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Advance Financial Account Concept Report

Advance Financial Account

The fair value of the net identifiable assets of Bo Ltd are determined as follows: (in $000)

Advance Financial Account Concept Report

Bo ltd acquire by Mam Lth for the cash of $7000000 on 1st July 2018. At that date, Bo Ltd’s net identifiable assets had a fair value of $5 800 000. At the end of the reporting period of 30 June 2019, the management of Mam Ltd determines that the recoverable amount of the cash-generating unit, which is considered to be Bo Ltd, totals $6 200 000. The carrying amount of the net identifiable assets of Bo Ltd, which excludes goodwill, has not changed since acquisition and is $5 800 000.

Advance Financial Account Concept Report

Required

(a)Prepare the journal entry to account for any impairment of goodwill.

(b)Assume instead that at the end of the reporting period the management of Mam Ltd determines that the recoverable amount of the cash-generating unit, which is considered to be Mam Ltd, totals $4 800 000. Prepare the journal entry to account for the impairment.

Ans. a) 2018:

Goodwill account       1200000

Cash account            1200000

In 2019, no impairment loss going to be consider as impairment loss occur when carrying value of assets greater than recoverable amount. but no high loss of impairment going to occur only the amount of goodwill going to decrease with minimal amount

Impairment loss         400000

Goodwill account       400000

b) 2019:

impairment account 1000000

Goodwill                    1000000

During the reporting period ending 30 June 2018, Boil Ltd constructed a nuclear power generator just outside of Melbourne. The cost of the power generator and associated technology amounted to $12 550 000. Other costs associated with the construction amounted to:

Advance Financial Account Concept Report

At the end of the power plant’s useful life, which is expected to be 10 years, Midnight Boil Ltd is required by the government to dismantle the plant, remove it, and return the site to its original condition. After consulting its own engineers and environmentalists, Midnight Boil Ltd estimates these costs to be:

Advance Financial Account Concept Report

  • Midnight Boil Ltd uses a discount rate of 10 per cent.

The plant was ready to start generating power on 1 July 2018, with actual generation starting on 1 October 2018.

Required

Prepare the journal entries necessary to account for the power plant for the years ended 30 June 2018, 30 June 2019 and 30 June 2024. Ignore depreciation.

Ans. 30 June 2018:

Power Generator            12550000

Account Payable              12550000

Cost Related To Construction        4001500

Power Generator                 4001500

30 June 2019:

Depreciation                  1045000

Accumulated Depreciation        104500

30 June 2024:

Depreciation                 6270000

Accumulated Depreciation           6270000

You have been appointed the accountant of a new organization that is preparing its first set of financial statements. In determining the depreciation for the first year, what sorts of information would you need?

Ans. As we know that depreciation is the process of measuring the reduction costs of any fixed assets in a proper manner. In the calculation of first year depreciation, we have to consider some basic elements, like the cost of assets, its salvage value and its useful life. With this information we can measure the depreciation of any one type. Depreciation can also be measure in different conditions and methods according to give information of all fixed assets.

Sun City Limited commences construction of a multi-purpose water park on 1 July 2014 for Pretoria Limited. Sun City Limited signs a fixed-price contract for total revenues of $50 million. The project is expected to be completed by the end of 2017 and Pretoria Limited controls the asset throughout the period of construction. The expected cost as at the commencement of construction is $38 million. The estimated costs of a construction project might change throughout the project—in this example, they do change. The following data relates to the project (the financial years end on 30 June):

Advance Financial Account Concept Report

Required

  • Using the above data, compute the gross profit to be recognized for each of the three years, assuming that the outcome of the contract can be reliably estimated.

Ans.  Revenue= $50m, expected cost = $38m

Advance Financial Account Concept Report

  • Prepare the journal entries for the 2015 financial year using the percentage-of-completion method.

Ans. With the help of percentage completion method;

Construction in process      48

Account payable          48

Construction receivable       12

Progress billing            12

Construction expense          13

Construction revenue    13

(c) Prepare the journal entries for the 2015 financial year, assuming the stage of completion cannot

Be reliably assessed. 

Ans.  

Construction process     38

Account payable               38

Construction receivable   12

Progress billing                 12

Construction expense            12

Construction revenue         12

Also study:

Crane Co. Financial Analysis

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