PART A
Scenario 1
June 1 The directors issued a prospectus offering 40,000 ordinary shares at an issue price of $2.80, payable $2 on application and 80c as a future call. The closing date for application was 31 September. The share issue was underwritten for a fee of $2,500, payable on 15 October.
September 31 Applications for 50,000 shares had been received.
October 10 The directors allotted the shares pro rata, with applicants receiving 80% of their requested shares. The company's constitution allows excess application monies to be retained and used to offset future calls payable.
Scenario 2
July 1 The company decided that 1,500,000 ordinary shares were to be offered to the public at an issue price of $3, payable as follows:
$1.50 on application (due 1 August)
$0.50 on allotment (due 30 August)
$1 on future calls
August 1 Applications had been received for 1,750,000 shares of which applicants for 300,000 shares forwarded the full $3 per share, the remainder paying only the application money.
August 5 At the directors' meeting it was decided to allot ordinary shares in full to the applicants who paid the full amount and proportionally to all remaining applicants.
According to the company's constitution, all surplus money from application can be transferred to Allotment and Call accounts.
August 30 All outstanding allotment money was received.
November 1 The final call on was made, with payment due by 28 November.
November 28 All money was received on the due date except for the holders of 50,000 shares who failed to meet the call.
Scenario 3
January 5 The directors resolved to redeem the preference shares (equity) out of the profit.
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150,000 ordinary shares, issued at $1.50, paid to $1
|
$ 150,000
|
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65,000 redeemable preference shares, issued at $1, fully paid
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$ 65,000
|
|
Maintenance reserve
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$ 200,000
|
|
Retained earnings
|
$ 500,000
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Scenario 4
February 8 As provided for in the constitution, the ordinary shares on which the call was unpaid were forfeited. The constitution in relation to this class of shares further provided for any surplus on resale, after satisfaction of unpaid calls and associated costs, to be returned to the former shareholders.
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100,000 "A" ordinary shares, issued at $2, called to $1.80
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$
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180,000
|
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Less: Calls in Arrears - "A" ordinary shares
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$
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(3,500)
|
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120,000 "B" ordinary shares, issued at $1.50, called to $1
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$
|
120,000
|
|
250,000
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5% preference shares, issued at $1, paid to $0.50
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$
|
125,000
|
|
100,000
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$1 options
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$
|
100,000
|
|
General reserve
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$
|
250,000
|
|
Retained earnings
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$
|
600,000
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"A" ordinary shares - payable as follows: $0.80 on application $0.50 on allotment $0.50 on 1st call $0.20 on future calls
"B" ordinary shares - payable as follows: $0.50 on application $0.50 on allotment $0.50 on future calls
February 20 The forfeited shares were re-issued to Melbourne Investments Ltd, as paid to $1.80 per share for $1.40 cash per share. Share issue cost amounted to $500.
February 21 The balance from forfeiture was returned to the former shareholders.
Required:
- Prepare the general journal entries to record the above independent scenarios.
- Narrations to general journal entries must be provided. (Note that narrations are not required in the examination).
- Complete and detailed workings/calculations must be shown.
- Absence of workings/calculations may lead to zero marks allocated to the particular general journal entry, despite the fact that the entry might be correct!
PART B
One of the cash-generating units of Gotcha Fish Ltd is associated with the manufacture of fishing equipment. At 30 June 2018, Gotcha Fish Ltd believed, based on an analysis of economic indicators, that the assets of the unit may be impaired. The carrying amounts of the assets and liabilities of the unit at 30 June 2018 were:
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Cash
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$
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40,000
|
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Trade Receivables
|
|
20,000
|
|
Allowance for doubtful debts
|
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(5,000)
|
|
Inventory
|
|
80,000
|
|
Plant
|
|
230,000
|
|
Accumulated depreciation - plant*
|
|
(50,000)
|
|
Buildings
|
|
480,000
|
|
Accumulated depreciation - buildings**
|
|
(240,000)
|
|
Land
|
|
100,000
|
|
Goodwill
|
|
25,000
|
|
Accounts payable
|
|
40,000
|
|
Loans
|
|
35,000
|
*depreciated at (p.a.) $50,000 **depreciated at (p.a.) $60,000
Gotcha Fish Ltd determined the value in use of the unit to be $605,000. The trade receivables were considered to be collectable, except those considered doubtful. The plant had a fair value less costs to sell of $170,000. The company allocated the impairment loss in accordance with AASB 136.
During the 2018-19 period, Gotcha Fish Ltd increased the depreciation charge on plant to $55,000 p.a. and to $65,000 p.a. for the buildings. The inventory on hand at 1 July 2018 was sold by the end of the year. At 30 June 2019, Gotcha Fish, because of an observable return in the market of the use of fishing equipment, assessed the recoverable amount of the cash-generating unit to be $50,000 more than the carrying amount of the unit. As a result, Gotcha Fish Ltd recognised a reversal of the impairment loss. At 30 June 2019, the recoverable amount of the land was $95,000.
Required
1. Determine if the assets of the CGU are impaired and, if so, by how much. Show all workings
2. Calculate the allocation of any impairment to the assets of the CGU. Show all workings and explain, with reference to AASB 136, your treatment of various items.
3. Provide an appropriate journal entry for 30/6/2018
4. Determine the allocation of the impairment reversal in 2019. Show all workings and explain, with reference to AASB 136, your treatment of various items.
5. Provide the relevant journal entries for 30/6/2019