FNSACC514 Financial Reports for Corporate Entities Assignment
- Subject Code :
FNSACC514
The following questions are based on the material in Chapter 1:
- List three (3) differences between a small and a large proprietary company?
|
If the company does not meet at least two of the below criteria, it is stated as 'small'. 1. The consolidated revenue for the financial year of the company and any entities it controls is $25 million or more. 2. The value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is $12.5 million or more, and 3. The company and any entities it controls have 50 or more employees at the end of the financial year. |
The following questions are based on the material in Chapter 2:
- Rufflander Ltd offered for subscription 300,000 $1 ordinary shares payable in full on application.
All 300,000 shares were applied for and allotted.
Required: Prepare general journal entries to record the share issue. (Ignore dates).
Rufflander Ltd. – General Journal Entries
|
Date |
Accounts |
Debit |
Credit |
|
|
Trust Bank Application |
|
300,000 |
|
|
|
|
|
|
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Receipt of application money |
|
|
|
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Application |
300,000 |
|
|
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Shared Capital |
|
300,000 |
|
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Issue of 300,000 $1 fully paid ordinary shares |
|
|
|
|
Bank |
300,000 |
|
|
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Trust Bank |
|
300,000 |
|
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Transfer of application funds to bank |
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The following questions are based on the material in Chapter 3:
- Prepare general journal entries to record the issue of 1,000 $100 8?bentures at par, payable in full on application. (Ignore dates).
|
Date |
Account |
Debit |
Credit |
|
|
Trust Bank |
100,000 |
|
|
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Denture Holders |
|
100,000 |
|
|
Receipt of application money for debentures |
|
|
|
|
Denture Holders |
100,000 |
|
|
|
8?ntures |
|
100,000 |
|
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Issue of Debentures |
|
|
|
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Bank |
100,000 |
|
|
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Trust Bank |
|
100,000 |
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Transfer of application funds to bank on issue of debentures |
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The following questions are based on the material in Chapter 4:
- 4. Elliot forms a company, Smelliot Ltd, to take over his business as a going concern.
The consideration for the sale of the business is 500,000 shares issued at $1.00 each and $300,000 in cash. The assets and liabilities (in $) of the business were:
Freehold Land and Buildings 400,000
Plant and Equipment 150,000
Motor Vehicles 74,000
Inventory 164,000
Accounts Receivable 125,000
Allowance for Doubtful Debts 15,000
Accounts Payable 115,000
All assets and liabilities are at fair value except accounts receivable that are expected to realise $100,000.
Required: Prepare the general journal entries in the books of Smelliot Ltd to record the purchase of the business and discharge of the purchase consideration.
Cash transactions are to be recorded in the general journal.
Smelliot Ltd. – General Journal
|
Account |
Debit |
Credit |
|||
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Freehold Land and Buildings Plant and Equipment |
400,000 |
|
|||
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Motor Vehicles |
74,000 |
|
|||
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Inventory |
164,000 |
|
|||
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Accounts Receivable |
125,000 |
|
|||
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Goodwill |
27,000 |
|
|||
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Allowance for Doubtful Debts |
|
25,000 |
|||
|
Accounts Payable |
|
115,000 |
|||
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Vendor - Smelliot Ltd |
|
800,000 |
|||
|
|
|
|
|||
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Acquisition of business |
|
|
|||
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Vendor Smelliot Ltd |
800,000 |
|
|||
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Share Capital |
|
500,000 |
|||
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Bank |
|
300,000 |
|||
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Payment of Purchase Consideration |
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The following questions are based on the material in Chapter 5:
5 a. Why would a company establish a reserve?
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Reserves are sometimes set up to purchase fixed assets, pay an expected legal settlement, pay bonuses, pay off debt, pay for repairs and maintenance, and so forth. This is done to keep funds from being used for other purposes, such as paying dividends or buying back shares. |
5 b. List three (3) types of reserves which may be established?
