to write off the debt of the business

Reference

Benkedjouh, T., Medjaher, K., Zerhouni, N. and Rechak, S., 2013. Remaining useful life estimation based on nonlinear feature reduction and support vector regression. Engineering Applications of Artificial Intelligence, 26(7), pp.1751-1760.

Del Giudice, V., Manganelli, B. and De Paola, P., 2016, July. Depreciation methods for firm’s assets. In International Conference on Computational Science and Its Applications(pp. 214-227). Springer, Cham.

Edmonds, T.P., Edmonds, C.D., Tsay, B.Y. and Olds, P.R., 2016. Fundamental managerial accounting concepts. McGraw-Hill Education.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Hu, F., Percy, M. and Yao, D., 2015. Asset revaluations and earnings management: Evidence from Australian companies. Corporate Ownership and Control, 13(1), pp.930-939.

Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.

Needles, B.E., Powers, M. and Crosson, S.V., 2013. Principles of accounting. Cengage Learning.

Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

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