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Question 1:
Kbar Ltd adopts the revaluation model for measuring equipment.
On 30 June 2021, and prior to recording depreciation for the year, Kbar Ltd obtained a fair value for the equipment at $85 000.
In the previous year, Kbar Ltd had revalued this equipment to a fair value of $70 000. This had resulted in recording a decrease of $20 000 for the equipment. The equipment had a remaining useful life of 7 years on that date (no residual value).
The company uses straight-line depreciation, the reporting period ends 30 June, and the tax rate is 30%.
Required:
Prepare the necessary journal entries for the equipment on 30 June 2021
Question 2
Polo Ltd has prepared financial statements and notes to the financial statements for the year ended 30 June 2021.
Income tax expense reported in the Statement of Profit or Loss and Other Comprehensive Income for the period 30 June 2021 is $182 000.
The following balances are reported in the Statement of Financial Position:
|
| 2021 | 2020 |
| Deferred Tax Asset | 78 000 | 70 000 |
| Deferred Tax Liability | 30 000 | 34 000 |
Note to income tax expense
Current Income Tax Expense $194 000
Deferred Income Tax Expense (12 000)
Required:
Using the above information, prepare the end of year adjusting entries that Polo Ltd must have recorded in order to present the income tax expense of $182 000 in the Statement of Profit or Loss and Other Comprehensive Income for the period 30 June 2021.
Question 3
Hey Ltd leased a building from There Ltd on 1 July 2020. The building is in the records of There Ltd at its fair value of $535,212 on 1 July 2020. There Ltd incurred $2,500 in costs to prepare and execute the lease document.
The lease agreement contained the following details:
| Lease term | 10 years |
| Economic life of the building | 15 years |
| Annual rental payments, in arrears (commencing 30/06/21) | $90,000 |
| Residual value of the building at the end of the lease term | $40,000 |
| Residual value of the building guaranteed by Hey Ltd | $25,000 |
| Interest rate implicit in the lease | 10% |
| PV of $1 in 10 years at 10% | 0.3855 |
| PV of $1 annuity at 10% with 9 payments | 5.7590 |
| PV of $1 annuity at 10% with 10 payments | 6.1446 |
The annual payments of $90,000 include $5,000 to reimburse There Ltd for maintenance and insurance costs that will need paid by There Ltd.
Hey Ltd incurred $1,650 in costs to negotiate the lease agreement. The building will be returned to There Ltd at the end of the lease term. Hey Ltd and There Ltd have a reporting period ending 30 June.
Required:
1. Prepare the necessary journal entries for the lease arrangement at 30 June 2021 in the records of Hey Ltd.
2. Calculate the lease receivable that There Ltd will recognize on 30 June 2020.
