Corporate Accounting For Virtual Finance Accounting
Harbour Cruises Limited Calculation showing Taxable Income
Discuss about the Corporate Accounting for Virtual Finance Accounting.
|
Harbour Cruises Limited |
||
|
Calculation showing Taxable income |
||
|
Particulars |
Amount |
Amount |
|
Accounting PBT |
$ 375,000.00 |
|
|
Add: |
||
|
Long service leave |
$ 25,000.00 |
|
|
Accrued Warranty expenses |
$ 25,000.00 |
|
|
Depreciation |
$ 100,000.00 |
|
|
Total |
$ 150,000.00 |
|
|
Less: |
||
|
Prepaid insurance paid |
$ (12,500.00) |
|
|
Depreciation |
$ (125,000.00) |
|
|
Total |
$ (137,500.00) |
|
|
Taxable Income |
|
$ 387,500.00 |
|
Harbour Cruises Limited |
|||
|
Calculation of deferred Tax work sheet |
|||
|
Particulars |
Carrying Amount |
Tax Base |
Temporary Difference |
|
Assets |
|||
|
Cash |
$ 25,000.00 |
$ 25,000.00 |
$ – |
|
Inventory |
$ 125,000.00 |
$ 125,000.00 |
$ – |
|
Account receivable |
$ 125,000.00 |
$ 125,000.00 |
$ – |
|
Prepaid Insurance |
$ 12,500.00 |
$ – |
$ 12,500.00 |
|
Plant (net Depreciation) |
$ 400,000.00 |
$ 375,000.00 |
$ 25,000.00 |
|
Total Assets |
$ 687,500.00 |
$ 650,000.00 |
$ 37,500.00 |
|
Liability |
|||
|
Accounts Payable |
$ 100,000.00 |
$ 100,000.00 |
$ – |
|
Provision for warranty expenses |
$ 25,000.00 |
$ – |
$ 25,000.00 |
|
Loan Payable |
$ 250,000.00 |
$ 250,000.00 |
$ – |
|
Provision for Long service leave |
$ 25,000.00 |
$ – |
$ 25,000.00 |
|
Total Liability |
$ 400,000.00 |
$ 350,000.00 |
$ 50,000.00 |
|
Net Assets |
$ 287,500.00 |
$ 300,000.00 |
|
|
Temporary Difference |
$ (12,500.00) |
||
|
Deferred tax Liability |
$ 11,250.00 |
||
|
Deferred Tax Assets |
$ (15,000.00) |
||
|
Net Deferred Tax Assets |
$ (3,750.00) |
|
Harbour Cruises Limited |
|
|
Calculation showing Deferred tax |
|
|
Particulars |
Amount |
|
Tax on accounting profit |
$ 112,500.00 |
|
Current tax Liability |
$ 116,250.00 |
|
Net deferred tax Asset |
$ (3,750.00) |
|
Luke Limited |
|||
|
Journal Entries for the year ended 30-06-2016 |
|||
|
Date |
Particular |
Debit |
Credit |
|
Investment Acquisition |
|
|
|
|
01-07-07 |
Investment in John Ltd |
$ 712,000.00 |
|
|
Bank |
$ 712,000.00 |
||
|
30-06-16 |
Share Capital |
$ 400,000.00 |
|
|
Retained Earning |
$ 494,000.00 |
||
|
Goodwill |
$ 28,400.00 |
||
|
Investment in John Limited |
$ 712,000.00 |
||
|
non controlling interest |
$ 210,400.00 |
||
|
Income of Dividend |
|||
|
30-06-16 |
Dividend Revenue from John |
$ 148,800.00 |
|
|
Dividend paid |
$ 148,800.00 |
||
|
Intergroup Transaction |
|||
|
30-06-16 |
Sales |
$ 234,000.00 |
|
|
Purchase |
$ 234,000.00 |
||
|
Elimination of unrealized profit on opening Inventory |
|||
|
30-06-16 |
Retained Earning |
$ 14,000.00 |
|
|
Opening stock |
$ 14,000.00 |
||
|
Income tax on opening Inventory |
|||
|
30-06-16 |
Income Tax Expenses |
$ 4,200.00 |
|
|
Opening Retained Earning |
$ 4,200.00 |
||
|
Elimination of unrealized profit on closing Inventory |
|||
|
30-06-16 |
Cost of Goods Sold |
$ 16,000.00 |
|
|
Closing stock |
$ 16,000.00 |
||
|
Income Tax on closing Inventory |
|||
|
30-06-16 |
Deferred Tax |
$ 4,800.00 |
|
|
Income Tax Expenses |
$ 4,800.00 |
||
|
Amortization of Goodwill |
|||
|
30-06-16 |
Amortization of Goodwill |
