Question 1

Jaguar Ltd purchased a machine on 1 July 2016 at the cost of $640,000. The machine is expected to have a useful life of 5 years (straight-line basis) and no residual value.  For taxation purposes, the ATO allows the company to depreciate the asset over 4 years.

The profit before tax for the company for the year ending 30 June 2017 is $600,000. To calculate this profit the company has deducted $60,000 entertainment expense, and $80,000 salary expense that has not yet been paid.  Also the company has included $70,000 interest as income that the company has not yet received. The tax rate is 30%.


  1. Calculate the company’s taxable profit and hence its tax payable for 2017.
  2. Determine the deferred tax liability and/or deferred tax asset that will result.
  3. Prepare the necessary journal entries on 30 June 2017.


Question 2

The P Ltd acquires all issued capital of the S Ltd for a consideration of $1,000,000 cash and 800,000 shares each valued at $1.50. The summary statement of the financial position of the subsidiary company immediately following the acquisition is:

Fair value of assets acquired                                                               $2,640,000

Fair value of liabilities acquired                                                             $720,000

Total shareholders’ equity of the subsidiary company                         $800,000

Retained earnings of the subsidiary company                                    $1,120,000



  1. Pass the necessary journal entry to record the acquisition
  2. Determine the amount of goodwill (or bargain purchase) arising out of the acquisition
  3. Pass the necessary consolidation entry to eliminate the subsidiary by the parent company
  4. Determine the amount of goodwill (or bargain purchase) arising out of the acquisition if the purchase consideration paid was $1,000,000 cash and 400,000 shares each valued at $1.50


Question 3

Aqua Ltd issues a prospectus inviting the public to subscribe for 30 million ordinary shares of $2.00 each. The terms of the issue are that $1.00 is to be paid on application and the remaining $1.00 within one month of allotment.

Applications are received for 36 million shares during July 2019. The directors allot 30 million shares on 15 August 2019. The shares were allotted on a first-come, first-serve basis. The directors refunded the application money for 6 million shares on 15 August 2019. The amounts payable on the allotment are due by 20 September 2019.

By 20 September 2019, the holders of 5 million shares have failed to pay the amounts due on allotment. The directors forfeit the shares on 30 September 2019. The shares are resold on 15 October 2019 as fully paid. An amount of $1.90 per share is received. The remaining balance of forfeited shares were refunded on 20 October 2019.


Provide the journal entries necessary to account for the above transactions and events.


Question 4 

(a) Jessica Ltd sold inventory during the current period to its wholly owned subsidiary, Amelie Ltd, for $15 000. These items previously cost Jessica Ltd $12 000. Amelie Ltd subsequently sold half the items to Ningbo Ltd for $8000. The tax rate is 30%. The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate consolidation adjustment entries are as follows:


Sales                         Dr 15 000

Cost of Sales  Cr   13 000  

Inventory  Cr   2 000


Deferred Tax Asset  Dr        300

Income Tax Expense Cr               300


  1. Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basis the correct adjustment entry.
  2. Determine the consolidation worksheet entries in the following year, assuming the inventory has been –sold, and explain the adjustments on a line-by-line basis.

(b) On 1 July 2016 Liala Ltd sold an item of plant to Jordan Ltd for $450000 when its’ carrying value in Liala Ltd book was $600000 (costs $900000, accumulated depreciation $300000). This plant has a remaining useful life of five (5) years form the date of sale. The group measures its property plants and equipment using a costs model. Tax rate is 30 percent.


Pass the necessary entries on 30 June 2017 and 30 June 2018 to eliminate the intra-group transfer of equipment.

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