Journal Entries, Taxable Income And Shareholder’s Equity

Task 1 Marks 10
Your company has just decided to issue a prospectus to raise additional capital.

The relevant information is:

Prospectus issued on 1 June 2015 to raise additional capital

The prospectus invited applications for 5,000,000 ordinary shares at an issue price of $2.10 each.

On application for these shares, the applicant was to pay $1.40 per share.

A second instalment of $0.70 was payable on 1 January 2016.

According to the prospectus, any excess application money was to be refunded in full.

By the prospectus close date of 31 July 2015, 5,200,000 applications for ordinary shares had been received. Only application money was sent in with all applications.

On 1 August 2015, the company’s directors allotted 5,000,000 shares in proportion to the applications received. No additional shares were issued.

By 1 January 2016, all the second instalment payments had been made, with the exception of one holder of 6,000 ordinary shares.

Required:

Prepare, in General Journal format, entries to record:

(i) the application for and issue of the shares, including any refund; (ii) the payment of the second instalment

(Note: narrations are not required).

Answer:

General Journal

Date	Particulars	Debit	Credit


31-07-2015	Bank A/c.	7280000
	Share Application A/c.		7280000

01-08-2015	Share Application A/c.	7280000
	Share Capital A/c.		7000000
	Bank A/c.		280000

	Share Allotment A/c.	3500000
	Share Capital A/c.		3500000

01-01-2016	Bank A/c.	3495800
	Calls-in-Arrear A/c.	4200
	Share Allotment A/c.		3500000


Task 2 Marks 10

Butch Ltd and Sundance Supplies have agreed to join forces and created a bigger company called Cassidy Supplies Ltd. It was agreed that Butch Ltd would acquire the assets and liabilities of Sundance for $2,500,000 and create a new company on 1 December 2015. The acquisition would be funded through the issue of new shares in Butch Ltd to the vendors. Prior to the acquisition and conversion, Sundance Supplies’ trial balance was









	Debit	Credit

	$	$
Cash at bank	35,800

Accounts receivable	1,37,800

Inventory	1,27,300

Land & buildings	23,89,000

Motor vehicles	3,76,900

Plant & machinery	5,51,450

Allowance for doubtful debts		4,050

Accumulated depreciation – buildings		64,500

Accumulated depreciation – plant & machinery		1,41,500

Accounts payable		1,13,200

Mortgage		9,98,000

Capital		21,15,000

General reserve		1,82,000

	36,18,250	3,618,25


At the date of acquisition and conversion of the business to a company, the fair value of the assets was determined as:

	$

Cash at bank	35,800

Accounts receivable	1,32,000

Inventory	1,20,000

Land & buildings	25,00,000

Motor vehicles	3,50,000

Plant & machinery	5,00,000


The business’ liabilities were accepted at the balance listed in the trial balance.

Required:

Prepare general journal entries to record the above in Cassidy Supplies Ltd’s books

(Note: narrations are not required).

Answer:

Date	Particulars	Debit	Credit


01-12-2015	Cash at bank	35,800
	Accounts receivable	1,37,800
	Inventory	1,20,000
	Land & buildings	25,00,000
	Motor vehicles	3,50,000
	Plant & machinery	5,00,000
	Gain on Acquisition		26,600
	Allowance for doubtful debts		5,800
	Accounts payable		1,13,200
	Mortgage		9,98,000
	Vendor- Tackle		25,00,000

	Vendor- Tackle	25,00,000
	Share Capital		25,00,000

	Gain on Acquisition	26,600
	Profit & Loss		26,600


Task 3 Marks 8
Required:
Prepare the general journal entries to reflect the following events during the year:

a) The final dividend declared at the end of the previous year of $85,000 was paid on 15 August 2015

b) On 1 January 2016, land and buildings were revalued from $1,900,000 to $2,025,000

c) An interim dividend was declared on 15 March 2016 and paid on 10 April 2016 for $55,000

d) On 30 June 2016, the company decided to set aside an additional $35,000 form retained earnings and transferred this to the general reserve

(Note – Narrations and dates are required.)