$ 6,000.00 |
|
|
Retained Earning |
$ 6,000.00 |
||
|
Effect of Income tax on Amortization |
|||
|
30-06-16 |
Income Tax Expenses |
$ 1,800.00 |
|
|
Deferred Tax |
$ 1,800.00 |
||
|
Sale of Plant |
|||
|
30-06-16 |
Gain on Sale of Plant |
$ 25,000.00 |
|
|
Plant |
$ 182,000.00 |
||
|
Accumulated Depreciation |
$ 207,000.00 |
||
|
Tax Impact on sale of Plant |
|||
|
30-06-16 |
Deferred Tax Asset |
$ 7,500.00 |
|
|
Income Tax Expenses |
$ 7,500.00 |
|
Statement showing calculation of Goodwill |
|
|
Particulars |
Amount |
|
Purchasing cost of Investment |
$ 712,000.00 |
|
Less: |
|
|
Capital Profit |
$ (272,000.00) |
|
Book Value of shares held |
$ (320,000.00) |
|
Goodwill |
$ 120,000.00 |
|
Statement showing Calculation of Non Controlling Interest |
|
|
Particulars |
Amount |
|
Capital Profit |
$ 68,000.00 |
|
Post acquisition profit |
$ 62,400.00 |
|
Share Capital |
$ 80,000.00 |
|
Total Non controlling interest |
$ 210,400.00 |
|
Luke Limited |
|
|
Statement showing calculation of Profit or loss on sale of Plant |
|
|
Particulars |
Amount |
|
Sale of Plant |
$ 232,000.00 |
|
Less |
|
|
Carrying value |
$ (162,000.00) |
|
Depreciation |
$ (45,000.00) |
|
Profit on sale of Plant |
$ 25,000.00 |
The accounting treatments for investments in associates are provided in the AASB 128 “Investment in Associates and Joint Venture”. This standard applies to the investor companies that are not the majority shareholders but enjoy significant influence over the investee as stated in Para 2 of the standard (Bazley et al. 2013). The significant influence means that the investor company has the power to participate in the financial and operating policy decisions of the investee company but does not have the control over their operations as per Para 3 of the standard. The Para 5 of the standard states that it is presumed that an investor company has significant influence if it holds 20% or more shares of the investee company (Evans et al. 2013). The equity method of accounting is required to be followed by the investor company that has significant influence over the investee company unless there is specific exemption in Para 13 of the standard. The first step is to determine the nature of the entity in order to ascertain the treatment of the equity method that is required to be followed. If the investor company is a parent entity then the investment in the investee company is recorded at cost in the separate financial statement of the investor company (Henderson et al. 2015). In the consolidated financial statement, the investment is recorded following the equity method. If the investment company is not the parent entity then in the separate financial report the investment in the investee company is recorded by following the equity method. The investment that is made by the investor company should be initially recorded at cost as per Para 10 of the standard. In the subsequent years, adjustments are made in the carrying value of the investment amount for the share of profit or loss in the investee company (Xu and Verhoeven 2015). The investor company has share on the profit or loss of the investee company this has an effect on the profit or loss of the investment company.
