Accounting Theory and Current Issues Assignment Sample

Week 1

Information is relevant if it can influence or change the economic decisions of users and is given in time to influence those decisions (Janssen, van der Voort and Wahyudi, 2017). The information is considered to be relevant if it is material in nature. Information that is relevant has confirmatory or predictive value.

Predictive value is used by users to assess future, present and past events. Confirmatory value is used to confirm those assessments and evaluation (Otley, 2016).

Faithful representation means the presentation of any financial data in accordance with their economic reality and substance, not only in their legal form (Azar, Zakaria and Sulaiman, 2019).

  1. 1 example where information is relevant but not faithfully represented:  Order of $10 million has been recorded but the goods have not been delivered and the payment has not been received. Therefore in the above example we can assess that the order of $ 10 million has been recorded as revenue but the goods has not been sent or the payment has not been received. As the value is of $ 10 million therefore the information is relevant but it has not been faithfully represented as the company should not have been recorded it as revenue.

  2. 1 example where information is not relevant but is faithfully represented: Order of $ 500 has been received but has not been recorded as revenue. As the value is just $ 500 therefore the value is not relevant but it has not been presented as revenue as the goods has not yet been delivered or the payment has not been received yet, therefore it has been faithfully represented but is relevant for the decision making as the value is very small to be considered.

  3. 1 example where information is relevant and faithfully represented:the customer has demanded for some service for 1 year and the full year payment of $ 60000 (for 12 months has been received). But the services have been given only for 4 months before the year ended. The revenue has been recorded as (60000/12 *4) = $20000. This representation is correct as for services revenue should be recorded when the services have been delivered and the period for which the services has been delivered. This is an example of relevant because $60000 is a big deal of money and has been faithfully represented.

Week 2

  1. Agreement with support of government bond between society and members in the society to cooperate and support in need is called social contract (Yao, 2018).

Organizational Legitimacy is the coherence of values that are instilled in an organization with a blend of social context. Legitimacy is the process by which superior systems and partners are given power (Deephouse et al. 2017).

Previously the organization was a much closed space therefor etc. transparency in the system the institutional schools has tried and adopted the blend of social contract where the people give some power to others to control them and legitimacy the process of transferring power. Therefore we can blend both the concepts and conclude that the process by which the partners are given power is governed by the shareholders and thus we can also say that the social contract has also been implemented here as the partners of an organization is governed by the shareholders.

  1. Organization can use corporate disclosure policy to maintain or regain organizational legitimacy:

  1. The transferring of power should be voted as it provides an unbiased opinion and the voting should be held in open.

  2. The policies and procedures of the company should be informed and written in the company’s annual report which provides transparency and thus would mitigate the fading away of organizational legitimacy.

 

 

Week 3

DATE

JOURNAL ENTRIES

 DEBIT ($)

CREDIT($)

1/7/15

Equipment

      To  Bank

440000

 

440000

1/7/17

Statement of profit and loss

      To Accumulated Depreciation

80000

 

80000

1/7/17

Equipment

      To revaluation surplus

64000

 

64000

1/7/19

Statement of profit and loss

      To Accumulated Depreciation

106000

 

106000

1/7/19

Bank

      To Equipment

      To gain on sale

356000

 

318000

38000

 

 

 

 

 

From 1/7/15 to 1/7/17 the depreciation of the equipment was charged for 2 years in SLM method. Therefore the depreciation was (440000-40000/10   *2) = $80000.

Carrying value of the equipment on 1/7/17 = 440000-80000= $360000

Revaluation surplus = $(424000-360000) =$ 64000

Depreciation from 1/7/17 to 1/7/19 = $424000 / 8   *2 = $106000

Residual value = $424000-$106000 =$ 318000

Gain on sale = $ 356000- 318000 = $ 38000

Week 4

 a)

Carrying value = net assets + goodwill = $(4400000+600000) =$ 5000000

Recoverable amount = $4500000

If carrying value > recoverable amount then impairment exists

Impairment = $5000000-$4500000 = $500000

DATE

PARTICULARS

DEBIT($)

CREDIT($)

 

30/6/19

 Impairment

     To cash generating unit

500000

 

500000

30/6/19

Impairment

     To goodwill

500000

 

500000

 

 

 

 

 

b)

Now the recoverable amount is $4200000

Carrying value = net assets + goodwill = $(4400000+600000) =$ 5000000

If carrying value > recoverable amount then impairment exists

Impairment = $5000000-$4200000 = $800000

Therefore in case of impairment goodwill should be impairment first and as the impairment value is greater than goodwill ($800000> $600000), therefore whole of the goodwill should be impaired

Value of goodwill impaired = $600000

Week 5

a)

total lease amount

2215560

 

 

 

initial payment

300000

 

 

 

 

 

 

10%

 

year

balance bf

interest

payment

balance cu

2020

1915560

191556

225000

1882116

2021

1882116

188212

225000

1845328

2022

1845328

184533

225000

1804860

2023

1804860

180486

225000

1760346

2024

1760346

176035

225000

1711381

2025

1711381

171138

225000

1657519

2026

1657519

165752

225000

1598271

2027

1598271

159827

225000

1533098

2028

1533098

153310

225000

1461408

2029

1461408

146141

225000

1382549

2030

1382549

138255

225000

1295804

2031

1295804

129580

225000

1200384

2032

1200384

120038

225000

1095422

2033

1095422

109542

225000

979965

2034

979965

97996

225000

852961

2035

852961

85296

225000

713257

2036

713257

71326

225000

559583

2037

559583

55958

225000

390541

2038

390541

39054

225000

204595

2039

204595

20460

225000

55

 

From the table we can prove that the payment of $250000-$25000=$225000 in arrears is at an implicit rate of 10%. The value $55 has arisen due to decimal and rounding off or else the value would have been 0.

 

 

b)

date

particulars

Debit($)

Credit($)

1/7/2019

Cargo ship

      To lease liability

      To cash

2215560

 

1915560

300000

30/6/2020

finance cost

      to lease liability

191556

 

191556

30/6/2020

Lease liability

      To cash

250000

 

250000

 

c)

 

date

particulars

Debit($)

Credit($)

1/7/2019

Lease receivable

     To cargo ship

2215560

 

2215560

30/6/2020

Cash

       To lease receivable

       To interest income

250000

 

58444

191556

 

 

References

Azar, N., Zakaria, Z. and Sulaiman, N.A., 2019. The Quality of Accounting Information: Relevance or Value-Relevance?. Asian Journal of Accounting Perspectives12(1), pp.1-21

Deephouse, D.L., Bundy, J., Tost, L.P. and Suchman, M.C., 2017. Organizational legitimacy: Six key questions. The SAGE handbook of organizational institutionalism4(2), pp.27-54

Janssen, M., van der Voort, H. and Wahyudi, A., 2017. Factors influencing big data decision-making quality. Journal of Business Research70, pp.338-345

Otley, D., 2016. The contingency theory of management accounting and control: 1980–2014. Management accounting research31, pp.45-62

Yao, H., 2018. The relationship between human values, bribe acceptance, and contract price in business negotiation: an experimental analysis (Doctoral dissertation, Tartu Ülikool

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