Answer:

Date	Particulars	Debit	Credit


15-08-2015	Final Dividends Payable	85000
	Bank		85000
	(Payment of Final Dividend paid on 15/8/2015)

01-01-2016	Land & Buildings	125000
	Asset Revaluation Reserve		125000
	(Land & Building revalued)

15-03-2016	Retained Earnings	55000
	Interim Dividend Payable		55000
	(Interim Dividend declared)

10-04-2016	Interim Dividend Payable	55000
	Bank		55000
	(Interim Dividend paid)

30-06-2016	Retained Earnings	35000
	General Reserve		35000
	(Transfer to general reserve)


Task 4 Marks 12
Task 4 Marks 12 Delphi Deliveries Ltd commenced operations on 1 July 2016. For the year ended 30 June 2017, the company recorded an accounting profit before tax of $299,000. On 30 June 2017, the accounting balance sheet and the taxation balance sheets disclosed the following:






	Accounting (Carrying Amount)	Taxation (Tax Base)

	$	$

Assets

Motor vehicles (at cost)	1,80,000	1,80,000

Accumulated depreciation – motor vehicle	-49,500	-36,000

Office furniture (at cost)	3,50,000	3,50,000

Accumulated depreciation – office furniture	-52,500	-70,000

Bank	61,500	61,500

Inventories	55,200	55,200

Accounts receivable (net)	48,500	51,500

	5,93,200	5,92,200

Liabilities

Bank loan	2,50,000	2,50,000

Accounts payable	41,800	41,800

Provision for annual leave	7,750	Nil

	2,99,550	2,91,800

Net Assets	2,93,650	3,00,400



Included in the calculation of accounting profit were the following items, which have to be treated differently for taxation purposes:

	Accounting Entries	Taxation Entries

	$	$

Depreciation of motor vehicles	49,500	36,000

Depreciation of office furniture	52,500	70,000

Entertainment expenses (not tax deductible)	3,850	Nil

Transfer to provision for annual leave	10,000	Nil

Transfer to allowance for doubtful debts	3,500	Nil


Additional information:

All depreciation is calculated using the straight line method.

Income tax rate is 30%.

Motor vehicles totalling $180,000 were purchased on 1 July 2016. For accounting purposes, these vehicles are being depreciated at 27.5% per year. For taxation purposes it is being depreciated at 20% per year.

Office furniture was acquired on 1 July 2016 for $350,000. For accounting purposes, the equipment is being depreciated at 15% per year. However, for taxation purposes, it is depreciated at 20%.

Annual leave amounting to $2,250 was paid during the year and charged against the provision. This amount is a taxation deduction.

During the year, a bad debt of $500 was written off and charged against the allowance for doubtful debts. This amount is a taxation deduction.

Required:

(i) Prepare a statement of taxable income for the year ended 30 June 2017.

(ii) Prepare general journal entries to record income tax expense and deferred tax in accordance with AASB 112, including the offset between deferred tax assets and deferred tax liabilities. (Note: narrations are not required)

Answer:

(i) CalculationofTaxableincome
Accounting Profit		2,99,000
Add:
Accounting Depreciation – Motor Vehicle	49,500
Accounting Depreciation – Office Furniture	52,500
Entertainment Expenses	3,850
Transfer to Provision for Annual Leave	10,000
Transfer to Allowance for Doubtful Debts	3,500
		1,19,350
Less:		4,18,350
Tax Depreciation – Motor Vehicle	36,000
Tax Depreciation – Office Furniture	70,000
Annual Leave Paid	2,250
Bad Debt Written Off	500
		1,08,750
Taxable Income		3,09,600













Tax base calculation (not required to be completed)				(ii) General Journal

	Carrying Amount	Tax Base	DTA	DTL		30-06-2016	Income Tax Expense	92880
		Provision for Income Tax		92880
Motor vehicles	1,30,500	1,44,000	4050
		Income Tax Expense	5250
Office furniture	2,97,500	2,80,000		5250			Deferred Tax Liability		5250

Bank	61,500	61,500					Deferred Tax Assets	7275
		Income Tax Expenses		7275
Inventories	55,200	55,200
		Deferred Tax Liability	5250
Accounts receivable	48,500	51,500	900				Deferred Tax Assets		5250

	5,93,200	5,92,200
Bank loan	2,50,000	2,50,000

Accounts payable	41,800	41,800

Provision for annual leave	7,750	0	2325

	2,99,550	2,91,800
Net Assets	2,93,650	3,00,400






Task 5 Marks 8
Laine Ltd recorded the following operational income and expenses for the year ending 30 June 2015.


