Morning Star Ltd was registered on 1 July 2018, as a company with a constitution limiting the shares that could be offered to 7 000 000 Ordinary shares (including all classes) and 2 000 000 preference shares. The company issued a prospectus dated 1 July 2018 inviting the public to apply for 4 000 000 Ordinary A class shares at $3.00 per share. The terms of the shares on issue are $1.50 on application, $1.00 on allotment and $0.50 to be called within six months of allotment before 31 December 2018.
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 15 July, the directors also decided to issue 1 000 000 non-voting Ordinary B shares as fully paid to the promoters for a payment of $2.00 per share.
On 30 July applications closed. Applications for 5 000 000 shares in total had been received with applicants for 3 500 000 shares paying the full price and 1 500 000 shares paying only the application fee.
On 1 August, the shares were allotted with all allotment money owed paid by the 30 August.
The company paid share issue costs of $100,000 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 September and due by 30 September. All call money was received except for the call on 75 000 shares. The directors met and forfeited the shares on 15 October. On 30 October the forfeited shares were reissued at $2.80 fully paid to $3.00. Costs associated with reissuing the forfeited shares totalled $5,000. The remaining money was refunded to the defaulting shareholders on 15 November.
The directors decided on 1 November to make a one-day offer of a non-renouceable rights issue to existing Ordinary A shareholders to purchase additional shares at $1 each for every 5 shares of holding. Holders of 2 000 000 shares exercised their right.
On 1 January 2019, Morning Star Ltd issued via a private placement semi-annual coupon debentures (which pay interest every 6 months) with a nominal value of $300,000. The debenture term is five years and the coupon rate is 12% per year. The market requires a rate of return of 10% per year. The money came in and the debentures were allotted on the same date.
The company issued via a private placement 1 million redeemable preference shares of $2.00 each on 30 June 2019. The shares offer a fixed dividend of 7 per cent per annum. The shares are later redeemed to non-voting Ordinary Class B shares at the options of the shareholders on 30 June 2021.
(a) Prepare journal entries for the above transactions for the year ended 30 June 2019. Note: the entries should be in strict date order of the underlying event.
(b) Prepare an extract of the statement of change in equity to show the composition and movement of the ordinary share account of Morning Star Ltd as at 30 June 2019 and 30 June 2021. Please provide the opening balance, change 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 2019, amounted to $100,000, including the following revenue and expense items:
|Cost of goods sold||400,000|
|Bad debts expense||10,000|
|Depreciation expense — equipment||4,500|
|Depreciation expense — plant||18,500|
|Research and development expense||80,000|
|Long service leave expense||20,000|
The draft statement of financial position of Aileen Ltd at 30 June 2019 and the statement from last year showed the following assets and liabilities:
|Allowance for doubtful debts||(5,000)||(10,000)|
|Deferred tax asset||33,000||?|
|Revenue received in advance||–||20,000|
|Provision for long-service leave||40,000||30,000|
|Deferred tax liability||24,000||?|
- In the year ended 30 June 2018, Aileen Ltd had a tax loss of $65,000 that it carried over in the deferred tax asset. In June 2019, the company received an amended assessment for the year ended 30 June 2019 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
- 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.
- All research and development expenses were paid in cash during the year ended 30 June A tax deduction for development costs of 120% of the $80,000 spent during the year is available.
- All movements of deferred tax accounts during the year are not yet recongised.
- Determine the taxable profit for the year ended 30 June 2019. Start from the accounting profit before tax and show the adjustments for differences between taxation and accounting rules.
- Complete the worksheet on the additional page provided to determine the movements in the deferred tax accounts for the year ended 30 June 2019.
- Prepare the journal entries to recognise the current tax liability and the final deferred tax adjustments for the year ended 30 June 2019 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.
|Carrying Amount||Future Taxable Amount||Future Deductible Amount||Tax Base||Taxable Temporary Differences||Deductible Temporary Differences|
|Revenue received in advance|
|Provision for long service leave|
|Net temporary differences|
|Deferred tax liability|
|Deferred tax asset|
|Movement during year|
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