Problem # 1
The summarised trial balance of Star Ltd as at 30 June 2017 is shown below.
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Debit
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Credit
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Ordinary share capital (1 500 000 shares)
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$1 062 500
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General reserve (1/7/16)
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175 000
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Revaluation surplus (1/7/16)
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60 000
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Retained earnings (1/7/16)
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104 500
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Bank loan (long-term)
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43 500
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Deferred tax liability (1/7/16)
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3 000
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Mortgage (long-term)
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50 000
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Accounts payable
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132 000
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Provision for employee benefits (long-term)
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75 000
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Allowance for doubtful debts
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37 500
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Accumulated depreciation:
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Plant
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9 500
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Office furniture
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850
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Buildings
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2 500
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Land (at cost)
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$ 211 500
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Factory buildings (at cost)
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250 000
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Accounts receivable
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542 950
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Plant (at cost)
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90 000
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Inventory
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651 100
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Office furniture (at cost)
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6 000
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Goodwill
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200 000
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Cash at bank
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278 800
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Employee benefits expense
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12 500
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Sales
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1 730 500
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Raw materials and consumables used
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1 083 100
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Changes in inventories of finished goods and work in progress
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3 100
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Other expenses (excluding depreciation but including interest expense $31 000 on bank loan and mortgage)
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163 500
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$3 489 450
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$3 489 450
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The accountant for the company seeks your assistance in preparing the financial statements for external reporting purposes and advises you of the following information that needs to be taken into account before finalising the financial statements.
Additional information
(a) Depreciation is to be provided for:
(b) The estimated total income tax expense relating to profit or loss items only for 2017 is $200 000, consisting of $150 000 for the current liability and $50 000 as a deferred tax liability.
(c) Final dividends of 2 cents per share were declared by directors.
(d) Directors decided to transfer $10 000 from retained earnings to general reserve.
(e) Following expert advice, the directors decided on 30 June 2017 to revalue the land and factory buildings to reflect current fair values. Consequently, directors placed a value of $300 000 on land and $350 000 on the buildings.
(f) Company tax rate is 30%.
Required:
Based on the ledger balances and the additional information provided, prepare a statement of profit or loss and other comprehensive income (classify expenses by nature), a statement of financial position and a statement of changes in equity for Star Ltd for the year ended 30 June 2017, to comply with AASB 101.
Problem # 2
The profit before tax of Perfect Skin Ltd for the year ended 30 June 2017 is $600 000 and includes the following revenue and expense items:
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Rent revenue
Bad debts expense
Depreciation expense - plant
Long-service leave expense
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$
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30 000
60 000
50 000
75 000
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Extracts from the statements of financial position of the company at 30 June 2017 and 30 June 2016 showed the following assets and liabilities:
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PERFECT SKIN LTD
Statement of Financial Position (Extract)
as at 30 June
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2017
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2016
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Assets
Cash
Inventory
Accounts receivable
Allowance for doubtful debts
Other current assets
Plant
Accumulated depreciation
Buildings
Accumulated depreciation
Goodwill
Deferred tax asset
Liabilities
Accounts payable
Provision for employee benefits
Rent received in advance
Deferred tax liability
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$
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80 000
170 000
500 000
(55 000)
25 000
500 000
(260 000)
300 000
(148 000)
70 000
?
290 000
100 000
25 000
?
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$
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85 000
155 000
480 000
(40 000)
22 000
500 000
(210 000)
300 000
(140 000)
70 000
40 500
260 000
75 000
20 000
38 100
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Additional information
(a) Depreciation for tax purposes for Plant for the year ended 30 June 2017 amounted to $75 000.
(b) Rent is taxed when received.
(c) Assume a tax rate of 30% for the year ended 30 June 2017.
Required
Prepare a current tax worksheet for the year ended 30 June 2017 to calculate taxable income and the company's current tax liability, and then record the entries for current tax (show all workings).
Calculate the end-of-period adjustments required for the deferred tax asset and liability accounts, and record the entries for deferred tax and show the balances of deferred tax asset and deferred taxliability as at 30 June 2017(show all workings).
Source:
- Adapted from Leo, K, Knapp, J, McGowan, S & Sweeting, J (2015) Company Accounting, 10th Edition, John Wiley & Sons Australia, Queensland.
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