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1. Revenue Reserve 2. General reserve 3. Specific Reserve (Debenture Equalisation Reserve) |
- Cool Hats Ltd has paid the following PAYG tax instalments for the year ended 30 June:
September Quarter 11,000
December Quarter 11,000
March Quarter 11,000
June Quarter 11,000
Total 44,000
Taxable income for the year ended 30 June, was $168,000. Company tax rate is 30%.
Required:
Prepare general journal entries to record the company’s income tax instalments and final payment.
Cool Hats Ltd. – General Journals
|
Date |
Account |
Debit |
Credit |
|
1st Qtr |
Income Tax Expense |
11,000 |
|
|
|
Current Tax Payable |
|
11,000 |
|
|
PAYG Tax Instalment due for quarter |
|
|
|
1st Qtr |
Current Tax Payable |
11,000 |
|
|
|
Bank |
|
11,000 |
|
|
Payment of PAYG tax instalment for quarter |
|
|
|
2nd Qtr |
Income Tax Expense |
11,000 |
|
|
|
Current Tax Payable |
|
11,000 |
|
|
PAYG Tax Instalment due for quarter |
|
|
|
2nd Qtr |
Current Tax Payable |
11,000 |
|
|
|
Bank |
|
11,000 |
|
|
Payment of PAYG tax instalment for quarter |
|
|
|
3rd Qtr |
Income Tax Expense |
11,000 |
|
|
|
Current Tax Payable |
|
11,000 |
|
|
PAYG Tax Instalment due for quarter |
|
|
|
3rd Qtr |
Current Tax Payable |
11,000 |
|
|
|
Bank |
|
11,000 |
|
|
Payment of PAYG tax instalment for quarter |
|
|
|
4th Qtr |
Income Tax Expense |
11,000 |
|
|
|
Current Tax Payable |
|
11,000 |
|
|
PAYG Tax Instalment due for quarter |
|
|
|
4th Qtr |
Current Tax Payable |
11,000 |
|
|
|
Bank |
|
11,000 |
|
|
Payment of PAYG tax instalment for quarter |
|
|
|
4th Qtr |
Income Tax Expense |
11,000 |
|
|
|
Current Tax Payable |
|
11,000 |
|
|
Additional tax payable for year |
|
|
|
4th Qtr |
Profit & Loss |
11,000 |
|
|
|
Income Tax Expense |
|
11,000 |
|
|
Balance transferred |
|
|
The following questions are based on the material in Chapter 6:
- (a)Describe the difference between the tax payable method and tax effect method of accounting for income tax.
|
The tax payable method recognises an expense equal to the amount of tax payable to the ATO in respect of the current year, determined by multiplying taxable income by the tax rate. The tax effect method recognises income tax expense based on accounting profit and recognises not only the current tax payable but also the future tax effect of entries under accrual accounting
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(b) Provide two (2) examples of items treated differently under the two methods, that is, treated differently under the accounting treatment and the tax effect method.
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|
Item |
Accounting treatment |
Tax treatment |
|
1. |
Receipt of exempt income |
Recognised as income |
Not assessable income |
|
2. |
Penalties and fines |
Recognised as an expense when incurred |
Not an allowable deduction |
(c) Which method must be used by reporting entities?
|
In accordance with AASB 112 reporting entities must use tax effect accounting |
- Prepare the tax effect Journal Entries for the following independentsituations and explain why each gives rise to a Deferred Tax Asset or a Deferred Tax Liability at June 2016.
Tax Rate is 30%.
Enter your answers in the grids provided.
