BAC205 Corporate Reporting Assessment Answer

BAC205 Corporate ReportingQuestion 18 Marks

Ninja Ltd’s profit before tax for the year ended 30 June 2020 was $18,500. Included in this profit are the following items of income and expense:

At 30 June, the company’s draft statements of financial position showed the following balances:

Additional information:

• A tax deduction for development expenditure of 125% of the $30,000 spent during the year is available under the Tax Act. The profit reflects the amount of development costs amortised in the current period.
• A tax deduction of $22,000 (22%) can be claimed on equipment, but the motor vehicle is fully depreciated for tax purposes.
• The equipment sold on 30 June 2020 cost $30,000 when it was purchased 2 years before the date of sale
• Deductions are only available for annual leave when amounts are paid and not as they are accrued.
• Actual amounts paid for insurance are allowed as a tax deduction.
• No deduction is allowed for taxation purposes in relation to entertainment, fines and penalties.
• Rent revenue and interest is taxable when amounts are received.
• Depreciation of buildings are not allowed as tax deduction.
• The deferred tax asset (DTA) balance at 30 June 2019 comprised: DTAs relating to temporary differences: $4,000
• DTAs relating to carried forward tax losses: $2,450
• No journal entries related to tax have been recorded for the year ended 2020. Assume the tax balances at 30 June 2019 are correct.
• The tax rate is 30%.

Required:

1. Calculate the taxable income and current tax liability using an appropriate worksheet for the year ended 30 June 2020 (show all workings).(6 Marks)
2. Prepare a journal entry to record the current tax liability.(2 Marks)

Question 28 Marks

Salad Ltd acquired all the net assets of an existing business, Lettuce Ltd on 1 July 2020. The statements of financial position of the two companies immediately prior to the acquisition were as follows:

All of the assets of Lettuce Ltd are recorded at fair value, with the exception of:

*Fair value excluding Lettuce’s vacant land.

The terms of the acquisition are as follows:

• Salad Ltd is to acquire all of the assets, except cash, delivery trucks and motor vehicles of Lettuce Ltd and will assume all of the liabilities except accounts payable.
• Salad Ltd is to give the share-holders of Lettuce Ltd a block of vacant freehold land, two delivery vehicles and sufficient additional cash to enable the company to pay of the accounts payable and then liquidation costs of $1,600.
• On the liquidation of Lettuce Ltd, the former directors are to receive the land, motor vehicles and the delivery trucks. The land and vehicles had the following values at 1 July 2020:

Required:

1. Prepare the acquisition analysis in relation to the acquisition.(2 Marks)
2. Prepare the journal entries in Salad Ltd to record the business combination.(4 Marks)
3. Prepare the statement of financial position of Salad Ltd immediately subsequent to the acquisition.(2 Marks)Question 38 Marks

You are finishing your Accounting internship at Rainbow Ltd., where John is working as an accountant and Sky as a CFO. Rainbow Ltd. is a parent company that on 1 July 2020 acquired the controlling interest in Blue Ltd. (subsidiary).

On 15 July 2020, you along with John and Sky attended a meeting in which they discussed accounting of acquisition of Blue Ltd. During the meeting you heard John disclosing to Sky that Blue Ltd. has not measured their assets at fair value to which Sky questioned if under AASB standards at the acquisition date an adjustment entry is needed to record the assets and liabilities of Blue Ltd. at fair value. After the meeting, John as a part of your internship project entrust you to prepare a one-page memo answering Sky’s concern.

Write a memo to Sky and John answering following questions:

1. Under AASB at the acquisition date is there any requirement for Rainbow Ltd. to make any adjusting entries to record the assets and liabilities of Blue Ltd (subsidiary) at fair value? Give reason to support your answer.(2 Marks)
2. What would be the implications if Rainbow Ltd. do not process these adjusting entries?

(2 Marks)

1. Is there any exception to the recognition principle at the acquisition date regarding any liabilities? Explain your answer.(2 Marks)
2. Should any adjusting entries be also processed to recognise assets that acquiree (Blue Ltd.) had not previously recognised in its own financial statements? Give one example and explain.(2 Marks)

Use relevant standards from AASB to support your answer to each of above 4 questions.

Rationale:

This assignment is designed to assess your ability to:

SLO 4 Evaluate financial statements and disclosures as required by Australian  Accounting Standards including the preparation of consolidated financial statements and accounting for equity investments and joint ventures (arrangements).

SLO 3 Analyse financial accounting records for specified transactions and events in accord with relevant Australian Accounting Standards and generally accepted accounting principles.