Question 1
Jenny Ltd’s equity at 30 June 2019 was as follows:
| 200 000 ordinary shares, issued at $3.20, fully paid
250 000 ordinary shares, issued at $4, called to $2.40 180 000 redeemable preference shares, issued at $1, fully paid Calls in advance (5 000 ordinary shares) Share issue costs General reserve Retained earnings |
$640 000
600 000 180 000 8 000 (7 000) 60 000 310 000 |
|
The following events occurred during the year ended 30 June 2019:
| 2018 | |||
| July | 15 | The final call, due 31 August, was made on the partly paid shares. | |
| Aug. | 31 | All call money was received, except for that due on 12 000 shares. | |
| Sept. | 10 | In accordance with the constitution, the shares on which the call was unpaid were forfeited. The company is entitled to keep any balance from forfeiture of shares. | |
| Oct. | 1 | The company offered ordinary shareholders 1 option (at a price of $0.80 per option) for every 5 shares held. Each option entitled the holder to buy 1 ordinary share at a price of $1.50 per share, exercisable on or before 15 April 2017. | |
| 31 | 35 000 options were taken up by shareholders, for which all money due was received. | ||
| 2019 | |||
| Jan. | 3 | A prospectus was issued, inviting applications for 100 000 ordinary shares at an issue price of $2, payable in full on application. The purpose of the issue was to fund the redemption of the preference shares. The issue was underwritten at a commission of $6 700. | |
| 31 | The issue closed fully subscribed, with all money due having been received. | ||
| Feb. | 5 | The 100 000 shares were allotted, and the underwriting commission was paid. | |
| 18 | The directors resolved to redeem the preference shares out of the proceeds of the January share issue for $1.06 per share. | ||
| 26 | Cheques were issued to the preference shareholders. | ||
| April | 15 | 26 000 shares were issued as a result of 26 000 options having been exercised, for which money had been received. The unexercised options lapsed.
|
|
Required:
Prepare general journal entries to record the above transactions.
QUESTION 2
At 30 June 2018, Hawaii Limited had the following balances:
| Asset or liability | Carrying amount | Tax base |
| Computers at cost | 300 000 | 300 000 |
| Accumulated depreciation | 60 000 | 100 000 |
| Accounts receivable | 100 000 | 100 000 |
| Allowance for doubtful debts | 10 000 | |
| Provision for warranty costs | 30 000 | |
| Provision for employee benefits (LSL) | 20 000 |
The following information is available for the year ended 30 June 2019.
| Statement of comprehensive income for Hawaii Limited for the year ended 30 June 2019 | |
| Revenue | 4 000 000 |
| Cost of goods sold expense | 1 800 000 |
| Depreciation expense | 60 000 |
| Warranty expense | 90 000 |
| Bad and doubtful debts expense | 25 000 |
| Other expenses | 1 375 000 |
| Profit before tax | 650 000 |
Hawaii Limited depreciates computers over five years in its accounting records but over three years for tax purposes. The straight-line method is used. During the year the company wrote off bad debts amounting to $15 000. Warranty costs of $70 000 were paid during the year. No amounts were paid for long-service leave during the year.
The following information is extracted from the statement of financial position at 30 June 2019:
| Assets | |
| Accounts receivable | 120 000 |
| Allowance for doubtful debts | 20 000 |
| Liabilities | |
| Provision for warranty costs | 50 000 |
| Provision for employee benefits (LSL) | 30 000 |
No plant and equipment were purchased during the year and the tax rate at 30 June 2018 and 30 June 2019 was 30%.
Required
(a) Show the deferred tax calculation using the deferred tax worksheet and the deferred tax journals for 30 June 2018
(b) Calculate Hawaii Limited’s income tax and show the income tax journals for the year ended 30 June 2019.
(c) Show the deferred tax calculation using the deferred tax worksheet and the deferred tax journals for 30 June19.
(d) Briefly discuss the treatment of deferred tax assets & tax losses in accordance with AASB 112.