- A company has a doubtful debt expense of $3000. This is not an allowable deduction for income tax purposes.
|
Account |
Debit |
Credit |
|
|
Income Tax Expense |
$3000 |
|
|
|
Deferred Tax Liability |
|
$3000 |
|
|
Explanation: |
Taxable Temporary different x Tax Rate 30% Recording the expense relating to taxable temporary differences
|
||
- A publishing company has received $20,000 of subscriptions in advance of publications. This revenue will be recognised in the accounting records over the next four years. This amount is treated as assessable income for income tax purposes.
|
Account |
Debit |
Credit |
|
|
Deferred Tax Asset |
$ 6000 |
|
|
|
Income Tax Expense |
|
$ 6000 |
|
|
Explanation: |
Its assessable for tax purposes on receipt, therefore it will result in payment of less tax in the future $20000 x 30% = $6000
|
||
- Plant and Machinery was acquired for $200,000 on 1 July 2015. Accounting depreciation is 25% p.a. and tax depreciation is 30% p.a.
|
Account |
Debit |
Credit |
|
|
Income Tax Expense |
$ 3000 |
|
|
|
Deferred Tax Liability |
|
$ 3000 |
|
|
Explanation: |
It is a taxable temporary difference which will result in payment of more tax in the future and represents a liability that will be settled in the future. $200000 x 25% = $50000 $200000 x 30% = $60000 $10000 x 30% = $3000
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The following questions are based on the material in Chapter 7:
- (a)Tommy Company Ltd provided the following information in regard to its operations for the year ended 30 June 2016:
|
Cash Book |
|||
|
Opening balance |
324,000 |
Accounts Payable |
144,000 |
|
Accounts Receivable |
260,000 |
Bills Payable (suppliers) |
16,000 |
|
Dividends Received |
18,000 |
Land and Buildings |
270,000 |
|
6?bentures |
50,000 |
Other Operating Expenses |
188,000 |
|
Interest Income |
20,000 |
Petty Cash |
3,000 |
|
Machinery |
41,000 |
Dividend paid |
40,000 |
|
Share Capital |
200,000 |
Provision for Holiday Pay |
24,000 |
|
|
|
Salaries & Wages |
101,000 |
|
|
|
Current Tax Payable |
22,000 |
|
|
|
Closing balance |
105,000 |
|
|
$913,000 |
|
$913,000 |
Required: Prepare a Cash Flow Statement for the financial year ended 30 June 2016, including the required reconciliation of cash.
( a ) Statement of Cash Flows for Financial Year Ended 30 June 2016
( i ) Cash flows from Operating Activities
|
Receipts from Customers |
$260,000 |
|
|
Dividends Received |
$18,000 |
|
|
Interest Income |
$20,000 |
|
|
Payments to Suppliers (144+16) |
$ -160,000 |
|
|
Payments to Employees (101+24) |
$ -125,000 |
|
|
Taxation Paid |
$ -22,000 |
|
|
Other Operating Expenses |
$ -188,000 |
|
|
Net cash used in Operating Activities |
|
$ -197,000 |
( ii ) Cash flows from Investing Activities
|
Proceeds from disposal of Machinery |
$41,000 |
|
|
Purchase of Property, Plant & Equipment |
$ -270,000 |
|
|
Net cash used in Investing Activities |
|
$ -229,000 |
( iii ) Cash flows from Financing Activities
|
Proceeds of Share Issue |
$200,000 |
|
|
Proceeds of Debenture Issue |
$50,000 |
|
|
Dividends Paid |
$ -40,000 |
|
|
Net Cash from Financing Activities |
|
$210,000 |
|
Net decrease in cash and cash equivalents |
$ -216,000 |
|
|
Cash and cash equivalents at beginning |
|
$324,000 |
|
Cash and cash equivalents at end of year |
|
$108,000 |
|
Reconciliation of cash and cash equivalents |
||
|
|
Cash at bank |
$105,000 |
|
|
Petty cash on hand |
$3,000 |
|
|
Cash and cash equivalents at end of year |
$108,000 |
9(b) An extract from the Statements of Financial Position of Catbird Ltd showed the following for the years ended 30 June 2016 and 30 June 2017 were:
|
|
30 June 2016 |
30 June 2017 |
||
|
|
$ |
$ |
$ |
$ |
|
Current Assets |
|
|
|
|
|
Accounts Receivable |
60,000 |
|
70,000 |
|
|
Allowance for Doubtful Debts |
– 5,000 |
55,000 |
– 5,000 |
65,000 |
|
Bank |
|
21,000 |
|
16,000 |
|
Bills Receivable (from debtors) |
|
0 |
|
8,000 |
|
Inventory |
|
104,000 |
|
100,000 |
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
Accounts Payable |
|
40,000 |
|
36,000 |
|
Current Tax Payable |
|
30,000 |
|
33,000 |
|
Final Dividend Payable |
|
32,000 |
|
40,000 |
|
Provision for Annual Leave |
|
20,000 |
|
17,000 |
Additional Information:
Net profit after taxation is $200,000 in 2017. This profit was determined after accounting for the following income and expense items:
Depreciation $22,000
Profit on sale of non-current asset $2,000
Net cash from operating activities for the year ended 30 June 2017 is $202,000.
