Financial Accounting Effective Operating Market

Question: Describe about the Financial Accounting for Effective Operating Market. Answer: 1. It is asserted by the public interest theory that regulation is directly in tune to the demand of the public so that market prices that are ineffective in nature can be corrected. This strikes the notion that all should have an equivalent access to the information. The presence of regulation provides safeguard to the overall society and promotes the interest of the society (Melville, 2013). Regulation refers to an instrument instituting a confidence that the societal resources are administered to productive assets. Nevertheless, in the deprivation of regulation concerning to insider trading, the management may offer information to third parties because third parties, involving the owners not engaged in the company management, can presume the presence of insider trading and can increase the cost of capital of the organization (Graham Smart, 2012). Moreover, in the presence of an effectively operating market, organizations obtain an incentive to enhance their value by offering info rmation in the absence of regulation. However, this market form entirely depends on the assumption based on market efficiency for managers. 2. Journal Entries Books of Bells Beach Tourist for the year ending 30 June, 2014 Purchase of airframe A/c Dr $66,00,000.00 Purchase of engine A/c Dr $48,00,000.00 Fittings A/c Dr $6,00,000.00 To Bank A/c Cr $120,00,000.00 (being recording of acquisition done as per the component) *(note 1) Aircraft depreciation A/c Dr $4,30,000.00 Engine depreciation A/c Dr $1,20,000.00 Fittings depreciation A/c Dr $7,00,800.00 To, Aircraft Accumulated Depreciation Cr $4,30,000.00 To, Engine Accumulated Depreciation Cr $1,20,000.00 To, Fittings Accumulated Depreciation - Cr $7,00,800.00 (Being recording of expense done pertaining to FY 2013-14 - depreciation) 2. Note 1 Computation of cost Percentage composition Assets Amount ($) 55 Airframe 66,00,000 40 Engine 48,00,000 5 Fittings 6,00,000 100 Overall cost 12,00,000 Working note 2 Computation of depreciation Depreciation will be calculated with the help of the formula (cost residual value)/useful life of the asset The engine operated for 2920 hours in 2013-14 Assets Cost Useful Life Residual Value Depreciation Airframe $66,00,000.00 15 $1,50,000.00 $4,30,000.00 Fittings $6,00,000.00 5 $0.00 $1,20,000.00 Engines $48,00,000.00 20000 $0.00 $240.00 Total 3. In the books of Burt Ltd For the year 30th June 2017 (operating lease is assumed) Particulars Lease expense A/c Dr 3,15,000 Insurance Maintenance A/c Dr 35000 To, Bank A/c 350000 (being expenses booked) Note 1 Depreciation computation Depreciation = (Cost Residual value)/6 = 1, 80,730.67 Note 2 Computation of interest payable and left over balance of lease obligation Year Brought forward Interest @ 12% Rental Carry forward 1 $12,94,384.02 $1,55,326.08 ($3,15,000.00) $11,34,710.11 2 $11,34,710.11 $1,36,165.21 ($3,15,000.00) $9,55,875.32 3 $9,55,875.32 $1,14,705.04 ($3,15,000.00) $7,55,580.36 4 $7,55,580.36 $90,669.64 ($3,15,000.00) $5,31,250.00 5 $5,31,250.00 $63,750.00 ($5,95,000.00) $0.00 4. Active market is that market wherein there are massive transactions in goods, stocks, and bonds. It also grasps when there is huge trading on the exchange and allows such trading in enormous share volume without influencing the price supervision. Therefore, institutions administering their client portfolios always favour such kind of market. Furthermore, in the model of cost, intangible assets are valued at cost less accumulated amortization and impairment losses. Besides, if the model of revaluation is introduced, such intangibles are valued at an amount prevailing at the revaluation date less following accumulated amortization and impairment losses (Horngren, 2013). Even AASB 138 requires ascertainment of fair value in reference to an active market by emphasizing that it is abnormal for active market to exist for intangible assets. Nevertheless, it surely admits that the existence of an active market can be in cases of fishing license, freely transferable taxi license (primarily reliant upon the jurisdiction), production quotas, etc. It is however notable, that an active market cannot prevail for intangible assets such as newspaper mastheads, patents or trademarks, publishing rights of film or music, etc (Northington, 2011). This is because such assets are special in their attributes and such a market trades mainly on homogeneous kind of goods. References Graham, J. Smart, S. (2012). Introduction to corporate finance. Australia: South-Western Cengage Learning. Horngren, C (2013). Financial accounting. Frenchs Forest, N.S.W: Pearson Australia Group. Melville, A. (2013). International Financial Reporting A Practical Guide. Pearson, Education Limited, UK Northington, S. (2011). Finance. New York, NY: Ferguson's.