Questions:
1. Aside from the above-mentioned Inventories, illustrate or describe other scenarios you can think of when would payments made to employees can be considered to be an Asset? Provide possible journal entries, if needed State whether the following assets may be revalued, support your answer with a brief explanation to your reason. Prepare journal entries for any revaluations permitted by accounting standards. Assume that each item listed below represents a separate class of assets
2. a) NT News OnTheGo Ltd has developed a masthead for its newspaper to the point where it is a very valuable asset. Although the masthead is not currently recognised, management believes it could be sold for at least $3 million.
b) John Wiley & Sons Australasia Ltd purchased a publishing title two years ago for $1.2 million when another publisher went into liquidation. The book lhas been very successful and management believes that it could probably sell $1.5 million if ever they put it on the market.
c) Booze Your Juice Ltd acquired a franchise for an ice-cream stand at a beach at a cost of $100 000. There is great demand for this type of franchise as evidenced by recent sales of equivalent franchises at other beaches. The current market price of such a franchise is $200 000.
DJB Ltd has deferred development costs of $520 000 and the estimated recoverable amount of development project is $860 000
3. You own a financial accounting services called MyNextProblem Consultancy Ltd. You have been invited to lecture at Darwin Charles Uni and provide advice to students of the requirements of AASB 10 in respect of the control criterion.
Required: For each of the below independent situation, determine whether or not control exists and, if so, by which party. Discuss the reasons for your answers. Where possible, support your answer with excerpts from AASB 10.
Answers:
The scenario depict that the various phases are there when the payment made to the employees by a company could be context as an asset. Except for the given statement where the employer has paid to the employee for converting the raw material into the work in progress, various other options are there where the payment made to the employees by a company could be context as an asset. Such as if an employee buys or rental a personal car from an employee and then use that car on the name of the company than the paid amount to the employees could be considered by the company as an asset.
Cash a/c Dr. 1,00,000
To Car a/c 1,00,000
(Being car purchased.)
Further, if an employee is paid for his work through equity securities or right share then in that case, this payment could also be context as an asset (Schroeder, Clark & Cathey, 2001). Various other phases are also there where the payment made to the employees by a co
mpany could be context as an asset.
Shares a/c Dr 50,000
To employees a/c 50,000
Thus the above journal entries depict that for paying the amount to the employees, the assets account of the company get affected.
This scenario depict that the company has launched a new segment in the business and due to that the value of the assets of the company has been enhanced and the management has checked the marketing condition and through which they have assumed that the assets could be sold in $ 3 million but according to the case, it is not the right time for the company to revaluation the asset (Arewa, 2006).
This scenario depict that the company has been liquidated 2 years ago and due to that the machineries of the company has been of no use. But the management decided to come with those machineries to sell in the market (Lee, 2006). According to this case, it is required for the business to revaluate the value of asset at the time of liquidation and then after 2 years before coming into the market to sell the machinery. So that the real worth of the machineries could be identified.
Machineries a/c Dr 30,000
To revaluation account 30,000
Revaluation a/c Dr. 50,000
To share capital a/c 50,000
According to this case, a company has acquired a franchise worth $ 1,00,000 and further, the current market price of the franchise is $ 2,00,000. Company has deferred development cost worth of $5,20,000 and the company is estimating that the amount would be recovered worth of $ 8,60,000 by the company in consideration. According to this case study, it is required for the company to revalue the worth of the assets on the basis of the development cost (Dye & Sunder, 2001). As the development cost of the franchise is the part of long term assets of the company. So the revaluated amount of the company would be as follows:
Machineries a/c Dr 5,20,000
To revaluation account 5,20,000
(The excess amount of revaluation has been credited.)
Revaluation a/c Dr. 5,20,000
To share capital a/c 5,20,000
(Excess amount has been transferred into the share capital.)
According to this case, the company was running its business smoothly but due to some external issues, company has faced an issue of low profitability and thus the bank has proved the company defaulted. Due to this, the government has started to make a control over the operations and the entire activities which are above $ 5000. This depict that the control of the government on the activities and transaction of the company is genuine as the bank is obligated to get back the entire amount which has been given to the company by the name of the loan. As currently the condition of company is becoming worst and thus the bank have to take some strict action to manage the funds and profit of the company which would help the company to enhance its performance again and due to that the company would be able to pay back the entire amount again (Daly & Farley, 2011).
