Corporate Accounting

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Assignment (Group of Two)

(Total Marks 30) Due Date: Session 6.1 (2 May)

Problem # 1 (15 Marks)

The summarised trial balance of Star Ltd as at 30 June 2017 is shown below.

	Debit	Credit
Ordinary share capital (1 500 000 shares)		$1 062 500
General reserve (1/7/16)		175 000
Revaluation surplus (1/7/16)		60 000
Retained earnings (1/7/16)		104 500
Bank loan (long-term)		43 500
Deferred tax liability (1/7/16)		3 000
Mortgage (long-term)		50 000
Accounts payable		132 000
Provision for employee benefits (long-term)		75 000
Allowance for doubtful debts		37 500
Accumulated depreciation:
Plant		9 500
Office furniture		850
Buildings		2 500
Land (at cost)	$ 211 500
Factory buildings (at cost)	250 000
Accounts receivable	542 950
Plant (at cost)	90 000
Inventory	651 100
Office furniture (at cost)	6 000
Goodwill	200 000
Cash at bank	278 800
Employee benefits expense	12 500
Sales		1 730 500
Raw materials and consumables used	1 083 100
Changes in inventories of finished goods and work in progress		3 100
Other expenses (excluding depreciation but including interest expense $31 000 on bank loan and mortgage)	163 500
	$3 489 450	$3 489 450

The accountant for the company seeks your assistance in preparing the financial statements for external reporting purposes and advises you of the following information that needs to be taken into account before finalising the financial statements.

Additional information

(a)Depreciation is to be provided for:

Plant

Office furniture

Buildings

$9 000

800

2 500

(b)The estimated total income tax expense relating to profit or loss items only for 2017 is $200 000, consisting of $150 000 for the current liability and $50 000 as a deferred tax liability.

(c)Final dividends of 2 cents per share were declared by directors.

(d)Directors decided to transfer $10 000 from retained earnings to general reserve.

(e)Following expert advice, the directors decided on 30 June 2017 to revalue the land and factory buildings to reflect current fair values. Consequently, directors placed a value of $300 000 on land and $350 000 on the buildings.

(f)Company tax rate is 30%.

Required:

Based on the ledger balances and the additional information provided, prepare a statement of profit or loss and other comprehensive income (classify expenses by nature), a statement of financial position and a statement of changes in equity for Star Ltd for the year ended 30 June 2017, to comply with AASB 101.

Problem # 2 (15 Marks)

The profit before tax of Perfect Skin Ltd for the year ended 30 June 2017 is $600 000 and includes the following revenue and expense items:

Rent revenue

Bad debts expense

Depreciation expense – plant

Long-service leave expense

30 000

60 000

50 000

75 000

Extracts from the statements of financial position of the company at 30 June 2017 and 30 June 2016 showed the following assets and liabilities:

PERFECT SKIN LTD Statement of Financial Position (Extract) as at 30 June
	2017		2016
Assets Cash Inventory Accounts receivable Allowance for doubtful debts Other current assets Plant Accumulated depreciation Buildings Accumulated depreciation Goodwill Deferred tax asset Liabilities Accounts payable Provision for employee benefits Rent received in advance Deferred tax liability	$	80 000 170 000 500 000 (55 000) 25 000 500 000 (260 000) 300 000 (148 000) 70 000 ? 290 000 100 000 25 000 ?		$	85 000 155 000 480 000 (40 000) 22 000 500 000 (210 000) 300 000 (140 000) 70 000 40 500 260 000 75 000 20 000 38 100

Additional information

(a)Depreciation for tax purposes for Plant for the year ended 30 June 2017 amounted to $75 000.

(b)Rent is taxed when received.

(c)Assume a tax rate of 30% for the year ended 30 June 2017.

Required

Prepare a current tax worksheet for the year ended 30 June 2017 to calculate taxable income and the company’s current tax liability, and then record the entries for current tax (show all workings).

Calculate the end-of-period adjustments required for the deferred tax asset and liability accounts, and record the entries for deferred tax and show the balances of deferred tax asset and deferred tax liability as at 30 June 2017(show all workings).

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