Corporate Accounting Assignment Analyses Financial Statements of Australian Companies

Question

Task

The questions to be answered in the corporate accounting assignment are:

Question 1
At 30 June 2019, Beta Ltd had the following deferred tax balances:

Deferred tax liability $18,000

Deferred tax asset 15,000

Beta Ltd recorded a profit before tax of $80,000 for the year to 30 June 2020, which included the following items:

Depreciation expense – plant $7,000

Doubtful debts expense 3,000

Long-service leave expense 4,000

For taxation purposes the following amounts are allowable deductions for the year to 30 June 2020: Tax depreciation – plant $8,000

Bad debts written off 2,000

Depreciation ratesfor taxation purposes are higher than for accounting purposes. A corporate tax rate of 30% applies.

Required:

a) Determine the taxable income and income tax payable for the year to 30 June 2020.

b) Determine by what amount the balances of the deferred liability and deferred tax asset will increase or decrease for the year to 30 June 2020 because of depreciation, doubtful debts and long-service leave.

c) Prepare the necessary journal entries to account for income tax assuming recognition criteria are satisfied.

d) What are the balances of the deferred tax liability and deferred tax asset at 30 June 2020?

Question 2
On 1 July 2019, Quick Buck Ltd took control of the assets and liabilities of Eldorado Ltd. Quick Buck Ltd issued 80,000 shares having a fair value of $2.40 per share in exchange for the net assets of Eldorado Ltd. The costs of issuing the shares by Quick Buck Ltd cost $1,600.

At this date the statement of financial position of Eldorado Ltd was as follows:

Required: Prepare the journal entries in the records of Quick Buck Ltd at 1 July 2019 for the acquisition.

Question 3

a) Liala Ltd acquired all the issued shares of Jordan Ltd on 1 January 2015. The following transactions occurred between the two entities:

• On 1 June 2016, Liala Ltd sold inventory to Jordan Ltd for $12,000, this inventory previously costed Liala Ltd $10,000. By 30 June 2016, Jordan Ltd had sold 20% of this inventory to other entities for $3,000. The other 80% was all sold to external entities by 30 June 2017 for $13,000.
• During the 2016–17 period, Jordan Ltd sold inventory to Liala Ltd for $6,000, this being at cost plus 20% mark-up. Of this inventory, 20 % remained on hand in Liala Ltd at 30 June 2017. The tax rate is 30%.

Required:

(i) Prepare the consolidation worksheet entries for Liala Ltd at 30 June 2017 in relation to the intragroup transfers of inventory.

(ii) Compute the amount of cost of goods sold to be reported in the consolidated income statement for 2017 relating to the relevant intra-group sales.

a) On 1 July 2016, Liala ltd sold an item of plant to Jordan Ltd Ltd for $150,000 when its carrying value in Liala Ltd book was $200,000 (costs $300,000, accumulated depreciation $100,000). This plant has a remaining useful life of five (5) years form the date of sale. The group measures its property plants and equipment using a costs model. Tax rate is 30 percent.

Required: Prepare the necessary journal entries in 30 June 2017 to eliminate the intra-group transfer of equipment.

Question 4

Giant Ltd acquired 80 percent share capital of Expert Ltd. On 1 July 2018 for a cost of $1,600,000. As at the date of acquisition, all assets and liabilities of Expert Ltd were fairly valued except a land that has a carrying value $150,000 less than the fair value. The recorded balance of equity of Expert Ltd as at 1 July 2018 was as:

Additional information:

• The management of Giant Ltd values non-controlling interest at the proportionate share of Expert Ltd identifiable net assets.
• Expert Ltd has a profit after tax of $200,000 for the year ended 30 June 2019.
• During the financial year to 30 June 2019, Expert Ltd sold inventory to Giant Ltd for a price of $120,000. The inventory costs Expert Ltd $60,000 to produce. 25 percent of the inventory are still on the hand of Giant Ltd as at 30 June 2019.
• During the year Expert Ltd paid $60,000 in consultancy fees to Giant Ltd.
• On 1 July 2018, Expert Ltd sold an item of plant to Giant Ltd $80000. The equipment had a carrying value of $60,000 (Cost $100,000, accumulated depreciation $40,000). At the date of sale, it was expected that the equipment had a remaining life of 4 years and no residual value.
The tax rate is 30 percent.

Required:

a) Based on the above information, calculate the non-controlling interest as at 30 June 2019.

b) Prepare the necessary journal entries to recognise the non-controlling interest as at 30 June 2019.

Question 5
The Daddy Group has the following group structure:

(a) Reproduce and complete the following controlling and non-controlling interest table. Show your calculations.

