The summarised general ledger trial balance of Simrex Ltd, a manufacturing entity for the year ended 30 June 2018 is detailed below.
|Debit $||Credit $|
|Cost of Goods Sold||290,000|
|Sales and Marketing Expenses||95,000|
|Cash at bank||97,000|
|Inventories – 30 June 2018||123,000|
|Provision for Doubtful Debts||8,000|
|Term deposit – due 30th September, 2018||337,000|
|Deferred Tax Liability||10,000|
|Accumulated Depreciation – Motor Vehicles||54,000|
|Accumulated Depreciation – Buildings||36,000|
|Bank Mortgage secured over buildings, due 1st May, 2019||240,000|
|Land Revaluation Surplus||50,000|
|Retained Earnings 30 June 2017||51,000|
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 30th June 2018 is 30%.
- The financial statements are authorised for issue on 31st 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.
- 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.
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.
Extract Statement of Comprehensive Income
Year Ending 30 June 2018
|Gross Profit||$500 000|
|Office Expenses||45 000|
|Depreciation Expense – plant||35 000|
|Long Service Leave Expense||40 000|
|Warranty expenses||20 000|
|Accounting Profit Before Tax||$325 000|
Assets and Liabilities as disclosed in the Statement of
As At 30 June 2018
|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|
|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|
- 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.
- 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.
|Receivables (net)||585 000|
|Plant – net||315 000|
|Land||1 600 000|
|Total Assets||2 740 000|
|Provision for long service leave||40,000|
|Provision for warranty||15,000|
|Total Liabilities||565 000|
|Net assets||2 175 000|
|Temporary difference for year|
|Loss carried forward|
|Movement for the period|
|Tax effected at 30%|
|Income tax adjustment|
ACC2CRE SEM 2 2018: Group Assignment 11
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|
|Plant (net of depreciation) $40,000||$48,000|
The tax rate is 30%.
- 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.
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.
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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