	$’000

Revenue (Sales)	1,170

Cost of sales	490

Commission received	91

Interest received	23

Distribution expenses	229

Marketing expenses	55

Occupancy expenses	122

Administration expenses	150

Other expenses	73

Finance cost expenses	55



Additional information: 1. Assume a 30% tax rate on profit before tax. 2. Assets were revalued from $1,122,000 to $1,290,000 during the year. 3. Administration expenses included: • Audit fees: • Fees for taxation services paid to the auditors: • Depreciation of plant & equipment: Required: $10,500 $4,500 $11,200 (i) (ii) Prepare a Statement of comprehensive income with both expenses (classified by function) and revenues disclosed on the face of the statement. Prepare the “Profit for the period” note to support the statement of comprehensive income.















Answer:

Part (i)

Statement of Comprehensive Income for the year ended 30 June 2015

	$’000

Revenue	1,170
Cost of Sales	-490
Gross Profit	680
Other Income	114
	794
Distribution Expenses	-229
Marketing Expenses	-55
Occupancy Expenses	-122
Administrative Expenses	-150
Other Expenses	-73
Finance Costs	-55
Profit before Income Tax	110
Income Tax Expenses	-33
	77
Other Comprehensive Income:
Revaluation gain on Assets	168
Total Comprehensive Income	245












Part (ii)
Profit for the period

Profit has been determined after charging/crediting the following items:
Commission Received		91000
Interest Received		23000
Auditor’s Remuneration:
Audit Services	10500
Taxation Services	4500	15000
Deprerciation on Plant & Equipment		11200




Task 6 Marks 8

The following information has been provided: 1. Profit after tax for the year was $66,500 Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper 2. Share capital at 1 July 2015 was 1,400,000 ordinary shares of $1.00 each, fully paid 3. The company issued 250,000 ordinary shares on 31 May 2016 at $0.90 each, fully paid 4. Retained earnings balance 1 July 2015 (credit) $324,500 5. General reserve balance 1 July 2015 $50,000 Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper 6. Transferred during the year to general reserve from retained earnings $25,000 7. Asset revaluation reserve balance 1 July 2015 $125,000 8. On 30 June 2016, the directors adopted a new valuation of land and buildings of $1,850,000. The previous valuation of land and buildings was $1,790,000. 9. A fully franked interim dividend of $0.03 per ordinary share was paid on 31 March 2016 10. The directors declared a proposed final dividend of $0.06 per ordinary share, fully franked, on 30 June 2016 Required: (i) (ii) Prepare the Statement of Changes in Equity for the year ended 30 June 2016. Prepare the “Dividends” note to support the statement of changes in equity.

Answer:
Part (i) 6 Marks


Statement of changes in equity For the year ended 30 June 2016

	Reserves	Share Capital	Total equity

	Retained earnings	General reserve	Asset revaluation reserve

Balance 1 July 2015	324500	50000	125000	1400000	1899500

Total comprehensive income	66500		60000		126500

Total recognised income and expense for the period	66500		60000		126500

Dividends	-141000				-141000

Transfer to general reserve	-25000	25000

Share buy-back

Issue of share capital				225000	225000

Balance 30 June 2016	291500	75000	245000	1625000	2236500


Part (ii) 2 Marks

Dividends paid or declared: $’000

Interim Dividend Paid:
$0.03 per share fully franked @30% on 1400000 shares	42

Declared final dividend:
$0.06 per share fully franked @30% on (1400000+250000) shares	99
	141











Task 7 Marks 12

The following information has been extracted from the balance sheet of Mammoth Ltd: • Shares listed in the ASX with a market value of $125,400 • Debentures that can be sold on the market at a value of $50,000 • The company had acquired equipment costing $300,000. As at 30 June 2016, the accumulated depreciation was $45,000. • The directors adopted a new value for land and building at 30 June 2016 of $1,950,000 • The company has a mortgage, secured by the land and buildings, of $1,600,000. The mortgage is repayable in 4 equal instalments on the 30 June each year • The directors agreed to an impairment of Goodwill on acquisition $18,000. The balance of the goodwill, after the impairment was $72,000 • The company was involved in a legal dispute where the other party was demanding $150,000 in settlement of an outstanding claim. Legal advice was obtained by the company which indicated that there may be a 20% chance of losing this legal battle. Required: Prepare the notes to the Statement of financial position (balance sheet) showing all the required disclosures as per AASB 101 for all items listed above.














