Question 1

The summarised general ledger trial balance of Simrex Ltd, a manufacturing entity for the year ended 30 June 2018 is detailed below.

	Debit $	Credit $
Sales Revenue		990,000
Interest Revenue		98,500
Cost of Goods Sold	290,000
Distribution Expenses	93,000
Sales and Marketing Expenses	95,000
Administration Expenses	55,000
Interest Expense	55,000
Dividends Paid	32,000
Cash at bank	97,000
Inventories – 30 June 2018	123,000
Accounts Receivable	192,500
Provision for Doubtful Debts		8,000
Term deposit – due 30^th September, 2018	337,000
Buildings	360,000
Motor Vehicles	340,000
Land	85,000
Goodwill	50,000
Warranty Provisions		25,000
Deferred Tax Liability		10,000
Accounts Payable		82,000
Accumulated Depreciation – Motor Vehicles		54,000
Accumulated Depreciation – Buildings		36,000
Bank Mortgage secured over buildings, due 1^st May, 2019		240,000
Share Capital		560,000
Land Revaluation Surplus		50,000
Retained Earnings 30 June 2017		51,000
	2,204,500	2,204,500

The following information has been made available to assist in the preparation of the financial statements of Simrex Ltd for the year ended 30 June 2018:

560,000 Ordinary Shares were issued and paid to $1 at 30 June 2017.
The warranty provision is in respect of a 12-month warranty given on certain goods sold.
The company has adopted fair value for the valuation of land. This has resulted in the recognition in previous periods of a revaluation surplus of $15 000. On 30 June 2018, an independent valuer assessed the fair value of the land and it was revalued upward by $50,000.
The company has been involved in a dispute with the Environment Protection Authority. It has been alleged that the company was responsible for the release of harmful pollutants from its manufacturing plant in early June 2018. An expert investigation was conducted to determine if the company was at fault. The investigator’s report, released on 15 July 2018, found Simrex Ltd to be responsible for the release and damages amounting to $150,000 were payable by the company.
On 15 July 2018, the sales manager raised credit notes worth $2 000 relating to sales of faulty goods in the first 2 weeks of July 2018.
On 5 July 2018, the company received notification that a customer owing $70 000 had gone into liquidation. The liquidator advised that unsecured creditors are likely to receive a distribution of only 10c in the dollar. The liquidation was caused by a fire in July 2018 which destroyed the customer’s operating plant and warehouse. The damage was not covered by insurance.
The income tax rate for the financial year ended 30^th June 2018 is 30%.
The financial statements are authorised for issue on 31^st July 2018.
Simrex Ltd uses the single statement format for the statement of profit or loss and other comprehensive income and classifies expenses by function within the statement.

Required

Prepare the necessary general journal entries (if any) at 30 June 2018.
Prepare the statement of financial position, statement of profit or loss and other comprehensive income and statement of changes in equity for the year ended 30 June 2018 in accordance with the requirements of AASB 101 and other applicable accounting standards.

Note 1: Word limit for Question 1 is 600 words.

Question 2

Cradle Ltd commenced operations on 1 July 2017, and presented its first Statement of Comprehensive Income and Statement of Financial Position on 30 June 2018. The statements were prepared before considering taxation. The following information is available.

Cradle Ltd

Extract Statement of Comprehensive Income

Year Ending 30 June 2018

Gross Profit		$500 000

Expenses
Doubtful Debts	5,000
Office Expenses	45 000
Depreciation Expense – plant	35 000
Long Service Leave Expense	40 000
Warranty expenses	20 000
Salaries	30 000
		$175 000
Accounting Profit Before Tax		$325 000

Cradle Ltd

Assets and Liabilities as disclosed in the Statement of

Financial Position

As At 30 June 2018

ASSETS
Cash	82 000
Inventory	158 000
Receivables	590,000
Less Provision for Doubtful Debts	5,000 585 000


Plant – cost	350 000
Less Accumulated depreciation	35 000	315 000
Land		1 600 000

Total Assets		$2 740 000

LIABILITIES
Payables		265 000
Provision for warranty expenses		15 000
Loan Payable		245 000
Provision for long service leave		40 000
Total Liabilities		$565 000
Net Assets		$2 175 000

Other Information

All office expenses and entertainment expenses incurred have been paid as at year end.
None of the long service leave expense has actually been paid. Deductions for tax purposes are only available when the amounts are paid and not as they are accrued.
Warranty expenses of $20,000 have been accrued and at year end actual payments of 5,000 have been made (leaving an accrued balance of $15 000). Deductions for tax purposes are only available when the amounts are paid and not as they are accrued.
The plant is depreciated over ten years for accounting purposes, but over five years for taxation purposes.
No bad debts have been written off during the financial year.
Cradle Ltd has some land which cost $1 200 000 and which has been revalued to its fair value of $1 600 000.
The tax rate is 30 per cent.

Required:

Prepare Statement to Determine Taxable Income.
Complete the Taxation Worksheet on next page, in accordance with AASB 112 Income Taxes.

Prepare the applicable journal entry or entries to record temporary differences, income tax expense and current tax payable for the year ended 30 June 2018.

Note 1: Word limit for Question 2 is 300 words.

Item	Carrying amount $	Tax Base $	Deductable Temporary Difference $	Taxable Temporary Difference $	Income Tax Expense $	Revaluation Surplus $	Tax Payable $
Assets
Cash	82 000
Inventory	158 000
Receivables (net)	585 000
Plant – net	315 000
Land	1 600 000
Total Assets	2 740 000
Liabilities
Payables	265,000
Provision for long service leave	40,000
Provision for warranty	15,000
Loan payable	245,000
Total Liabilities	565 000
Net assets	2 175 000
Temporary difference for year
Loss carried forward
Movement for the period
Tax effected at 30%
Taxable income
Income tax adjustment

ACC2CRE SEM 2 2018: Group Assignment 11

Question 3

Part A

On 1 July 2017, Denver Ltd acquired all the issued shares of George Ltd for $152 800. At this date the equity of George Ltd consisted of share capital of $80 000 and retained earnings of $68 800. All the identifiable assets and liabilities of George Ltd were recorded at amounts equal to fair value except for:

Carrying Amount	Fair Value
Patent $60,000	$72,000
Plant (net of depreciation) $40,000	$48,000

The tax rate is 30%.

Required

Determine Goodwill or Gain on Bargain Purchase at acquisition date: 1 July 2017.
Prepare the consolidation worksheet entries for Denver Ltd group of companies at 1 July 2017.

Part B

SPG Ltd, a supplier of sailing equipment, was incorporated 10 years ago and is 60 per cent owned by GPS Ltd. SPG has been a very successful business, averaging annual profits of $500 000. However, during the past two years the company has run into financial difficulties and has defaulted on its loan with its bank. Consequently, the bank has used the powers in the loan agreement to monitor the company’s activities closely in order to obtain repayment of its debt. The company must now obtain the bank’s authorisation for any expenditure over $5000 and no changes in operations of the company are permitted without the bank’s approval.

REQUIRED

Determine whether or not control exists and, if so, by which party (pursuant to AASB 10). Discuss the reasons for your answers.

Note 1: Word limit for Question 3 is 200 words.

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