AC15: IN ASIA

B215 FINANCIAL ACCOUNTING

6th Presentation
 Specific Learning Objectives

Apply prior knowledge to prepare a simple set of financial
statements, which includes the Statement of Financial Position,
Statement of Comprehensive Income, Statement of Cash Flows
and Statement of Changes in Equity.

Understand the entire process of accounting, from the transactions
that have occurred to the figures that appear in the financial
statements.

Demonstrate an understanding of the fundamental accounting
concepts and principles.

Understand the relationship among the financial statements (i.e.
Statement of Financial Position, Statement of Comprehensive
Income, Statement of Cash Flows and Statement of Changes in
Equity).
Problem Analysis

Long Term Capital of

Loan of $30,000
$10,000
Office
Furniture of
$3,000 FINANCIAL RESULT
What are the reporting
documents?
Daily
Operation
$$$
 Tasks for the day
You are required to:

Prepare journal entries based on the transactions that arises from

the game.
This will form the trial balance that will enable you to prepare the
financial statements.

Prepare financial statements which include the Statement of

Financial Position, Statement of Comprehensive Income, Statement of
Cash Flows and Statement of Changes in Equity.
The Accounting Cycle
Step 7
Step 1
Preparation
of financial Document
statements

Step 6 Step 2
Closing Accounts and Journal
Valuation

Step 5 Step 3
Adjustments Ledger

Step 4
Trial Balance
Initial Journal Entries
Dr Cash $30,000
Cr Paid Up Capital $30,000
(To record the capital received of $30,000)

Dr Cash $10,000
Cr Long term loan $8,226.04
Cr Current portion of long term loan $1,773.96
(To reflect the long term loan taken)
Note that as at the end of the year, the long portion of the loan is $6,345.64
and the short term portion of the loan is $1,880.40.

Dr Furniture $3,000
Cr Cash $3,000
(To record the purchase of office furniture)
Other Important
Journal Entries
Interest Payment Schedule
Cash Interest Principal Unpaid
Period Payment Expense Decrease Principal
$ $ $ $
$10,000.00
1st year $2,373.96 $600.00 $1,773.96 $8,226.04
2nd year $2,373.96 $493.56 $1,880.40 $6,345.63
3rd year $2,373.96 $380.74 $1,993.23 $4,352.41

4th year $2,373.96 $261.14 $2,112.82 $2,239.59

5th year $2,373.96 $134.38 $2,239.59 -

Dr Interest expense $600

Dr Long term loan $1,773.96
Cr Cash $2,373.96
(To record the interest expense and loan principal repayment for the 1st year)
Audit Fee
Dr Audit fee expense $1,500
Cr Cash $1,500
(To record audit fee expense for the team that made an error)

Dr Cash $1,500
Cr Audit fee income – service rendered $1,500
(To record audit fee received for the Audit Scribe’s
team)
Property Rent
Dr Rent expense $XX
Cr Cash $XX
(To record rent expense paid)

Dr Cash $XX
Cr Rent income $XX
(To record rent income received)
 Types of
Expenses and Income
 Types of Expenses
Jail Fine
Dr Jail fine $500
Cr Cash $500
(To record fine paid to get out of jail)

Income Tax
Dr Income tax $XX
Cr Cash $XX
(To record income tax paid)

Maintenance of premises
Dr Maintenance expense $XX
Cr Cash $XX
(To record maintenance expense paid on houses/hotels)
 Types of Income
Pass “GO”
Dr Cash $2,000
Cr Capital $2,000
(To record the capital injection after passing “GO”)
Purchase and Sale
of Property,
Houses and Hotels
Purchase and Sale of
Property, Houses and Hotels
Purchase of property, i.e. land
Dr Land $XX
Cr Cash $XX
(To record the purchase of property purchased, i.e. land – note that
land is not usually depreciated)

Purchase of houses / hotels

Dr House/Hotel $XX
Cr Cash $XX
(To record the purchase of the house/hotel)
Purchase and Sale of
Property, Houses and Hotels
Depreciation
Dr Depreciation expense $600
Cr Accumulated depreciation $600
(To record the depreciation of office furniture)
Useful life of office furniture is 5 years. ($3,000/5=$600)

