Assignment -
Question 1 - Financial statement disclosures
You are the financial accountant for Superstore Ltd, and are in the process of preparing its financial statements for the year ended 30 June 2018. Whilst preparing the financial statements, you become aware of the following situations:
1. On 1 July 2017, the directors made a decision, using information obtained over the last couple of years, to revise the useful life of an item of manufacturing equipment. The equipment was acquired on 1 July 2015 for $800,000, and has been depreciated on a straight-line basis, based on an estimated useful life of 10 years and residual value of nil. Superstore Ltd uses the cost model for manufacturing equipment. The directors estimate that as at 1 July 2017, the equipment has a remaining useful life of 6 years and a residual value of nil. No depreciation has been recorded as yet for the year ended 30 June 2018 as the directors were unsure how to account for the change in the 2018 financial statements, and unsure whether the 2016 and 2017 financial statements will need to be revised as a result of the change.
2. In June 2018, the accounts payable officer discovered that an invoice for repairs to equipment, with an amount due of $20,000, incurred in June 2017, had not been paid or provided for in the 2017 financial statements. The invoice was paid on 12 July 2018. The repairs are deductible for tax purposes. The accountant responsible for preparing the company's income tax returns will amend the 2017 tax return, and the company will receive a tax refund of $6,000 as a result (30% x $20,000). No journal entries have been done as yet in the accounting records of Superstore Ltd, as the directors are unsure how to account for this situation, and what period adjustments need to be made in.
3. Superstore Ltd holds shares in a listed public company, ABC Ltd, which are valued in the draft financial statements on 30 June 2018 at their market value on that date - $600,000. A major fall in the stock market occurred on 10 July 2018, and the value of Superstore's shares in ABC Ltd declined to $250,000.
4. On 21 July 2018, you discovered a cheque dated 20 April 2018 of $32,000 authorised by the company's previous accountant, Max. The payment was for the purchase of a swimming pool at Max's house. The payment had been recorded in the accounting system as an advertising expense. You advise the directors of this fraudulent activity, and they will investigate.
Assume that each event is material.
Required:
i) State the appropriate accounting treatment for each situation. Provide explanations and references to relevant paragraphs in the accounting standards to support your answers. Where adjustments to Superstore Ltd's financial statements are required, explain which financial statements need to be adjusted (ie. 2016, 2017, 2018 or 2019).
ii) Prepare any note disclosures and adjusting journal entries that are needed in the 2018 financial statements for each situation.
Question 2 - Accounting for income tax
Jackson Storm Ltd commenced business on 1 July 2017, with share capital of $300,000. On 30 June 2018, the company presents its first Statement of Profit or Loss and Other Comprehensive Income, and first Statement of Financial Position. The statements are prepared before considering taxation. The information is attached.
Additional information:
- The company purchased equipment at a cost of $700,000 on 1 July 2017. The equipment is depreciated over ten years for accounting purposes, and seven years for taxation purposes (using the straight-line basis of depreciation, and a residual value of nil).
- The company purchased motor vehicles at a cost of $120,000 on 1 July 2017. The motor vehicles are depreciated over four years for accounting purposes, and six years for taxation purposes (using the straight-line basis of depreciation, and a residual value of nil).
- Tax deductions for annual leave, warranties, insurance are available when the amounts are paid, and not as amounts are accrued.
- Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.
- Tax deductions are not available for doubtful debts. Tax deductions are only available when bad debts are written off.
- The tax rate is 30%.
Required:
i) Determine the balance of any current tax liability and deferred tax assets and deferred tax liabilities for Jackson Storm Ltd as at 30 June 2018, in accordance with AASB 112. Use appropriate worksheets and show all necessary workings.
ii) Prepare the journal entries to record the current tax liability and deferred tax assets and deferred tax liabilities.
Attachment:- Assignment File.rar