Required:
For the year ended 30 June 2017, complete the reconciliation of cash flows from operating activities with net profit.
Catbird Ltd - Reconciliation to determine cash flows from operating activities:
|
|
Net Profit after Tax |
|
|
|
+ / - |
Add (subtract) Non-Cash Items: |
|
|
|
+ |
Depreciation |
22,000 |
|
|
- |
Sale of non-current asset |
-2,000 |
|
|
|
Changes in Current Assets and Liabilities |
|
20,000 |
|
+ |
Decrease in inventory |
4,000 |
|
|
- |
Increase in Accounts/Bills Receivable |
-18,000 |
|
|
+ |
Decrease in Accrued Expenses |
3,000 |
|
|
+ |
Decrease in Accounts Payable |
4,000 |
|
|
- |
Increase in Current Tax Payable |
-3,000 |
|
|
- |
Increase in Final Dividend Payable |
-8,000 |
|
|
|
Net cash from Operating Activities |
|
$202,000 |
The following questions are based on the material in Chapter 8:
- Lozza Limited had the following trial balance as at 30 June 2016:
|
Account |
$ |
$ |
|
Cash at Bank |
81,000 |
|
|
Cash on Hand |
3,500 |
|
|
Land & Buildings |
1,920,000 |
|
|
Accounts Receivable |
269,300 |
|
|
Plant & Equipment |
267,000 |
|
|
Goodwill |
220,000 |
|
|
Allowance for Doubtful Debts |
|
5,200 |
|
Accumulated Depreciation – Buildings |
|
76,000 |
|
Shares in Private Companies |
110,000 |
|
|
Accrued Income |
8,900 |
|
|
Raw Materials |
47,600 |
|
|
Work in Progress |
36,000 |
|
|
Accumulated depreciation – Plant & Equipment |
|
58,000 |
|
Accumulated Impairment – Goodwill |
|
22,000 |
|
Spare Parts |
7,400 |
|
|
Prepaid Expenses |
15,600 |
|
|
Licenses |
85,000 |
|
|
Finished Goods |
286,500 |
|
|
Accumulated Amortisation – Licenses |
|
34,000 |
|
Shares in Listed Companies |
370,000 |
|
|
Deferred Tax Assets |
58,000 |
|
|
Deferred Tax Liabilities |
|
21,000 |
|
Bills Receivable |
82,000 |
|
|
Deposits at Call |
50,000 |
|
|
Other Liabilities (current) |
|
654,000 |
|
Retained Earnings |
|
2,047,600 |
|
Share Capital |
|
1,000,000 |
|
Total |
3,917,800 |
3,917,800 |
Additional Information:
? A $30,000 bill of exchange is due on 15 March 2018. All other bills are due before December 2016.
? Impairment testing has revealed that further impairment losses of $11,000 on goodwill and $17,000 on licences are to be recorded.
? On 30 June 2016, land & buildings were re-valued at $2,400,000 by an independent valuer.
? All inventories are recorded in the ledger at cost.
? The market value of shares in listed companies as at 30 June 2016 was $420,000.
? Director’s estimate that the shares in private companies are worth $145,000.
? Tax rate is 30%.
Required:
(a) Complete a Statement of Financial Position as at 30 June 2016.
