Instructions: UNIT CODE: ACT503 UNIT NAME: CORPORATE ACCOUNTING Assignment One Information Semester one 2017 Assessment 30% Maximum Marks: 90 If you create your...

Instructions:

UNIT CODE: ACT503

UNIT NAME: CORPORATE ACCOUNTING Assignment One Information Semester one 2017 Assessment 30% Maximum Marks: 90

If you create your worksheets in excel, please copy and paste them into MSWord.

Points are given for the quality of your calculation formats even if your final calculations are not correct.

Once you have completed the assignment, it needs to be lodged through Safe Assign in the Assessments section of Learnline with an appropriate CDU cover sheet. Your assessments must be lodged using MSWord.

Note: PDF, Excel or paper copies will not be accepted.

Required:1) Make sure your entire assignment can be readily printed on A-4

paper in portrait (preferred) or landscape format with appropriate page breaks. Do not have a portion of a “wide” worksheet expand beyond 1 page.

2) Make sure your name and student number are on every page of your submission.

ACT 503 Corporate Accounting Assignment 1

Due Date: 11.59 pm Friday 12th May in Study Week 10

Page | 1

Question 1: (Marks 15)

MyOwnWork Ltd commences operations on 1 July 2018 and presents its first statement of profit and loss and other comprehensive income and first statement of financial position on 30 June 2019. The statements are prepared before considering taxation. The following information is available:

Statement of profit or loss and other comprehensive income for the year ended 30 June 2019

Gross Profit

Expenses

Administration expenses Salaries Long-service Leave Warranty expenses Depreciation expense - plant Insurance 20,000

Accounting profit before tax Other comprehensive income

730,000

430,000

300,000

Nil

80,000 200,000 20,000 30,000 80,000

Assets and liabilities as disclosed in the statemet of financial positions as at 30 June 2019

Assets

Cash Inventory Accounts receivable Prepaid Insurance Plant - cost Less: Accumulated depreciation Total assetsLiabilitiesAccounts payable Provision for warranty expenses Loan payable Provision for long service leave expenses Total liabilities Net assets

Other information

400,000 80,000

20,000 100,000 100,000

10,000 320,000

550,000

80,000

20,000 200,000 20,000

320,000

230,000

•   All administration and salaries expenses incurred have been paid as at year end.

•   None of the long service leave expense has actually been paid.

•   Warranty expenses were accrued, and at year end, actual payments of $10 000 have been

  made (leaving an accrued balance of $20 000).

  ACT 503 Corporate Accounting Assignment 1

Due Date: 11.59 pm Friday 12th May in Study Week 10

Page | 2

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

•   Amounts received from sales, including those on credit terms, are taxed at the time of sale is made.

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

•   The tax rate is 30 per cent

  Required:

  Prepare Deferred Tax worksheet for MyOwnWork Ltd as at 30 June 2019 and provide the Journal entries to account for tax in accordance with AASB 112

  Question 2: (Marks 10)

  MyNextProblem Ltd has acquired a new building called Next In Line Building for $2 000 000. It has incurred incidental costs of $30 000 in the acquisition process for legal fees, real estate agent’s fees and stamp duties. At the quarterly Board meeting, the management believes that these costs should be expensed because they have not increased the value of the building and, if the building was immediately resold, these amounts would not be recouped. In other words, the fair value of the building is considered to still be $2 000 000.

  Required: Discuss how these costs should be accounted for in the books of MyNextProblem Ltd. Maximum 200 words.

  Question 3: (Marks 15)

  A recent annual report of the City of Darwin Council did not include library books on the statement of financial position, notwithstanding the existence of a substantial library collection. The City of Darwin Council’s accounting policy for library books is to expense them at the time of acquisition. A note in the annual report reveals that in applying this policy the council considered the following factors:

•   As soon as the book is purchased its fair value is minimal compared with its cost.

•   The acquisition costs of individual books are below the council’s capitalisation policy.

•   The useful life of a book is variable and indeterminable, making depreciation difficult.

