Accounting

AFF2491 Exam Solutions: Semester 1, 2011 (Caulfield Campus) Solution Q 1.1 (6 marks) No. 1 Date 31/07/2010 Particulars Cash Trust Application 200,000 x $3 = $600,000 2 15/08/2010 Application (200,000 x $3) Allotment (200,000 x $2) Share capital (200,000 x $5) Cash Cash Trust 31/08/2010 Cash Allotment Share capital Cash 600,000 400,000 1,000,000 600,000 600,000 400,000 400,000 50,000 50,000 Debit 600,000 Credit 600,000

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15/09/2010

Solution Q 1.2 (2 marks) Forfeited shares If a member fails to pay a call or instalment on the due date, directors may cancel those unpaid shares. A forfeited share is a share that has been cancelled by directors due to nonpayment of call The costs in relation to re-issue of forfeited shares will reduce the forfeited shares account. In other words, the costs of re-issuance of shares will be deducted from the amount that will be refunded to the holder of forfeited shares

Solution Q 2.1 (3 marks) The loss of damages due to fire on 5 December 2010 prior to reporting date on 31 December 2010 cannot be classified as Events after the Balance Sheet Date in accordance with AASB 110 because fire occurred before the balance sheet date.

Solution Q 2.2 (5 marks) The company needs to make journal entry on 31 December 2010 to record the loss of damages due to fire on 5 December 2010 because the amount of $500,000 was considered material. The loss of damages was 50 percent of the company’s unadjusted profit before tax. Since the amount is material based on materiality guidance, any omission to record this loss of damages could impact on the reliability of the financial statements and adversely affect users’ decisions or management’s discharge of its accountability.

References: (students are not required to provide these references. Only for information)

Financial FRAMEWORK Reliable information is that which is free from material error and can be depended upon by users to represent faithfully that with which it purports to...