(b) Complete notes accompanying the Statement of Financial Position for assets.
Tips:
We suggest you follow these steps in completing your answer:
- Transfer all of the items from the Trial Balance items to the respective "(b) Notes to Statement of Financial Position".
Now transfer the total from each "Note" at (b) to the "(a) Statement of Financial Position".
Total the "(a) Statement of Financial Position" and ensure that it balances.
- Next, one at a time, process each "Additional Information" adjustment and record each adjustment in the relevant "Note" at (b).
Now, transfer the revised total of any adjusted "Notes" to the "Statement of Financial Position". You may need to revise some values in the "Statement of Financial Position" that you previously reported (in Step 1).
After processing each adjustment, again total the "Statement of Financial Position" and ensure that it balances.
- Any income or expense adjustments should be posted to Retained Earnings.
- Any revaluation adjustment should be applied to the asset value after allowing for accumulated depreciation. This also means that any accumulated depreciation is reset to nil upon revaluation of the asset.
- Statement of Financial Position of Lozza Limited at 30 June 2016
|
ASSETS |
|
|
||
|
CURRENT ASSETS |
|
Note: |
$ |
|
|
Cash and cash equivalents |
|
1 |
$134,500 |
|
|
Trade and other receivables |
|
2 |
$316,100 |
|
|
Inventories |
|
3 |
$370,100 |
|
|
Other Current Assets |
|
4 |
$31,900 |
$852,600 |
|
|
|
|
||
|
NON CURRENT ASSETS |
|
|
||
|
Available for sale investments |
5 |
$420,000 |
|
|
|
Other financial assets |
6 |
$145,000 |
|
|
|
Property plant and equipment |
7 |
$2,609,000 |
|
|
|
Goodwill |
|
8 |
$198,000 |
|
|
Other intangibles |
|
9 |
$51,000 |
|
|
Other non-current assets |
|
10 |
$30,000 |
$3,453,000 |
|
TOTAL ASSETS |
|
|
|
$4,305,600 |
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
Other Current liabilities |
|
|
$654,000 |
|
|
NON CURRENT LIABILITIES |
|
|
|
|
|
Deferred tax liabilities |
11 |
$155,300 |
|
|
|
TOTAL LIABILITIES |
|
|
|
$809,300 |
|
NET ASSETS |
|
|
|
$3,496,300 |
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
Share capital |
|
|
$1,000,000 |
|
|
Reserves |
|
12 |
$448,700 |
|
|
Retained Earnings |
|
|
$2,047,600 |
|
|
TOTAL EQUITY |
|
|
|
$3.496,300 |
|
|
|
|
|
|
|
(b) Notes to Statement of Financial Position |
||||
|
1. Cash and cash equivalents |
|
|||
|
Cash at bank |
|
|
$81,000 |
|
|
Cash on hand |
|
|
$3,500 |
|
|
At call deposit |
|
|
$50,000 |
$134,500 |
|
|
|
|
||
|
2. Trade and other receivables |
|
|||
|
Trade Receivables |
|
$269,300 |
|
|
|
Allowance for Doubtful Debts |
($5,200) |
$264,100 |
|
|
|
Bills Receivable ( due 12/16) |
|
$52,000 |
$316,100 |
|
|
|
|
|
|
|
|
3. Inventories |
|
|||
|
Raw Materials at cost |
|
$47,600 |
|
|
|
Work in Progress at cost |
$36,000 |
|
||
|
Finished Goods at cost |
|
$286,500 |
$370,100 |
|
|
|
|
|
|
|
|
4. Other current assets |
|
|||
|
Spare parts |
|
$7,400 |
|
|
|
Accrued Income |
|
$8,900 |
|
|
|
Prepayments |
|
$15,600 |
$31,900 |
|
|
(b) Continued…..Notes to Statement of Financial Position |
|||
|
|
|
|
|
|
5. Available for sale investments |
|
|
|
|
Shares in Listed Companies |