(b) What percentage of the voting in Son 7 Ltd will be controlled by the Daddy Ltd?

(c) What percentage of the dividend declared by Son 7 Ltd will be received by the Daddy Ltd?

Answer

Corporate Accounting Assignment Question 1:
1.A.

Hence taxable income and tax payable on 30 June 2020 are $84000 and $25200 respectively

1.B.

• Doubtful debts expense> bad debts written off by an amount of ($3000 –$2000) i.e. $1000

Doubtful debts expense - bad debts written off = ($3000 –$2000) = $1000

So, increase in deferred tax asset = $1000 x 30% = $300

• Long service leave expense> long service leave paid by an amount of ($4000 – $0) i.e. $4000

Long service leave expense > long service leave paid = ($4000 – $0) = $4000

So, increase in deferred tax asset = $4000 x 30% = $1200

• Tax depreciation > depreciation expense

Tax depreciation - depreciation expense = ($8000 –$7000) = $1000

So, increase in deferred tax liability = $1000 x 30% = $300

Hence, changes in deferred liability and deferred tax asset are increase of $1500 and increase of $300respectively

1.C.

1.D.

Question 2:

Acquisition price or buy value = 80000 * $2.40 = $192000

So, goodwill = $192000 - $164000 = $28000

Question.3

3.A.i.
For Liala Ltd.,

Profit Margin = (Sales price-Cost Price)/Sales Price = ($12000-$10000)/$12000 = 16.67%

Remaining inventory after selling = 80% i.e. $12000 * 80% = $9600

Unrealised remaining profit = $9600 * 16.67% = $1600

On June 30, 2017, there is no need of adjustments intercompany profit is realised through reselling of inventory to external companies

For Jordan Ltd.,

Remaining unrealised profit = $6000 * 20% =$1200

Mark-up = 20%

So, Unrealised profit= $1200 *20/120 = $200

3.A.ii.

3.B.
Liala ltd sold an item of plant to Jordan Ltd Ltd for $150000

Carrying value = $200000

So, loss = $200000-$150000= $50000

Useful life remaining = 5 yrs

At year end, depreciation expense which is recorded by Liala ltd =$ 200000/5 = $40000

But actual depreciation expenses =$150000 /5 = $30000

So, it is required to adjust depreciation expense of ($40000-$30000) = $10000

So, intra-entity loss of $50000 and Understated depreciation expense $10000 have to be considered.

Question 4:

4.A.
First unrealised profit from inventory and sales of equipment has to be calculated.

Expert Ltd.’s profit for the year 2018-19 = $200000 - $10500 - $10500 = $179000

Hence, the non-controlling interest as on June 30, 2019 is $315800

4.B.
Below is shown journal entries to recognise the non-controlling interest as on June 30, 2019.

5.A.

• Son 4 has no direct controlling interest. Indirect controlling interest = 0.70 * 80% = 56%
• Son 5 has no direct controlling interest. Indirect controlling interest = 0.55*80%+0.30*80%= 68%
• Son 7 has no direct controlling interest. Indirect controlling interest = 0.95*68%=64.60%
• Son 6 has 5% direct controlling interest and Indirect controlling interest through Son 2 and Son 4=0.45*80%+0.1*56%=41.6%
• Son 1 has direct non-controlling interest of (100%-80%)=20%
• Son 4 has direct non-controlling interest of 100%-56%-14%=30%
• Son 2 has direct non-controlling interest of 100%-80%=20%
• Son 5 has direct non-controlling interest of 100%-68%-17%=15%
• Son 7 has direct non-controlling interest of 100%-64.6%-30.4%=5%
• Son 6 has direct non-controlling interest of 100%-41.6%-5%-13.4%=40%
• Son 3 has direct non-controlling interest of 100%-27%=73%
• Son 4 has indirect non-controlling interest(coming through Son 1) of 0.7*20%=14%
• Son 5 has indirect non-controlling interest(coming through Son 1 7 Son 2) of 0.55*20%+0.3*20%= 17%
• Son 7 has indirect non-controlling interest(coming through Son 5) of (100%-(24+44)%)*0.95=30.40%
• Son 6 has indirect non-controlling interest(coming through Son 2 and Son 4) of 0.1*44%+0.2*45%=13.4

5.B.
Percentage of the voting in Son 7 Ltd that will be controlled by the Daddy Ltd is same as controlling interest i.e. 64.6%

5.C.
Percentage of the dividend declared by Son 7 that will be received by the Daddy Ltd is same as controlling interest = 64.6%