ACT503 Corporate Accounting Questions Assessment Answer

ACT503: Corporate Accounting Semester 1, 2021

ASSIGNMENT INFORMATION

This Assignment is worth 30% of the total assessment for this unit. This assignment will be marked out of 100 and scaled down to being out of 30. The assignment has 3 questions.

QUESTION 1 (25 marks)

Bill Ltd profit before income tax for the year ended 30 June 2021 is $500,000 including the following expenses

The statements of financial position of the company at 30 June 2020 and 2021 showed the following information:

1. An item of plant is purchased at a cost of $350 000 on 1 July 2018. For accounting purposes it is expected to have a life of ten years; however, for taxation purposes it can be depreciated over 7 years.
2. For taxation purpose, the depreciation of building is not allowed.
3. Total bad debts written off for the year were $35,000.
4. Amount paid for long-service leave and holiday pay during the year ended 30 June 2021 were $20,000 and $15,000 respectively.
5. Income tax rate were

For year ended 30 June 2020 and previous years33% For year ended 30 June 202125%

Requirement

1. Calculate the amount of current income tax expense, current tax liability, deferred income tax assets, and deffered income tax liability by using worksheets for the year ended 30 June 2021. (15 mark)
2. Prepare the balance day journal entries for income tax, including the change in the tax rate and the deffered tax asset and deferred tax liability accounts. (5 mark)
3. How will a change in the tax rate impact on the balances of deferred tax assets and deferred tax liabilities? Should any such change be reflected in the reported profit of the reporting entity when the tax rate changes? (5 mark)

QUESTION 2 (25 marks)

Sam Ltd enters into a 5 years lease non-cancellable agreement with West Ltd on 1st July 2020. The lease is for an item of truck that has a fair value of $476912 at the inception of the lease. Sam Ltd’s incremental borrowing rate is 9%

The truck is expected to have an economic life of 6 years, after which it will have an expected residual salvage value of $50,000. There is a purchase option that Sam Ltd will be able to exercise at the end of 5 year for $70,000. The rate of interest implicit in the lease is quoted as being 8%.

There are to be 5 annual payments of $120,000 being made at the end of each year along with an up- front payment of $30,000. The annual lease payment includes $20,000 representing payment to the lessor for the insurance and maintenance of the truck.

Required

1. Prepare the journal entries for the year ending 30 June 2021 and 30 June 2022 (For both Sam Ltd and West Ltd) Show the Lease receipts and payments schedule (15 mark)
2. Prepare the portion of the statement of financial position related to the leased asset and leased liability for the year ending 30 June 2021 and 30 June 2022 (For Sam Ltd) (5 mark)
3. Prepare the journal entries for the year ending 30 June 2025 (For Sam Ltd) (5 mark)

QUESTION 3 (50 marks)

Berry Ltd acquired 70% of the shares of James Ltd on 1st July 2016 for $540,000. The James Ltd equity consisted of the following items at acquisition date

All identifiable assets and liabilities of James Ltd are recorded at fair value at this date except for