|
|
|
|
- at market value (Cost $370,000) |
|
|
$420,000 |
|
|
|
|
|
|
6. Other Financial Assets |
|
|
|
|
Shares in Private Companies |
|
|
|
|
- at Directors’ value (Cost $110,000) |
|
|
$145,000 |
|
|
|
|
|
|
7. Property, plant & equipment |
|
|
|
|
Land & Buildings |
|
|
|
|
( revalue 30/06/16 ) independent valuer |
|
$2,400,000 |
|
|
Plant & Machinery (at cost) |
$267,000 |
|
|
|
Less Accumulated Depreciation |
($58,00) |
$209,000 |
$2,609,000 |
|
|
|
|
|
|
8. Goodwill |
|
|
|
|
Goodwill (at cost) |
$22,000 |
|
|
|
Less Accumulated Impairment |
($22,000) |
|
$198,000 |
|
|
|
|
|
|
9. Other Intangible Assets |
|
|
|
|
Licenses (at cost) |
$85,000 |
|
|
|
Less Accumulated Amortisation |
($34,000) |
|
$51,000 |
|
|
|
|
|
|
10. Other Non-Current Assets |
|
|
|
|
Bills Receivable ( due 15/03/18 ) |
|
|
$30,000 |
|
|
|
|
|
|
11. Deferred Tax Liabilities |
|
|
|
|
Deferred Tax Labilities |
$21,000 |
|
|
|
Revaluation Land, Buildings |
$166,800 |
|
|
|
Revaluation Shares |
$25,500 |
|
|
|
Deferred Tax Assets |
($58,000 |
|
$155,300 |
|
|
|
|
|
|
12. Reserves |
|
|
|
|
Asset Revaluation Reserve |
|
|
|
|
- buildings |
$556,000 |
|
|
|
- shares in listed companies |
$50,000 |
|
|
|
- shares in private companies |
$35,000 |
|
|
|
- tax effect of revaluations |
$192,300 |
|
|
|
|
|
|
$448,700 |
The following questions are based on the material in Chapter 9:
- Dynamite Limited has determined its explosive division is a cash generating unit.
The carrying amount of the assets at 30 June 2016 is:
Building 105,000
Land 75,000
Equipment 60,000
Inventory 30,000
The fair value of the assets at 30 June 2016, unless stated otherwise, is the same as their respective carrying amounts.
Dynamite calculated the value in use of the division as $260,000.
Required: Provide the workings and journal entries for the impairment loss of the division assuming that the fair value of the land is:
(a) $70,000
(b) $62,500
( a ) Workings:
|
Carrying Value $ |
Fair Value $ |
|
|
Building |
105,000 |
105,000 |
|
Land |
75,000 |
70,000 |
|
Equipment |
60,000 |
60,000 |
|
Inventory |
30,000 |
30,000 |
|
Total |
270,000 |
265,000 |
|
|
$ |
|
Carrying Value |
270,000 |
|
Less Recoverable amount |
265,000 |
|
Impairment Loss |
5,000 |
Journal:
|
|
DR |
CR |
|
Impairment Loss |
5,000 |
|
|
Accumulated Impairment Loss |
|
5,000 |
|
Narration: Journal entries to account for impairment loss under AASB136 |
||
( b )
|
|
Carrying Value $ |
Fair Value $ |
|
Building |
105,000 |
105,000 |
|
Land |
75,000 |
62,500 |
|
Equipment |
60,000 |
60,000 |
|
Inventory |
30,000 |
30,000 |
|
Total |
270,000 |
257,500 |
|
|
$ |
|
Carrying Value |
270,000 |
|
Less Recoverable amount |
260,000 |
|
Impairment Loss |
10,000 |
Journal:
|
|
DR |
CR |
|
Impairment Loss |
10,000 |
|
|
Accumulated Impairment Loss |
|
10,000 |
|
Narration: Journal entries to account for impairment loss under AASB136 |
||
- The acquired goodwill value for Sovereign Ltd is $73,000. The goodwill is tested for impairment and the appropriate carrying amounts were established at:
30 June 2015 $68,000
30 June 2016 $73,000
30 June 2017 $63,000
Required:
Journal entries, if necessary, to account for any goodwill impairment at 30 June of each year.
