In 2007, Xero Ltd. offered a subscription of 15 million shares at an offer price of $1.00 per share with the ability to accept oversubscriptions of up to $3 million.

The prospectus detailed the requirement that all applications must be accompanied by payment in full for the total number of shares applied for and stated that application monies will be banked upon receipt into a designated bank account and held on trust pending the allocation of shares.

Required:

Assuming all 18 million shares were applied for, prepare the journal entry to record the receipt of application monies. (1 mark)

Apart from recording a cash inflow, explain whether Xero should also record another asset, a liability, revenue or an expense upon collection of application monies, and explain why. (2 marks)