Morning Star Ltd was registered on 1 July 2021, as a company with a constitution limiting the shares that could be offered to 5 000 000 Ordinary shares (including all classes) and 2 000 000 preference shares. The company issued a prospectus dated 1 July 2021 inviting the public to apply for 2 000 000 Ordinary A class shares at $7.00 per share. The terms of the shares on issue are $4.00 on application, $2.00 on allotment and a future call of $1.00 with date to be determined.
If the issue is oversubscribed the directors will make a pro-rata issue of shares and the excess application money will be applied to allotment and calls before any refunds will be given. On 30 July, applications for the Ordinary A class shares closed. Applications for 2 500 000 shares in total had been received with applicants for 500 000 shares paying the full price and 2 000 000 shares paying only the application fee.
On 1 August, the Ordinary A class shares were allotted on a pro-rate basis with all allotment money owed paid by the 30 August.
The company paid share issue costs of $15,000 for the issuing of Ordinary A shares on 1 September. The share issue costs related to legal expenses associated with the share issue and fees associated with the drafting and advertising of the prospectus and share issue.
The call on the Ordinary A shares was made on 15 Septmber and due by 30 September. All call money was received except for the call on 500 000 shares. The directors met and forfeited the shares on 15 October. On 30 October, the forfeited shares were reissued at $6.30 fully paid to $7.00. Costs associated with reissuing the forfeited shares totalled $5,500. The remaining money was refunded to the defaulting shareholders on 15 November.
On 1 January 2022, Morning Star Ltd issued via a private placement semi-annual coupon debentures (which pay interest every 6 months) with a nominal value of $490,000. The debenture term is five years and the coupon rate is 4% per annum. The market requires a rate of return of 2% per year. The money came in and the debentures were allotted on the same date. The first interest payment will occur on 30 June 2022.
On the same day (1 January), Monring Star issued 700 000 options for class A shares with an exercise price of $5.50 each. It costs $1.50 per option. These options expires on 30 June 2022.
On 31 March 2022, the directors decided to make a bonus issue of Ordinary B shares to the existing Ordinary A shareholder for every 50 Ordinary A shares of holding. The Ordinary B shares are valued at $5.00 per share with no voting rights and a fixed dividend of 4% per annum.
By 30 June 2022, 490 000 options were exercised. The remaining options are lapsed.
On the same day (30 June), 30 000 Ordinary Class A shares were bought back by Morning Star for $7.70 each. The original issue price for these share were at $7.00 per share.
(a) Prepare journal entries for the above transactions for the year ended 30 June 2022. Note: The entries should be in strict date order of the underlying event and please round all amounts up to the whole number.
(b) Prepare an extract of the statement of change in equity to show the composition and movement of the ordinary shares account of Morning Star Ltd as at 30 June 2022. Please provide the opening balance, movements in share capital and closing balance of each classes of shares.
The profit before tax, as reported in the statement of profit and loss for Aileen Ltd for the year ended 30 June 2022, amounted to $168,000, including the following revenue and expense items:
Sales revenue $500,000
Interest revenue 15,000
Government grant 40,000
Cost of goods sold 200,000
Bad debts expense 7,000
Depreciation expense – machine 12,000
Depreciation expense – plant 25,000
Amortisation expense – development costs 20,000
Wages expense 120,000
Impairment of goodwill 3,000
The draft statement of financial position of Aileen Ltd at 30 June 2022 and the statement from last year showed the following assets and liabilities:
|Allowance for doubtful debts||-7,000.00||-8,000.00|
|Machine – cost||80,000.00||80,000.00|
|Accumulated depreciation – machine||-24,000.00||-36,000.00|
|Plant – cost||500,000.00||500,000.00|
|Accumulated depreciation – plant||-50,000.00||-75,000.00|
|Accumulated amortisation – development costs||–||-20,000.00|
|Deferred tax asset||25,000.00||?|
|Rent received in advance||–||10,000.00|
|Deferred tax liability||18,000.00||?|
• In the year ended 30 June 2021, Aileen Ltd had a tax loss of $50,000 that it carried over in the deferred tax asset. In June 2022, the company received an amended assessment for the year ended 30 June 2021 from the ATO, indicating that an amount of $5,000 claimed as a deduction has been disallowed. Aileen Ltd has not yet adjusted its accounts to reflect the amendment. The remaining losses can be used to offset taxable incomes in future periods.
• Amounts received from sales, including those on credit terms, are taxed at the time the sale is made. All other general taxation rules apply.
• The depreciation regimes for the financial reports and the company income tax return respectively, are listed below.
- A tax deduction for development costs of 108% of the $60,000 spent during the year is available.
- All revenues recorded in the rent received in advance account belong to the next financial period.
- All movements of deferred tax accounts during the year are not yet recongised.
- The company tax rate applicable is 30%.
- Please round all amounts up to the whole number.
(a) Determine the taxable profit for the year ended 30 June 2022. Start from the accounting profit before tax and show the adjustments for differences between taxation and accounting rules.
(b) Complete the worksheet on the additional page provided to determine the movements in the deferred tax accounts for the year ended 30 June 2022.
(c) Prepare the journal entries to recognise the current tax liability and the final deferred tax adjustments for the year ended 30 June 2022 including the movement during the year due to carry-forward tax loss. Note Aileen Ltd does not set off the deferred tax accounts against each other.
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