[ammardar]

Ok, i wana ask a last questiom from you to end up this topic, by the way thanks for ur patience 🙂

Lets suppose we havent made provision at year end, and after reporting period we got to know that we have lost case and are suppose to pay money

Now, if we knew at reportinng date that we are suppose to pay the amount afterwards, then we would have made the liablity in our accounts, so for that reason it should be adjusting event, as per ur answer above and ur lecture, am i right ?

[ammardar]

Ok thanks so much, i guess i dont mix up things which leads to confusion 🙂

[ammardar]

Ok i got that, but i wana know one more thing, lets suppose fire take place after year end.

Now according to your rule must think that would we change accounts at year end , if we know at year end that fire will take place later ?

The answer is no because at year end date factory was exisiting so we must no change the accounts, fair enough.

Now, i wana put an other example here

Lets suppose we have provision for damages in our year end accounts, and court gives decision after reporting period that we are not suppose to pay any money

Now, according to your rule we must think that will we change our accounts at year end, if we knew at year end that we wont be required to pay money later

According to book ans is yes, but i wana know why would we change our account at year end, why would we end provision at year end given the fact that court make the decision after year end, why would we end provision at year end ?

Now in factory example you said that factory was not set up on fire at year end thats why we didnt adjust it, fair enough
But here, in example 2 court decision also came after the year and, not at year end than why are we adjuting it into accounts? Isnt it Contradiction in rule?

Thanks for ur precious time

[ammardar]

Thanks sir, ur simply the best !! 🙂

[ammardar]

Out of two, first method is used in real life, m asking this cz i have prepared myself for first method only. Right ?

Now if we re supposed to make financial statements and we get a accrual adjustement, we make this entry

Dr Rent Cr. Payable (Method 1)

we dont calculate Bal c/d ( Method 2) on the account

which means method 1 is used almost always in which we make double entry instead of method 2 in which we do not make entry of accrual, instead we just calculate balance on account .

So on this bases, i guess we can say that method 1 in which we make double entry is used everywhere almost, Right ? than the second one in which we just calculate balance on account .

[ammardar]

3. If you say that in Define Contribution plan company cut the salary of its employee,and make this entry

Dr Fv of plan asset
Cr. Pv of future obligation

Then i will be surprised, because i dont think so that there is anything like ” Plan asset and Pv of future defined contribution” which exist in define Contribution plan as the company is only liable to pay contribution and it records only contribution in its accounts .

Kindly provide me answer of all 3 questions.

Thanks

[ammardar]

Now i understood concept of settlement, you explained it really well. But it arises a question

‘The fact the we’ ve paid more than what was due is automatically adjusted when actury tell us his estimate at end of year’

1. My question is that when we will remeasure the pv of future define benifit obligation at the year end then the gain or loss will go to other conprehensive income instead of income statement, but Bpp book says that gain on settlement will go to income statement isnt it contradiction with what you are saying as according to what you are saying gain will go to OCI rather than income statement ?

Secondly, i would like to know that iabout Define Contribution plan. In define Contrbiution plan Company’s liability is just to make contribution into investment fund, nothin else thats fine !

2(a). But my question is that will conpany cut its employee contribution from their salary and pay it into investment fund Or will current employees pay it themselves into investment fund in define Contribution plan ?

2(b). And in relation to it, are current employees bound to make contribution into investment fund or do they have choice to either to make contribution into investment fund or not to make contribution Under Define Contribition plan ?

Thanks for your kindness always.

[ammardar]

Ahh i had forgotten to ask my last question, sorry for that i should have asked it in earler message please pardon me ?
I think in define contribution plan company and employee both make contribution into fund of an investment company, my question is that offcourse employee contribution gets deducted from his or her salary and goes to fund of investment company but kindly tell me what entry will company make to record contribution of employee Thanks and sorry again ..i will be careful next time i promise

[ammardar]

I have my concept clear with respect to define benifit plan, but i am confused with respecf to define contribution plan
Kindly answer my following questions with respect to define Contribution plan

1. After company makes contribution to its pension fund does company invest money itself and provide pension to employee itself ? If no then who does it ?