Answer:

Extract of Notes to Statement of financial position

Note 11 – Property, plant & equipment			1605000
Plant & Equipment (at cost)	300000	255000
Less: Accumulated Depreciation	45000
Land & Building		1350000

Note 12 – Intangible Assets			72000
Goodwill	90000
Less: Accumulated Impairment on Goodwill	18000

Note 13 – Available for sale investment			175400
Listed shares (at market value)		125400
Debentures (at market value)		50000

Note 14 – Current Portion of Long Term Borrowing			400000
Mortgage (secured by land & building)		400000

Note 15 – Long Term Borrowing			1200000
Mortgage (secured by land & building)		1200000

Note 16 – Contingent Liabilities
The company was involved in a legal dispute where the other party was demanding $150,000 in settlement of an outstanding claim. Legal advice was obtained by the company which indicated that there may be a 20% chance of losing this legal battle.


Task 8 Marks 12 Part (a) (6 Marks)

A summary extract from the Cash Book of SAM Ltd for the year ended 30 June 2016 disclosed:

Cash Book

Opening balance	9,470	Accounts payable	42,200
Accounts receivable	1,03,700	Office Furniture	4,200
Sales – cash	15,920	Inventory purchased	16,250
Commission received	2,462	Salaries & wages	90,520
Office furniture	9,500	Taxation payable	17,624
Share capital	70,000	Provision for annual leave	2,490
Motor vehicles	7,000	Petty Cash	50
Interest income	2,230	Other operating expenses	31,040
Deposits at call	5,000	Dividend payable	13,200
		Closing balance	7,708
	2,25,282		2,25,282

Additional Information – The petty cash float was $100 on 30 June 2015. There was $50,000 in deposits at call on 30 June 2015. Required: Prepare a cash flow statement for the financial year ended 30 June 2016 (Note you are not required to show the reconciliation of cash and cash equivalents)








Part (b) (6 Marks)

An extract from the balance sheets of Unstable Pty Ltd showed the following for the years ended 30 June 2015 and 30 June 2016 were:


	30-Jun-15	30-Jun-16
Bank	9,096	11,024
Accounts receivable	82,384	85,856
Allowance (provision) for doubtful debts	-840	-840
Inventory	31,696	28,540
Current Liabilities
Accounts payable	25,284	24,460
Taxation payable	11,800	13,192
Provision for annual leave	5,120	4,560
Dividend payable (provision)	10,240	12,480

Additional Information

Net profit after taxation is $100,400. This profit was determined after accounting for the following income and expense items:

	$

Depreciation	16,480

Gain on sale of non-current assets	2,240



Required:

Determine the net cash provided from operating activities for the year ended 30 June 2012 by preparing the reconciliation with profit after tax.


Answer:
Part (a) (6 Marks)					Part (b) (6 Marks)

Statement of Cash Flows for SAM Ltd For the Financial Year Ended 30 June 2016				Reconciliation of profit after tax to cash flows from operating activities

(i) Cash flows from operating activities:	Inflows/ (Outflows)	Inflows/ (Outflows)				Profit after Tax:		1,00,400
Receipts from Customers	1,19,620					Add/(Substract) non cash items:
Commission Received	2,462					Depreciation	16,480
Interest Income	2,230					Gain on sale of non-current assets	-2240	14240
Payment to Suppliers	-58,450							1,14,640
Payment to Employees	-93,010					Add/(Substract) movements in balance sheet:
Taxation Paid	-17,624					Increase in Accounts Receivable	-3,472
Other Operating Expenses	-31,040					Increase in Taxation Payable	1,392
Net Cash used by Operating Activities		-75,812				Decrease in Inventory	3,156
						Decrease in Accounts Payable	-824
(ii) Cash flows from investing activities:						Decrease in Provision for Annual Leave	-560
Payment for office furniture	-4,200							-308
Proceeds from disposal of office furniture	9,500					Net Cash provided by operating activities		1,14,332
Proceeds from disposal of motor vehicle	7,000
Net Cash used by Investing Activities		12,300