QUESTION 3
Ethan Ltd acquired all the issued shares (cum div.) of Darren Ltd on 1 July 2018 for $110 000. At this date Darren Ltd recorded a dividend payable of $10 000 and equity of:
| Share capital | $54 000 |
| Retained earnings | 36 000 |
| Asset revaluation surplus | 18 000 |
All the identifiable assets and liabilities of Darren Ltd were recorded at amounts equal to their fair values at acquisition date except for:
| Carrying amount | Fair value | |
| Inventories | 14 000 | 16 000 |
| Machinery (cost $100 000) | 92 500 | 94 000 |
The machinery was considered to have a further 5-year life. Of the inventory, 90% was sold by 30 June 2019. The remainder was sold by 30 June 2020.
Both Darren Ltd and Ethan Ltd use the valuation method to measure the land. At 1 July 2018, the balance of Ethan Ltd’s asset revaluation surplus was $13 500.
In May 2019, Darren Ltd transferred $3 000 from the retained earnings at 1 July 2018 to a general reserve.
The tax rate is 30%.
The following information was provided by the two companies at 30 June 2019.
| Ethan Ltd | Darren Ltd | |
| Profit before tax | $ 120 000 | $ 12 500 |
| Income tax expense | (56 000) | (4 200) |
| Profit for the year | 64 000 | 8 300 |
| Retained earnings (1/7/18) | 80 000 | 36 000 |
| 144 000 | 44 300 | |
| Transfer to general reserve | (0) | (3 000) |
| Retained earnings (30/6/19) | $144 000 | $41 300 |
| Share Capital | $360 000 | $54 000 |
| Retained earnings | 144 000 | 41 300 |
| General reserve | 10 000 | 3 000 |
| Asset revaluation surplus | 18 500 | 20 000 |
| Liabilities | 42 500 | 13 000 |
| $575 000 | $131 300 | |
| Land | $160 000 | $20 000 |
| Plant & Machinery | 360 000 | 125 600 |
| Accumulated depreciation – plant & machinery | (110 000) | (33 000) |
| Inventories | 55 000 | 18 700 |
| Shares in Darren Ltd | 110 000 | 0 |
| $575 000 | $131 300 | |
Required
- Prepare the acquisition analysis and BCVR entries of Ethan Ltd at 1 July 2018
- Prepare the consolidation worksheet entries at 30 June 2019.
- Complete the consolidation worksheet at 30 June 2019. (Suggested template below).
Consolidation Worksheet at 30 June 2019 Ethan Ltd
| Ethan
Ltd |
Darren
Ltd |
Adjustments | Group | ||||
| Dr | Cr | ||||||
| Profit before tax | 120 000 | 12 500 | |||||
| Income tax expense | (56 000) | (4 200) | |||||
| Profit | 64 000 | 8 300 | |||||
| Retained earnings (1/7/18) | 80 000 | 36 000 | |||||
| Transfer from BCVR | – | – | |||||
| 144 000 | 44 300 | ||||||
| Transfer to general reserve | (0) | (3 000) | |||||
| Retained earnings (30/6/19) | 144 000 | 41 300 | |||||
| Share capital | 360 000 | 54 000 | |||||
| BCVR | – | – | |||||
| General reserve | 10 000 | 3 000 | |||||
| 514 000 | 98 300 | ||||||
| Asset revaluation surplus (1/7/18) | 13 500 | 18 000 | |||||
| Gains | 5 000 | 2 000 | |||||
| Asset revaluation surplus (30/6/19) | 18 500 | 20 000 | |||||
| 532 500 | 118 300 | ||||||
| Liabilities | 42 500 | 13 000 | |||||
| 575 000 | 131 300 | ||||||
| Land | 160 000 | 20 000 | |||||
| Plant & machinery | 360 000 | 125 600 | |||||
| Accum. depreciation | (110 000) | (33 000) | |||||
| Inventory | 55 000 | 18 700 | |||||
| Shares in Darren | 110 000 | 0 | |||||
| 575 000 | 131 300 | ||||||
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