In this case, it has been found that the directors of the company have decided to stop it to adopt the new technology. This depict that various people are there in the company who was forcing the director to adopt the new technology but the director refrained for ii and currently the quality of the products of the company has been diminished. Entire market has been grabbed by the competitors and thus position of the company has become very lower (Assessment, 2013). According to this case, company is suggested to purchase more advanced equipment and start the process again according to the going concern concept as through it, the old customers could be grabbed again and the position of the company could be better. But if bank would reject further equity than the bank would have to face huge loss. And according to the past performance of the company, it won’t take much time for the company to become stable again.
According to the given case, ACT502 has 2 seat vacant of non executive directors and currently, the rest 3 seats of the company is equipped by one share holders as over the post of chief executive officer and 2 non executive officer of the company. Now it is required for the company to equip these seats (Glasson, Therivel & Chadwick, 2013). At the same time, the existing shareholders of the company are not attending the annual meetings of the company. Through this case, it has been evaluated that the company is firstly required to manage the vacant seats by posting 2 other directors there and then the non executive directors of the company are requested t attend the annual meetings of the company so that the issues and the fraud could be seen. According to this case, the major shareholder could do fraud easily as he is not responsible for anyone.
According to the case, there are only 2 directors of the company B1 limited and B2 limited company has managed 50:50 shares of the company and there is no any other holding in the company. Company has appointed the management team as well and agreed to pay a fee equivalent to 50% profit to the management team. And according to the provision, if company faces any kind o loss than B1 limited, it responsible for 10 options only (Laux & Leuz, 2009). This case is quite controllable as S limited is a public company and in public companies, the shareholders are only responsible for their shareholdings. And thus the provision of the B1 limited is quite valid.
According to the given case study, 2 major shareholders of the company are having 51% holdings and 49% holdings respectively. The 51%% holding company has 2 seats in the board and the other company is having 3 seats in the board. According to the statement of first company, company is quite happy with the performance of the company is satisfied with the activities and business run by the 49% holding company and thus company has chose to be a passive director, which is possible in a company, If a shareholder invest amount into a business but do not directly participate in the business than the member of director is passive in nature (Whittington, 2008). Passive directors are responsible for every activity in the business whether they were connected with it or not.
According to the given case study, 3 major shareholders of the company are P limited, G limited and H limited which are having 33.33% holdings respectively. The companies are running a sole proprietor business and according to the case, only G limited is an active shareholder and other 2 which are P limited and H limited is the passive director of the company. According to the case, both the companies are quite happy with the performance of the business and they are satisfied with the activities and business run by the G limited and thus companies have chose to be a passive director, which is possible in a company, If a shareholder invest amount into a business but do not directly participate in the business than the member of director is passive in nature (Whittington, 2008). Passive directors are responsible for every activity in the business whether they were connected with it or not.
References:
Arewa, O.B., (2006). Measuring &representing the knowledge economy: accounting for economic reality under the intangibles paradigm. Buff. L. Rev., 54, p.1.
Assessment, W.S.B.P., (2013). Conceptual Framework.
Daly, H. E., &Farley, J., (2011). Ecological economics: principles &applications. Isl&press.
Dye, R.A. &Sunder, S.,(2001). Why not allow FASB &IASB standards to compete in the US?. Accounting horizons, 15(3), pp.257-271.
Glasson, J., Therivel, R., &Chadwick, A., (2013). Introduction to environmental impact assessment. Routledge.
Laux, C. &Leuz, C., (2009). The crisis of fair-value accounting: Making sense of the recent debate. Accounting, organizations &society, 34(6), pp.826-834.
Lee, T.A., (2006). The FASB &accounting for economic reality. Accounting &the Public Interest, 6(1), pp.1-21.
Schroeder, R.G., Clark, M.W. &Cathey, J.M., (2001). Accounting theory &analysis. Chapel Hill: University of North Carolina.
Whittington, G., (2008) (B). Fair value &the IASB/FASB conceptual framework project: an alternative view. Abacus, 44(2), pp.139-168.
Whittington, G., (2008). Fair value &the IASB/FASB conceptual framework project: an alternative view. Abacus, 44(2), pp.139-168.