Sovereign Ltd.
|
Date |
Account |
Debit |
Credit |
|
30 June 2015 |
Goodwill Impairment Loss |
$5,000 |
|
|
|
Accumulated Impairment |
|
$5,000 |
|
|
Impairment allowance for the year |
|
|
|
|
Profit & Loss |
$5,000 |
|
|
|
Goodwill Impairment Loss |
|
$5,000 |
|
|
Balance transferred |
|
|
30 June 2016 Hint: Carefully consider whether you think a journal is required at 30/6/16.
|
No adjustment upwards (reversal) allowed for the increase of $5,000 (73,000 – 68,000) as the amount has been previously identified as an impairment loss |
Provide your explanation if no journal is required:
|
Date |
Account |
Debit |
Credit |
|
30 June 2017 |
Goodwill Impairment Loss |
$5,000 |
|
|
|
Accumulate Impairment |
|
$5,000 |
|
|
Impairment allowance for the year |
|
|
|
|
Profit & Loss |
$5,000 |
|
|
|
Goodwill Impairment Loss |
|
$5,000 |
|
|
Balance transferred |
|
|
The following questions are based on the material in Chapter 10:
- Red Limited acquired 100% of the issued capital of Yellow Limited on 1 July 2015 for $80,000.
At that date the shareholders’ equity of Yellow Limited was:
Share Capital $60,000
Reserves $15,000
Retained Earnings $ 5,000
Required:
(a) Prepare the journal entry to eliminate the investment in Yellow Ltd by Red Ltd.
|
Date |
Account |
Debit |
Credit |
|
30 June 2016 |
Share Capital |
$60,000 |
|
|
|
General Reserve |
$15,000 |
|
|
|
Retained Earnings |
$5,000 |
|
|
|
Shares in Yellow Ltd |
|
$80,000 |
|
|
Journal entry to eliminate the investment in Yellow Ltd by Red Ltd. |
|
|
(b) Complete the worksheet extract, as at 30 June 2016.
|
Worksheet extract as at 30 June 2016 |
Red Ltd |
Yellow Ltd |
Eliminations |
Consolidation |
|
|
|
|
|
Dr |
Cr |
|
|
Operating Profit after tax |
48,000 |
33,000 |
|
|
81,000 |
|
Retained Earnings 01/07/15 |
20,000 |
5,000 |
5,000 |
|
20,000 |
|
|
68,000 |
38,000 |
|
|
101,000 |
|
Appropriations |
28,000 |
14,000 |
|
|
42,000 |
|
Retained Earnings 30/06/16 |
40,000 |
24,000 |
|
|
59,000 |
|
Share Capital |
200,000 |
60,000 |
60,000 |
|
200,000 |
|
Reserves |
72,000 |
15,000 |
15,000 |
|
72,000 |
|
Shares in Yellow Ltd |
80,000 |
|
|
80,000 |
0 |
The following questions are based on the material in Chapter 8:
- The following relates to Roberto Limited for the year ended 30 June 2017:
|
Sale of goods |
$2,050,000 |
|
Interest income |
12,500 |
|
Consultancy fees received |
60,000 |
|
Cost of sales |
325,000 |
|
Finance costs |
44,500 |
|
Distribution expenses |
60,000 |
|
Marketing expenses |
115,000 |
|
Warehouse services expenses |
250,000 |
|
Administration expenses |
55,000 |
|
Other expenses |
110,000 |
|
Income tax expense |
440,000 |
Additional information:
- The balance of the asset revaluation Reserve at 1 July 2016 was $40,000. On 30 June 2017 the carrying value of land was restated to a directors’ valuation resulting in a credit to the asset revaluation Reserve of $150,000. Assume a company tax rate of 30%.
