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

  1. Prepare the acquisition analysis and BCVR entries of Ethan Ltd at 1 July 2018
  2. Prepare the consolidation worksheet entries at 30 June 2019.
  3. 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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