Dr Depreciation expense $XX

Cr Accumulated depreciation $XX
(To record the depreciation of houses / hotels)
Useful life of houses / hotels is 10 years.
Purchase and Sale of
Property, Houses and Hotels
Sell property and houses / hotels
Dr Cash $XX
Dr Loss on sale (if any)* $XX
Cr Land $XX
Cr Gain on sale (if any)* $XX
(To record the sale of property, i.e. land)

Dr Accumulated depreciation $XX

Dr Cash $XX
Dr Loss on sale (if any)* $XX
Cr House / Hotel $XX
Cr Gain on sale (if any)* $XX
(To record the sale of house / hotel)
* Depends on the sale price to determine whether it is a loss or gain on sale.
Mortgage Loan and
Short Term Loan
Mortgage Loan and
Short Term Loan
Mortgage Loan
Dr Cash $XX
Cr Mortgage Loan $XX
(To record the mortgage on the land to obtain a loan)

Dr Interest expense $XX

Cr Cash $XX
(To record the interest charged at 10% for the mortgage)
 Mortgage Loan and
Short Term Loan
Lifting of Mortgage Loan
Dr Mortgage Loan $XX
Dr Interest expense $XX
Cr Cash $XX
(To record lifting of mortgage)

Short Term Loan from bank

Dr Cash $XX
Cr Short term loan $XX
(To record short term loan taken)

Dr Interest expense $XX

Cr Cash $XX
(To record the interest charged at 15% for the short term loan)
Insurance expense and
Insurance payout
Insurance Expense
and Insurance Payout
Insurance expense
Dr Insurance expense $XX
Cr Cash $XX
(To record insurance expense paid on property, houses and hotels)

Insurance payout
Dr Cash $XX
Cr Insurance payout $XX
(To record the compensation when house / hotel is burned down)
Journal Entries in respect
of the Scenario Cards
Scenario 1
The company incurs a prepayment of $500 at the end
of the year. Pay $500 to the bank.

Journal entries
Dr Prepayment $500
Cr Cash $500
(To record prepayment of $500 – note that the prepayment is an
asset)
Scenario 2
The company is given an opportunity to build either a
house or a hotel on any of its properties.
(Rules regarding building of houses/hotels still apply)

Journal entries
Dr House/Hotel $XX
Cr Cash $XX
(To record the purchase of the house/hotel)
Scenario 3

The company buys a fire insurance at one time fee of

$1,000, which came in hand now as the company has just
met with a fire. The fire burns down the houses/hotels on
your most expensive property that has existing
houses/hotels.

Any loss by fire will be compensated according to the

price of the house/hotel.

Journal entries
Dr Fire Insurance 1,000
Cr Cash 1,000
(To record the fire insurance expense)
Scenario 3 – Cont.
Journal entries
Dr Accumulated depreciation $XX
Dr Loss due to fire $XX
Cr Houses / hotels $XX
(To record loss due to the fire)

Dr Cash $XX
Cr Insurance payout $XX
(To record the compensation when your house/hotel is burned down)
Scenario 4

The company bought insurance coverage for the property

as well as the houses/hotels owned. The insurance
expense for a year costs $800, which was paid fully using
cash on 30 June.

Journal entries
Dr Fire Insurance $400
Dr Prepayment $400
Cr Cash $800
(To record insurance expense incurred from 1 Jan to 30 Jun as well as
prepayment for the remaining months – note that prepayment is an
asset)
Scenario 5
The company accrued $400 of utility expenses at the
end of the year.

Journal entries
Dr Utility expenses $400
Cr Accrued utility expenses $400
(To record accrued expenses of $400 – note that accrued expenses
is a liability)
 Scenario 6
The company is forced to sell the cheapest property (including
the houses/hotels, if any) to the bank at a 20% profit.
The houses/hotels are to be sold at a 20% profit above the
original cost, if there are any on the property.

Journal entries
Dr Cash $XX
Dr Accumulated depreciation – houses/hotels $XX
Cr Land $XX
Cr Houses/hotels $XX
Cr Gain on sale $XX
(To record gain on sale of property, houses/hotels)
Scenario 7
The company has unearned revenue of $350 at the end
of the year. Collect $350 from the bank.

