Taxation time quiz, 2 calculation need in 90mins. NOW!

Question 1 [13 Marks]

1. On 1 August 2020 Apple Ltd issues 50,000 shares at $1.00. The terms of the issue requiring the shareholders to pay $0.60 immediately with the balance due in one year’s time. In one year’s time, the company makes a call on the shareholders for the remaining $0.40 per share, with payments to be made by 31 August 2021. Holders of 49,000 shares pay the required call by 31 August 2021. On 5 September, the company forfeits the shares on which the call was not paid.

Required

1.Prepare the journal entries required to record the above transactions (ignore narrations).

2. The forfeited shares were reissued on 5 November 2021 as fully paid to $1.00 on payment of $0.80 per share, with the forfeited shares account being used to fund the difference as well as any costs of reissue. Assuming all the shares were reissued, incurring costs of $150, and any balance of the forfeited shares account being returned to the former shareholders,

Prepare the necessary journal entries to reflect these events (ignore narrations).

3. If a company used a direct private placement for issuing shares rather than a public placement, briefly explain how this would change the accounting for the share issue.

ANSWER

CLEARLY LABEL YOUR ANSWER – 1, 2, 3

1. & 2. GENERAL JOURNAL

Date	Details	Dr	Cr

3.

Question 2 [ 15 Marks]

Banana Ltd acquired all of the net assets of Orange Ltd on 1 July 2020. The consideration paid totalled $350,000. On the date of acquisition, Orange Ltd had the following assets and liabilities on their balance sheet: Accounts receivable $2,500; Equipment $100,000, Buildings $100,000; Land at cost $100,000; Long-term loan payable 1 July 2020 $10,000; Accumulated depreciation – Equipment $27,500; Accumulated depreciation – Building $25,000; Revalued land on acquisition date amounted to $150,000; Share capital $200,000.

Required:

a) List the assets and liabilities (include totals) that will be included in the acquisition analysis and calculate goodwill.

b) At the end of 2020, the CEO advised the CFO that the cash generating unit had a recoverable amount of $240,000. Prepare the general journal entry to reflect this event. Show all workings.

c) Assume that the carrying amount of the net identifiable assets is $290,000. Goodwill was impaired during the first year of acquisition by $10,000 and at the end of the acquisition year, the cash generating unit had a recoverable amount of $310,000. Prepare the general journal entry to account for goodwill at the end of the acquisition year.

d) Briefly explain the difference between an identifiable intangible asset and an unidentifiable intangible asset.

ANSWER

CLEARLY LABEL YOUR ANSWER - a) b) c) d)

a)

WORKINGS

b), c) GENERAL JOURNAL

Date	Details	Dr	Cr

d)

Question 3 [ 9 + 3 = 12 Marks]

Simpson Ltd purchased a piece of plant at a cost of $200,000. Simpson has a 30 June year end. At 30 June 2019, the plant had accumulated depreciation of $40,000 and an expected remaining useful life of 4 years. On 30 June 2019, Simpson determined that the plant could be sold for $120,000 with associated costs of $5,000. Alternatively, the plant is expected to be used by Simpson for another 4 years and it is expected that the net cash flows to be generated from the Plant would be $39,000 over each of the next 4 years. At 30 June 2019, it is considered that the market would require a return of 6% on this item of plant.

Required:

a) Determine if any impairment loss needs to be recognised in relation to this plant at 30 June 2019.

b) Provide the depreciation entry for this plant item at 30 June 2020.

c) If the recoverable amount of an item of machinery is higher than the carrying amount, is the business required to report the machinery at its recoverable amount in the balance sheet?

ANSWER

WORKINGS:

b) GENERAL JOURNAL

c)

Question 4 [12 + 3 = 15 Marks]

Statement of comprehensive income for the year ended 30 June 2020

Gross profit 730 000

Expenses

Administration expenses 80,000

Salaries and wages 200 000

Long service leave 20 000

Insurance 20 000

Warranty expense 30 000

Depreciation – plant 80 000 430,000

Profit before income tax 300 000

Statement of Financial Position as at 30 June 2020

Assets

Cash 20 000

Accounts Receivable 100 000

Inventory 100 000

Prepaid insurance 10 000

Machinery (cost) 400 000

Less: Accumulated depreciation (80 000) 320 000

Total assets 550 000

Liabilities

Accounts payable 80 000

Provision for long-service leave 20 000

Loan payable 200 000

Provision for warranty expenses 20 000

Total liabilities 320 000

Net Assets 230 000

Shareholders’ equity

Share capital 150 000

Retained earnings 80 000

230 000

Other Information

· All administration and salaries and wages expenses incurred have been paid at year end

· None of the long-service leave expense has been paid

· Warranty expenses were accrued and at year end actual payments of $10,000 had been made

· Insurance was initially prepaid to the amount of $30,000. At year end the unused component of the prepaid insurance account was $10,000

· The plant is depreciated over five years for accounting purposes, but over four years for taxation purposes.

· Tax rate is 30 per cent

Required:

a) Provide the general journal entry(ies) to account for tax in accordance with AASB112 at 30 June 2020? Show workings.

b) Why is tax-effect accounting known as the balance sheet approach to accounting for income tax?

ANSWER

a) GENERAL JOURNAL

b)

END OF EXAM PAPER

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