Part A
Question 1 Accounting for Debentures
Solution:
Given:
| Date of disclosure document | 1/8/2020 |
| Date of receipt of application money | 30/09/2020 |
| Date of issuance of debentures | 1/10/2020 |
| Applications invitations | 10000 |
| Application received | 11000 |
| Applications refunded | 1000 |
| Issue price at par | $80.00 |
| payable on application | 100% |
| annual interest charge | 8% |
| Interest Payments | Semi annually |
| Dates | 31-Dec |
| 30-Jun | |
| Redemption | |
| Period | 5 years |
| Rate | at nominal rates |
Journal:
| General Journal | |||
| Date | Particulars | Debit | Credit |
| 30/09/2020 | Bank A/c | $ 880,000.00 | |
| To 8% Debenture Application and Allotment A/c | $ 880,000.00 | ||
| Being receipt of application money on 11,000 debentures | |||
| 1/10/2020 | 8% Debenture Application and Allotment A/c | $ 880,000.00 | |
| To 8% Debenture A/c | $ 800,000.00 | ||
| To Bank A/c | $ 80,000.00 | ||
| Being Debenture Application money transferred to Debenture A/c, and money refunded on rejected application | |||
| 31/12/2020 | Debenture Interest A/c | $ 16,000.00 | |
| To Debenture holders A/c | $ 16,000.00 | ||
| Being interest due for 3 months from 1 Oct 2020 to 31 Dec 2020 | |||
| 31/12/2020 | Debenture holders A/c | $ 16,000.00 | |
| To Bank A/c | $ 16,000.00 | ||
| Being Interest Paid | |||
| 30/06/2021 | Debenture Interest A/c | $ 32,000.00 | |
| To Debenture holders A/c | $ 32,000.00 | ||
| Being interest due for 6 months from 1 Jan 2021 to 30 June 2021 | |||
| 30/06/2021 | Debenture holders A/c | $ 32,000.00 | |
| To Bank A/c | $ 32,000.00 | ||
| Being Interest Paid | |||
| 30/06/2021 | Statement of Profit and Loss | $ 48,000.00 | |
| To Debenture Interest A/c | $ 48,000.00 | ||
| Being expense on payments of debenture interest transferred to profit and loss account |
Question 2 Accounting for Impairment
| Assets | Carrying Amount | Proportion | Loss Allocated | Adjusted Carrying Amount |
| Inventory | 15000 | 9.09% | 4091 | 10909 |
| Goodwill | 30000 | 18.18% | 8182 | 21818 |
| Plant | 80000 | 48.48% | 21818 | 58182 |
| Motor Vehicles | 40000 | 24.24% | 10909 | 29091 |
| Total | 165000 | 100.00% | 45000 | 120000 |
| General Journal | |||
| Date | Particulars | Debit | Credit |
| 30/06/2020 | Loss on Impairment | $ 45,000 | |
| To Inventory | $ 4,091 | ||
| To Goodwill | $ 8,182 | ||
| To Plant | $ 21,818 | ||
| To Motor Vehicle | $ 10,909 | ||
| Being Impairment loss recognized in the assets of CGU unit |
Question 3 Asset Revaluation
| 1/7/2021 | Cost | 105000 | |
| Useful Life | 7 years | ||
| Depreciation | SLM | ||
| Annual Depreciation Exp | 15000 | ||
| Date | Ending Balance | Depreciation | Carrying Value |
| 1/7/2021 | 105000 | 0 | 105000 |
| 30/6/2022 | 105000 | 15000 | 90000 |
| 30/6/2023 | 90000 | 15000 | 75000 |
| 30/6/2024 | 75000 | 15000 | 60000 |
| 30/6/2025 | 60000 | 15000 | 45000 |
| Date | Book Value | Market Value | Impairment Loss |
| 30/6/2023 | 75000 | 90000 | 0 |
| 30/6/2025 | 45000 | 40000 | -5000 |
| General Journal | |||
| Date | Particulars | Debit | Credit |
| 30/6/2023 | Depreciation Account | 15000 | |
| To Equipment Account | 15000 | ||
| General Journal | |||
| Date | Particulars | Debit | Credit |
| 30/6/2025 | Impairment Loss | 5000 | |
| Depreciation Account | 15000 | ||
| To Equipment Account | 20000 |
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