Task
1. Buildit Ltd, a fabricating company, bought an industrial drill on 1st July 2020 for a price of $150,000. The CFO estimated that the drill had a useful life of 6 years and a straight line basis of depreciation was applied. One year later, on 1st July 2021 due to technological improvements the CFO determined that the drill would have to be replaced earlier in order to remain competitive. The remaining useful life was estimated to be 4 years. The accounting depreciation rate was changed to reflect this alteration.
The drill was sold for $69,000 on 30 June 2023. This equipment attracted a tax depreciation rate of 35% p.a. The company tax rate is 30%.
Required
For each of the 3 years ended 30 June 2021, 2022 and 2023, calculate the carrying amount and tax base of the drill, and show the deferred tax journal entry at the end of each year. Provide explanations for your answer.
2. At the 1st July 2022 Towelling Ltd had the following financial position:
Carrying amount Fair value
Assets Current assets
|
Cash |
$270,000 |
$270,000 |
|
Accounts receivable |
1,080,000 |
1,080,000 |
|
Total current assets |
$1,350,000 |
|
|
Non-current assets |
|
|
|
Plant and equipment |
$2,835,000 |
$2,160,000 |
|
Accumulated depreciation |
(810,000) |
|
|
Fixtures and fittings |
1,215,000 |
1,147,500 |
|
Accumulated depreciation |
(135,000) |
|
|
Motor vehicles |
1,080,000 |
823,500 |
|
Accumulated depreciation |
(270,000) |
|
|
Land |
1,485,000 |
2,025,000 |
|
Total non-current assets |
$5,400,000 |
|
|
Total assets Liabilities |
$6,750,000 |
|
|
Current liabilities |
|
|
|
Accounts payable |
$135,000 |
$135,000 |
|
Total current liabilities |
$135,000 |
|
|
Non-current liabilities |
|
|
|
Long term loan |
$540,000 |
$540,000 |
|
Total non-current liabilities |
$540,000 |
|
|
Total liabilities |
$675,000 |
|
|
Net assets Equity |
$6,075,000 |
|
|
Share capital – 135,000 ordinary shares |
$3,375,000 |
|
|
Retained earnings |
2,700,000 |
|
|
Total equity |
$6,075,000 |
|
Required
Complete the journal entries in the books of Cotton Ltd recording the acquisition of Towelling Ltd.
3. Benjamin Ltd owns all of the issued share capital of Franklin Ltd.
The following transactions occurred during the financial year ending 30th June 2022.
Required
Prepare the adjusting consolidation worksheet journal entries for the year ended 30th June 2022 to eliminate the intragroup transactions.
4. On 1st July 2021 Jensen Ltd acquired 80% of the issued shares of Interceptor Ltd for $315,200. The equity of Interceptor Ltd at that date comprised:
|
Share capital (250,000 ordinary shares) |
$250,000 |
|
Retained earnings |
49,375 |
|
General reserve |
100,000 |
|
|
Carrying amount |
Fair value |
|
Land |
$230,000 |
$250,000 |
|
Machinery (cost $187,500) |
125,000 |
150,000 |
|
Inventory |
81,250 |
100,000 |
Required
Prepare the adjusting consolidation worksheet journal entries for the years ended 30th June 2022 and 30th June 2023.
5. Your client Iced Ltd, which controls a number of companies, has recently purchased a 24% shareholding in Tea Ltd. The new accountant, Mr Bushell, has asked your advice about the preparation of the Iced Ltd’s consolidated accounts with respect to the shareholding in Tea Ltd. They are confused about the term “significant influence” and how they should include Tea Ltd’s results in the consolidated accounts.
Required
Write a business letter to the accountant explaining the term “significant influence” and how to recognise it, and the appropriate method for including Tea Ltd’s results in Iced Ltd’s consolidated accounts.
Marks will be awarded for the content of the letter, the structure of the business letter and the manner in which it is presented.
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