(iii) Cash flows from financing activities:
Proceeds of share issue	70,000
Dividends paid	-13,200
Net Cash used by Financing Activities		56,800

Net Decrease in Cash Held		-6712
Cash & Cash Equivalent at beginning of the year		9,470
Cash & Cash Equivalent at the end of the year		2,758

Cash at Bank		7,708
Deposit on Call		-5000
Petty Cash on Hand		50
Cash & Cash Equivalent at the end of the year		2,758




Task 9 Marks 20

Bonnie Ltd acquired all the issued capital of Clyde Ltd on 1 July 2010 for $600,000. At that date the shareholders’ equity of Clyde Ltd was:


	$
Share capital	4,62,000
General reserve	35,400
Retained earnings	77,160	-25,440

Additional information for the year ended 30 June 2016:

(i) Inter company sales:

Bonnie Ltd to Clyde Ltd	$6,400

Clyde Ltd to Bonnie Ltd	$3,800

(ii) Unrealised profits in closing inventory as at 30 June 2016 is $1,000 for goods sold by Clyde Ltd to Bonnie Ltd and $2,500 for goods sold by Bonnie Ltd to Clyde Ltd.

(iii) Unrealised profit in opening inventory for goods sold by Bonnie Ltd to Clyde Ltd as at 1 July 2015 is $2,000 and for goods sold by Clyde to Bonnie is $3,000.

(iv) The final dividend of $18,000, declared as at 30 June 2015, was paid by Clyde Ltd in October 2015.

(v) On 1 January 2016, Bonnie Ltd purchased non-current assets from Clyde Ltd for $15,000. Clyde Ltd made profit on this sale of $2,400. Both companies depreciate office equipment at 20% per annum.

(vi) Clyde Ltd borrowed funds from Bonnie Ltd by issuing 480, 10% Debentures (each with a face value of $100) on 1 July 2015 to Bonnie Ltd. Interest is paid at the end of each quarter (and has been paid for the period ending 30 June 2016).

(vii) The directors review the balance of goodwill each year. They agree that:

For the year ended 30 June 2015, goodwill was impaired by $5,000.

For the year ended 30 June 2016, goodwill is to be impaired by $4,000.

Required: Complete the consolidation worksheet – You are not required to complete the final consolidation column and this has not been provided on the work sheet.

Answer

Consolidation Worksheet 30 June 2016	Bonnie Ltd	Clyde Ltd	Eliminations
Dr	Cr

Sales	4,93,860	3,37,752	10,200
Less Cost of Sales Inventory 1.7.2015	37,920	25,680		5,000

Purchases	2,98,680	1,69,620		10,200
	3,36,600	1,95,300
Inventory 30.6.2016	37,020	24,780	3,500
Cost of Goods Sold	2,99,580	1,70,520
Gross Profit	1,94,280	1,67,232
Gain on sale of equipment	–	2,400	2,400
Dividends received	30,000		18,000

Interest received from Clyde Ltd	4,800		4,800
	2,29,080	1,69,632
Less: Expenses – selling expenses	22,080	12,000
Admin expenses	49,920	63,000	4,000	240
Financial expenses	15,000	7,632		4,800
	87,000	82,632
Operating Profit before tax	1,42,080	87,000
Less tax expenses	42,624	26,100
Profit after tax	99,456	60,900
Retained earnings 1.7.2015			77,160	18,000
			5,000
	1,73,400	1,50,432
Available for appropriation	2,72,856	2,11,332
Approprations
Interim dividend paid	28,800	12,000
Final dividend declared	33,000	19,200
Total appropriations	61,800	31,200
retained earnings 30.6.2016	2,11,056	1,80,132
Share capital	9,00,000	4,62,000	4,62,000
General reserve	42,000	35,400	35,400
10% Debentures	–	48,000	48,000
Accounts payable	33,000	19,800
Dividends payable	33,000	19,200
Taxation Payable	18,000	11,400
	12,37,056	7,75,932
Property,plant & equipment			240	2,400
Shares in Clyde Ltd.				6,00,000
10% Debentures in Clyde Ltd.				48,000
Inventory				3,500
Goodwill on Consolidation			25,440	9,000

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