[ammardar]

And i guess current service cost, past service costs and interest Cost on obligations are not part of define contribution plan. Right ? Thanks

[ammardar]

Ok, thats great but i didnt get your point with repect to settlement lets suppose in settlement under define benifit plan company has Estimated that employee has already earned benifit of $500 at the time when company give settlement offer to employee.
Now, lets suppose company has made final settlement of $1000 as employ accepted the offer, now kindly tell me journal entries here and how will it affect profit and loss.
And does employee continue his job in settlement plan ?
My second question is that when company invest the contribution into plan asset then under defined benit and define contribution plan what entry does company make under both plans ?

[ammardar]

And i also have a question with respect to define contribution plan. I want to know abt journal entry when

1. When return come from investemenr or plan asset
Dr. Plan asset
Cr. Income recived
Right?

2. When company pays benifit
Dr. Pension expene
Cr. Plan asset ?

3. When deduction is made from employees salary for contribution purposes
Dr. plan asset
Cr. Salary exp ?

And my second question is with respect to define benifit plan that do we also consider contribution from employee into plan asset alongside contribution from company, in calculating Fair value of plan asset ? I guess yes, Right ?

My third question is with respect to asset ceiling test, that does we conduct asset cieling test in this manner
Lower of :
1. Current amount of net define benifit asset
2. Pv of reduction in future contribution ?
Don’t we consider unrecognized actuarial gain and losses on remeasurement of plan asset and define benifit obligation, to keep it simple ?

[ammardar]

Ok, my last question is about settlements in defined benifit plan

In settlement company does agreement with employee that company will not pay any post employment benifit to employee instead it pays lumsump amount to employee to keep him out from pension plan Right ?

But the employee carries on his job, right ?
And finally what entry does company make with respect to settlement

Dr. pv of defined benifif obligation
Credit Cash
And difference in bofh amount goes to income statement, right ?

[ammardar]

And lastly, can u please tell me how to conduct asset cieling test ? Thanks

[ammardar]

And my second is that what is entry of settlement in define benifit plan

And what entry will we make if we pay pension in define contribution plan ?
Will we make this entry
Debit Pension expense
Credit plan asset

Thanks

[ammardar]

No sir i already know about impairment, you did not understand my question 🙁

my question is not regarding impairment, rather my question is of opposite situation than impairment when the asset is classified held for sale

Lets suppose we have held for sale asset and we have tested it for impairment, and we we found out that its carrying value is 1000 and fair value less cost to sale 4000..

Now, in this what will we do ?….will we see that at what amount we have valued the held for sale asset

If we have valued the held for sale at carrying value at date of classification then we wont make any adjustment

But if we have Valued held for sate asset at fair value less cost to sale then, then we will definately make adjustment and will increase the fair value Right?

And for the second case i.e if asset is valued on fair value less cost to sale and there is increase its fair value then gain will go to income statement to the extent we have charged impairment loss in income statement with respect to that asset, my question is where will remaining gain go ?

By the way, i do respect open tuition from botttom of my heart, there is nothing as overflowing 🙂

[ammardar]

Ok sir i have a last query from u with respect to this topic after which i wont ask question with respect to this topic please sir 🙁

My question to you is that lets suppose we have classified an asset as held for sale asset and we are testing it for impairment and lets suppose we face this situation
Carrying value of asset is 1000 and fair value less cost is 3000

Now clearly there is no impairment here, but my question to you is that what will we do here ..?
Should we now have to check that at what amount (either cost or fair value less cost to sale ) we have valued the held for sale asset ?

if we have previously valued asset at carrying then we wont make any adjustment ?

But if we have previously valued asset at fair value then obviously we will make adjustment , we will debit asset and credit income statement Right ?