- Retained earnings at 1 July 2016 $150,000
- As at 1 July 2016 there were 400,000 fully paid ordinary shares on issue $400,000
- Dividends paid and proposed during the FY:
- Interim dividend paid, fully franked $30,000
- Final dividend proposed, fully franked $22,500
- Transfer from retained earnings to General Reserve $35,000
- General Reserve at 1 July 2016 $nil
- During the FY, a further $100,000 ordinary shares were issued and fully paid on application $100,000
- Pending legal action against the company for infringement of a patent for $500,000. Directors’ don't believe that this action will be successful.
- One of the directors provided warehouse services for $50,000 in the current financial year. The service was provided at arm’s length. This transaction has already been included the financial values provided in the table (above).
Required: Prepare the following:
- a Statement of Comprehensive Income,
- a Statement of Changes in Equity and
- Notes to the Financial Statements at 30 June 2017.
|
Roberto Limited Statement of Comprehensive Income for the year ended 30 June 2017 |
||
|
|
Note |
$ |
|
Sales revenue |
1.2 |
2,050,000 |
|
Cost of goods sold |
|
- 325,000 |
|
Gross Profit |
|
1,725,000 |
|
Other income |
|
72,500 |
|
Finance costs |
|
- 44,500 |
|
Distribution costs |
|
- 60,000 |
|
Marketing costs |
|
- 115,,000 |
|
Warehouse services costs |
|
- 250,000 |
|
Administration costs |
|
- 55,000 |
|
Other expenses |
|
- 110,000 |
|
Profit before income tax |
|
1,163,000 |
|
Income tax expense |
|
- 440,000 |
|
Profit after tax |
|
723,000 |
|
|
|
|
|
Other comprehensive income: |
||
|
Gain on revaluation of land |
|
150,000 |
|
Income tax on revaluation of land |
|
-45,000 |
|
Total other comprehensive income |
|
105,000 |
|
Total comprehensive income |
|
828,000 |
|
Statement of Changes in Equity – Roberto Ltd. For the year ended 30 June 2017 |
||||||
|
|
Notes |
Share capital $ |
Revaluation reserve $ |
General reserve $ |
Retained earnings $ |
Total equity $ |
|
Balance at 1 July 2016 |
|
400,000 |
40,000 |
0 |
150,000 |
590,000 |
|
|
||||||
|
Total comprehensive income for the year |
|
|
105,000 |
|
723,000 |
828,000 |
|
|
||||||
|
Transfer to/from reserves |
|
|
|
35,000 |
-35,000 |
|
|
|
||||||
|
Transactions with owners: |
||||||
|
Issue of share capital |
|
100,000 |
|
|
|
100,000 |
|
Dividends provided for or paid |
|
|
|
|
-52,500 |
-52,500 |
|
Total transactions with owners |
|
100,000 |
|
|
-52,500 |
-47,500 |
|
|
|
|
|
|
|
|
|
Balance at 30 June 2017 |
|
500,000 |
145,000 |
35,000 |
785,500 |
1,465,500 |
|
Notes to the financial statements (extract): For the financial year ended 30 June 2017 |
|
|
1. Revenue |
|
|
Sale of goods |
$2,050,000 |
|
Other income: |
|
|
Interest income |
$12,500 |
|
Consultancy fees received |
$60,000 |
|
Total other income |
$ 72,500 |
|
Total revenue |
$72,500 |
|
2. Related parties One director provided warehouse services for $50,000 in the current financial year. The service was provided at arm’s length. This transaction has already been included in the financial values provided |
|
|
3. Reserves Asset revaluation reserve General reserve
Movement in reserves: Asset revaluation reserve Balance at 1 July 2016 Revaluation of land Tax effect on revaluation Balance at 30 June 2017
|
$145,000 $ 35,00 $180,000
$40,000 $150,000 - $45,000 $145,000 |
|
4. Contingent Liabilities Pending legal action against the company for infringement of a patent for $500,000. Directors’ don't believe that this action will be successful.
|
|