  Required

  Critically evaluate the council’s accounting policy for its library collection. Suggest an alternative accounting policy or supplemental information that could be reported, if appropriate. Maximum 400 words

  ACT 503 Corporate Accounting Assignment 1

Due Date: 11.59 pm Friday 12th May in Study Week 10

Page | 3

Question 4 (Marks 30)

ChallengeMe Pty Ltd is a manufacturer of tennis equipment and fashion wear. The statement of financial position as at 30 June 2020 and details of expenses and revenues for the year ending 30 June 2020 are as follows:

Statement of financial position as at 30 June 2020

Current assets

2020 ($000)

2019 ($000)

274 2,486

- 2,654

(120)

5,294

- 948

1,750 800

(160) 768 (548)

302

3,860

9,154

1,483 1,110 -

83 298

- -

2,974

- 75

3,800 3,875

6,849

2,305

Cash 135

Inventory Prepayments Accounts receivable Allowance of doublful debts Total current assetsNon-current assetsInvestment - associated company Investments Land Buildings Accumulated depreciation - buildings Plant and equipment Accumulated depreciation - plant and equipment Deferred tax asset Total non-current assetsTotal assets Current liabilitiesAccounts payable Accruals Lease liability Income tax payable Provision for employee entitlements Provision for deferred payments (relating to investment in Squash Pty Ltd) Provision for warranty Total current liabilitiesNon-current liabilitiesLease liability Deferred tax liability Borrowings Total non-current liabilitiesTotal liabilities Net assets

ACT 503 Corporate Accounting

2,774 115 2,897

(150)

5,771

1,050 1,216 1,500

800 (200)

1,025 (100) 312

5,603

11,374

1,637 1,575 5 243 205

50 314

4,029

15 240 3,500

3,755

7,784

3,590

Due Date: 11.59 pm Friday 12th May in Study Week 10

Assignment 1

Page | 4

Statement of financial position as at 30 June 2020 (cont.)

Shareholders' equity

Share capital Retained earnings Revaluation surplusTotal shareholders' equity

2020 2019 ($000) ($000)

2,750 2,000 280 130 560 175

3,590 2,305

Statement of profit or loss and other comprehensive income for the year ending 30 June 2020

Income

Sales Dividends incomeExpensesBad debts Cost of sales Doubtful debts Inventory write-off Warranty expenses (taken to provision for warranty) Depreciation

- Building

2020 2019 ($000) ($000)

31,394 27,346 51 47

(90) (85) (28,205) (24,611) (35) (40) (50) 0 (314) 0

(40) (40) (100) (60)

- Plant and equipment Interest (315) Rent (600)

(418)

(600) (1,231) (90)

218 -

218

- -

218

Salaries and wages Finance charges Profit before tax Income tax

Profit after tax Other comprehensive incomeReduction in revaluation surplus as a result of reduction

in value of land Increase in revaluation surplus as a result of increase

in value of plant and equipment

Total comprehensive income

(1,324) (7)

365 (215)

150

(175) 560

535

ACT 503 Corporate Accounting

Assignment 1

Due Date: 11.59 pm Friday 12th May in Study Week 10

Page | 5

Statement of changes in equity for the year ending 30 June 2020

Opening balance 1 July 2019

Statement of profit and loss and other comprehensive income

Issue of shares as part consideration for acquisition of associated company

Balance 30 June 2020

Additional information

Share Retained Revaluation capital earnings surplus ($000) ($000) ($000)

2,000 130 175

- 150 385 750 - -

2,750 280 560

Total ($000)

2,305

535 750

3,590

•   An additional investment of $80 000 is acquired for consideration of tennis equipment costing $80 000.

•   Land is devalued against a previous increment in the revaluation reserve. The previous increment is fully reversed.

•   Plant and equipment with a cost of $700 000 and accumulated depreciation of $500 000 are revalued to $1 000 000 during the year

•   Plant and equipment with a fair value of $25 000 are acquired under a finance lease. The residual is guaranteed by the lessee.

•   Plant and equipment are sold for $20 000 cash. Cost is $68 000 and no profit or loss is made on the sale.

•   During the year, one line of wooden tennis racquets is scrapped at a loss of $50 000, as there is a little demand for the range.