If yes, than standard says that we will credit gain on increase in fair value, to income statement to extent we have charged impairment loss to income statment with respect to that asset, my question to you is that where will remaing gain? We will transfer respective gain to income statement but where will remaing gain go

Thanks soo much open tuition and sir mike ..you are doin great job here to help we people out

[ammardar]

Ok, last question with respect to this topic…if the asset is on cost model then wont we debit the asset by cost less depriciation rather than fair value less depriciation ?

[ammardar]

Are you trying to say that non current asset will be valued at carrying amount , which would have been exitsed if we don not classify the asset as held for sale rather if we continue to depriciate the asset ..

[ammardar]

I didnt understand your second msg , let suppose non current asset is classified as held for sale and it didnt get sale during the year and management has neither committed to sale the asset..so we are goin to make this entry :

Dr. Non current Asset
Credit held for sale

I know that with which amountn we will credit held for sale ( lower of carrying value which would have existed if we dont classify asset as held for sale Or recoverable amount at the time when company make decision to not to sale asset), but i dont known that

1. With which amount will be debit the Non current asset ?
2. If any difference come, will it go to profit and loss ?

[ammardar]

Seconly if asset which was previously classified as held for sale is not sold during the year and neither management is commiitted to sale that asset then we will make the following entry :
Dr Non current Asset
Cr. Held for sale

In that case will debit non current asset with carrying value of asset, which would have been there had asset not classified as held for sale..Right ?

Secondly, we will credit held for sale with lower of

1. Carrying amount ( carrying value which would have existed had asset not classified as held for sale )

2. Recoverable amount of asset at date of decision not to sell

And any difference which will arise between held for sale and non current asset will be either charge or credited to income statement , Right ?

[ammardar]

Sir, you are trying to say that we will debit the held for sale with the rules which i have described above
And we will credit the asset account with the carrying value always

Ok, But if we have debited held for sale at fair value less cost to sale and we have credit the asset with carrying value, then in this case difference will arise because of diffferent amount, so difference will go to income statement is that what u are trying to say?

If yes, then what name will we give to that gain or loss in income statement ..gain or loss on held for sale ? Doesnt it look weird ? Never heard of it before

[ammardar]

Hi sir, i am asking last question from you with respect to this topic please dont mind

If some item of stock, not whole stock which was there at year end got damage by fire after reporting period ,we will not adjust its net realizable value at the year end, right ?

And secondly if an asset i mean plant got damage by fire, at year end then wont we impair the plant at year end right ?

[ammardar]

Well i am facing problem with consistancy of this criteria or rule, it applies to one thing eg debtor but it doesnt apply to inventory, i will show you how

I want help on inventory issue, i asked my self that did that destroyed inventory exist at reporting date, answer is yes!

Then the next problematic part start, did it correctly value at year end now here arise two possible questions, firstly if we see according to the information available till the reporting date than i will say yes, because it was valued correctly at the lower of cost and nrv till balance sheet date

Secondly, if we consider subsequent period as well then i will say No because the inventory which was included in year end was either value at the lower of cost or nrv in accounts thats perfectly fine, but after the incident the nrv of the inventory must have fallen down, dont u think we should adjust the nrv( reduce) in the accounts with respect to that inventory which has got damage ? and if we dont adjust the nrv of the inventory that it would mean that our valuation of inventory at reporting date is not correct so why isnt it an adjusting event ? or why wont we adjust the nrv and bring it to its real value ?

[ammardar]

I got ur point with respect to debtors but about inventory my point is not yet clear, debtor was there in the year end and hence it was overstated, so we made the adjustemnt thats quite easy to understand !

Now we talk about inventory, lets suppose inventory which got destroyed by fire had cost of 10,000 and Nrv of 15,000 so we had valued that inventory at 10,000 in our accounts at the year end untill here thats fine !

Now this inventory got destoryed by fire, now its nrv might fall below its cost as it is completely destroyed now, why wont we make any adjustement with respect to it ? cant understand how to think about this please help 🙁

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