In this case, the forty percent share of Creek limited is held by Rapid limited and other companies hold the remaining sixty percent of shares. The shareholders of the Creek limited has one right to vote for one share held. It can be concluded base on the above analysis that Rapid Limited has significant influence on the Creek Limited. Therefore the initial investment made by the rapid limited should be recorded in cost and the equity method of accounting should be followed for recognizing the investment. The investment made in the associates should be included in the non-current asset and should be accounted using equity method of accounting. The investor company is also required to provide separate disclosure for the profit or loss made in the associates, the share of the investor company on any operation that has been discounted and the carrying value of the investment.
|
In the books of Rapid Limited |
|||
|
Journal Entries |
|||
|
Date |
Particulars |
Debit |
Credit |
|
investors share of earnings |
|||
|
30-06-16 |
Investment in Creek Limited |
$ 192,000.00 |
|
|
Share of Profit/loss |
$ 192,000.00 |
||
|
distribution of dividend |
|||
|
30-06-16 |
Dividend revenue |
$ 156,000.00 |
|
|
Investment in Creek Limited |
$ 156,000.00 |
||
|
investors share of earnings |
|||
|
30-06-17 |
Investment in Creek Limited |
$ 216,000.00 |
|
|
Share of Profit/loss |
$ 216,000.00 |
||
|
distribution of dividend |
|||
|
30-06-17 |
Dividend revenue |
$ 192,000.00 |
|
|
Investment in Creek Limited |
$ 192,000.00 |
||
|
Increase in revaluation reserve |
|||
|
30-06-17 |
Investment in Creek Limited |
$ 120,000.00 |
|
|
Revaluation Reserve |
$ 120,000.00 |
|
In the books of Rapid Limited |
|||
|
Journal Entries |
|||
|
Date |
Particulars |
Debit |
Credit |
|
preliminary Acquisition |
|
|
|
|
01-07-15 |
Investment in Creek Limited |
3250000 |
|
|
Bank |
3250000 |
||
|
Earning for Reacquisition |
|||
|
14-07-15 |
Bank |
96000 |
|
|
Investment in Creek Limited |
96000 |
||
|
recording investors share of earnings |
|||
|
30-06-16 |
Investment in Creek Limited |
$ 192,000.00 |
|
|
Share of Profit/loss |
$ 192,000.00 |
||
|
recording share of dividend |
|||
|
30-06-16 |
Dividend receivable |
$ 156,000.00 |
|
|
Investment in Creek Limited |
$ 156,000.00 |
||
|
Previous years dividend paid |
|||
|
30-06-17 |
Bank |
$ 156,000.00 |
|
|
Dividend receivable |
$ 156,000.00 |
||
|
recording investors share of Profit |
|||
|
30-06-17 |
Investment in Creek Limited |
$ 216,000.00 |
|
|
Share of Profit/loss |
$ 216,000.00 |
||
|
recording share of dividend |
|||
|
30-06-17 |
Dividend receivable |
$ 192,000.00 |
|
|
Investment in Creek Limited |
$ 192,000.00 |
||
|
Increase in revaluation reserve |
|||
|
30-06-17 |
Investment in Creek Limited |
$ 120,000.00 |
|
|
Revaluation Reserve |
$ 120,000.00 |
|
In the books of Rapid Limited |
|||
|
Journal Entries |
|||
|
Date |
Particulars |
Debit |
Credit |
|
Initial purchase |
|
|
|
|
30-06-16 |
Investment in Creek Limited |
3250000 |
|
|
Retained Earning |
3250000 |
||
|
recording shareholder share of Profit |
|||
|
30-06-17 |
Investment in Creek Limited |
$ 216,000.00 |
|
|
Share of Profit/loss |
$ 216,000.00 |
||
|
recording distribution of dividend |
|||
|
30-06-17 |
Dividend revenue |
$ 192,000.00 |
|
|
Investment in Creek Limited |
$ 192,000.00 |
||
|
Increase in revaluation reserve |
|||
|
30-06-17 |
Investment in Creek Limited |
$ 120,000.00 |
|
|
Revaluation Reserve |
$ 120,000.00 |
Reference
Bazley, M., Hancock, P., Fisher, C., Lovell, A., Berk, J., DeMarzo, P., Berk, J. and DeMarzo, P., 2013. Financial Accounting: An Integrated. Thomson Pty Ltd, South Melbourne.
Evans, E.E., Burritt, R. and Guthrie, J., 2013. The Virtual University: Impact on Australian Accounting and Business Education.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Xu, S., How, J. and Verhoeven, P., 2015. Corporate governance and private placement issuance in Australia. Accounting & Finance.