•   During the year, an investment is made in an associated company, Squash Pty Ltd. Consideration is $1 000 000, funded by cash of $250 000 and the balance by the issue of 500 000 shares at $1.50 per share. The purchase agreement includes a clause stating that if profits exceed $110 000 in the first financial year after purchase, additional amounts are payable. Using the formula, an extra $50 000 is provided.

•   Provision for warranty is based on 1 per cent of sales

•   Rent expense of $600 000 is accrued within ‘Accruals’.

•   Interest expense is paid during the year and dividends are received.

•   Salaries and wages expense includes the expense for employee entitlements.

•   Tax rate is 30 per cent.

  Required

  Prepare the statement of cash flows in accordance with AASB 107 for ChallengeMe Pty Ltd for the year ending 30 June 2020. Comparatives are not required. Show necessary workings.

  ACT 503 Corporate Accounting Assignment 1

Due Date: 11.59 pm Friday 12th May in Study Week 10

Page | 6

Question 5 (Marks 20)

FinalHeadache Ltd acquires all of the shares in Solutions Ltd on 30 June 2018. The financial statements for FinalHeadache Ltd and Solutions Ltd at 30 June 2019 (one year after acquisition) are provided below.

Reconciliation of opening and closing retained earnings

Sales revenue Costs of goods sold Other expenses

FinalHeadache Ltd ($000)

2,000 (800) (300)

Solutions Ltd ($000)

610 (240) (70)

300 500

800

Solutions Ltd ($000)

800 350

150 700

2,000

200 250

750 1,000

(200) -

2,000

Profit 900 Retained earnings opening balance 1,100

Retained earnings at 30 June 2019 2,000

Statements of financial position

Shareholders' equity

FinalHeadache Ltd ($000)

Retained earnings 2,000 Share capital 1,100 Current liabilitiesAccounts payable 700 Non-current liabilities

Loans 1,100

4,900

Current assets

Cash 150 Accounts receivable 450 Non-current assetsLand 1,200 Plant 2,600 Accumulated depreciation - plant (600) Investment in Solutions Ltd 1,100

4,900

Additional information

•   FinalHeadache Ltd acquires Solutions Ltd on 30 June 2018 for $1.1 million cash.

•   The directors of FinalHeadache Ltd consider that in the year to 30 June 2019 the value of

  goodwill has been impaired by an amount of $20 000.

•   There are no intragroup transactions.

•   Solutions Ltd did not issue any shares during 2019.

  ACT 503 Corporate Accounting Assignment 1

Due Date: 11.59 pm Friday 12th May in Study Week 10

Page | 7

•   The tax rate is 30 per cent.

•   On the date at which FinalHeadache Ltd acquires Solutions Ltd, the carrying amount and

fair value of the assets of Solutions Ltd are:

Cash Accounts receivable Land Plant (cost of $1 000 000,

accumulated depreciation of $200 000)

Carrying amount ($000)

150 200 750

800

1,900

Fair value ($000)

150 200 800

900

2,050

No revaluations are undertaken in Solutions Ltd’s accounts before consolidation.

•   At the date of acquisition of Solutions Ltd, Solutions Ltd’s liabilities amount to $1.050 million and there are no contingent liabilities.

•   The plant in Solutions Ltd is expected to have a remaining useful life of 10 years from 30 June 2018, and no residual value.

  Required

  Provide the consolidated accounts of FinalHeadache Ltd and Solutions Ltd as at 30 June 2019 with the following:

  •   Goodwill computation

  •   Consolidation journal entries to:

o Revalue the assets of Solutions Ltd so that goodwill can subsequently be accounted for

o Eliminate the investment in Solutions Ltd and the pre-acquisition capital and reserves of Solutions Ltd

o Recognise impairment of goodwill

o Additional depreciation and decrease in Deferred tax liability

•   Consolidation worksheet for FinalHeadache Ltd and its controlled entity for the

  period ending 30 June 2019 showing columns of Eliminations and adjustments and

  Consolidated amounts

•   Consolidated statement of financial position of the FinalHeadache group

  Hard work pays off. Good Luck

  ACT 503 Corporate Accounting Assignment 1

Due Date: 11.59 pm Friday 12th May in Study Week 10

Page | 8