Journal entries
Dr Cash $350
Cr Unearned Revenue $350
(To record unearned revenue of $350 – note that unearned revenue
is a liability)
Scenario 8
The company may be fined for an infringement. The
fine is probable and estimated at $200.

Journal entries
Dr Fine (P/L) $200
Cr Provision for infringement of copyrights $200
(To record the provision for infringement of copyrights – highly
probable and amount can be estimated reliably)
Scenario 9
The company pays cash dividends of $2000 to its
shareholders at the end of the year.

Journal entries
Dr Retained earnings - dividends $2000
Cr Cash $2000
(To record cash dividend payment of $2000)
Scenario 10
A fire breaks out and burns down the houses/hotel on
your most expensive property that has existing
houses/hotel.

Journal entries
Dr Accumulated depreciation $XX
Dr Loss due to fire $XX
Cr Houses / hotels $XX
(To record loss due to the fire)
Scenario 11
The company earned interest income of $550 but no
amount has been paid yet.

Journal entries
Dr Interest receivable $550
Cr Interest income $550
(To record interest income of $550 earned but not yet received –
note that the interest receivable is an asset)
Scenario 12
The company provided property consultation service in
addition to property trading and development. A customer
owing $150 of consultation fee went bankrupt immediately
after the year end but before the company’s accounts were
authorized for issue. No provision has been made.
Journal entries
Dr Accounts receivable $150
Cr Consultation Fee $150
(To record the fee earned for consultation services provided)

Dr Bad debt expense $150

Cr Accounts receivable $150
(To record bad debt expense due to bankruptcy)
Note that this is an adjusting event that occurs after the balance sheet date.
Scenario 13
A fire breaks out and burns down the houses / hotels on
your least expensive property that has existing houses /
hotels.

Journal entries
Dr Accumulated depreciation $XX
Dr Loss due to fire $XX
Cr Houses / hotels $XX
(To record loss due to the fire)
 Mindmap
Cash Expenses Revenues
Receipts
Statement of
Statement of Gains
comprehensive
Cash Flows
incomes
Cash
Losses
Payments Financial
Statements
Assets Statement of
Statement of Changes in Equity
Financial Position (Retained Earnings)
(Balance Sheet)
Liabilities
Stockholders’ Net Profit Dividends
Equity
Resources
Websites (Retrieved on 27 Feb 09)

Principles of Accouting.com,

http://www.principlesofaccounting.com/chapter%2012.htm

Principles of Accouting.com,

http://www.principlesofaccounting.com/chapter%205.htm

Cash Basis Versus Accural Basis Accounting
http://www.associatedcontent.com/article/108540/cash_basi
s_versus_accrual_basis_accounting.html
Resources
Textbooks

Kieso, Weygandt and Warfield; Fundamentals of Intermediate Accounting;
John Wiley & Sons, Inc.; 2003; Chapter 11 pg 533-536.

Spiceland, Sepe, Tomassini; Intermediate Accounting; McGraw-Hill/Irwin;
2004; Chapter 7 pg 324-327.

Libby, Libby, Short; Financial Accounting; McGraw-Hill/Irwin; 2004;
Chapter 6 pg 286-288.

Frank Wood; Frank Wood’s Business Accounting 1, Tenth Edition 2005; FT
Prentice Hall; Chapter 26, Pages 284 to 293.

David Marshall, Wayne William McManus, Daniel Viele, Accounting what
the numbers mean, Seventh Edition 2005; McGraw-Hill Irwin; Chapter 6,
Pages 190 to 236.
Resources
Textbooks

Price, Haddock and Brock; College Accounting, Tenth Edition; McGraw-Hill
Irwin; 2003; Chapter 14.

Betsy Li, Tan Sai Kim, Goh Ling Chin, Goh Lee Suan; Principles of Accounts,
Fourth Edition 2006; Times Media Private Limited; Chapters 2, 12 and 13.

Williams, Haka, Bettner, Carcello; Financial Accounting; McGraw-Hill/Irwin;
2006; Chapters 2, 12 and 13.