Question 1: Accounting for Lease
Owing to low liquidity, Lisa Ltd decides on 1 July 2015 to sell its land and buildings to Anderson Ltd. The carrying values of the land and buildings in the books of Lisa Ltd, at 1 July 2015, are:
Land, at cost $1800000
Buildings, at cost $1750000
Accumulated depreciation $350 000
The land and buildings are sold for $4334 700 (their fair value), with the amount being allocated equally as follows:
Land $2167350
Buildings $2167350
Immediately following the sale, Lisa Ltd decides to lease back the land and buildings from Anderson Ltd. The term of the lease is 20 years. The implicit interest rate in the lease is 12 per cent. It is expected that the buildings will be demolished at the end of the lease term. The lease is non-cancellable, returns the land and buildings to Anderson Ltd at the end of the lease, and requires the following lease payments:
Payment on inception of the lease on 1 July 2015 $600000
Payment on 30 June each year starting 30 June 2016 $500000
There is no residual payment required
REQUIRED
a) Provide the entries for the sale and leaseback in the books of Lisa Ltd as at 1 July 2015.
b) Provide the entries for the purchase and lease in the books of Anderson ltd as at 1 July 2015
c) Provide the entries in the books of Lisa Ltd as at 30 June 2025.
d) Provide the entries in the books of Anderson Ltd as at 30 June 2025.
Question 2: Accounting for Income Tax
MR Limited commences operations on 1 July 2014 and presents its first statement of comprehensive income and first statement of financial position on 30 June 2015. The statements are prepared before considering taxation. The following information is available:
Statement of comprehensive income for the year ended 30 June 2015
|
Gross profit Expenses
|
|
730000
|
|
Administration expenses
|
80000
|
|
|
Salaries
|
200000
|
|
|
Long-service leave
|
20000
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|
|
Warranty expenses
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30000
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|
|
Depreciation expense-plant
|
80000
|
|
|
Insurance
|
20000
|
430000
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|
Accounting profit before tax
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300000
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Assets
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|
|
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Cash
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20000
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Inventory
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|
100000
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|
Accounts receivable
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|
100000
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Prepaid insurance
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|
10000
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Plant-cost
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400000
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|
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less Accumulated depreciation
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80000
|
320000
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Total assets
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550000
|
|
Liabilities
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|
|
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Accounts payable
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|
80000
|
|
Provision for warranty expenses
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|
20000
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Loan payable
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|
200000
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Provision for long-service leave expenses
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-20000
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Total liabilities
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320000
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Net assets
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230000
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Other information
- All administration and salaries expenses incurred have been paid as at year end.
- None of the long-service leave expense has actually been paid. It is not deductible until it is actually paid.
- Warranty expenses were accrued and, at year end, actual payments of $10000 had been made (leaving an accrued balance of $20000). Deductions are available only when the amounts are paid and not as they are accrued.
- Insurance was initially prepaid to the amount of $30 000. At year end, the unused component of the prepaid insurance amounted to $10000. Actual amounts paid are allowed as a tax deduction.
- Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.
- The plant is depreciated over five years for accounting purposes, but over four years for taxation purposes.
- The tax rate is 30 per cent.
REQUIRED
Provide the journal entries to account for tax in accordance with AASB 112.
Question 3: Consolidation
Sandy Ltd acquired 100 per cent of the issued capital of Beach Ltd on 30 June 2014 for $900 000, when the statement of financial position of Beach Ltd was as follows:
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S000
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S000
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Assets
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|
|
|
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Accounts receivable
|
70
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Loan
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300
|
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Inventory
|
100
|
|
|
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Land
|
400
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Shareholders' equity
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|
|
Property, plant and equip.
|
700
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Share capital
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500
|
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Accumulated depreciation
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-270
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Retained earnings
|
200
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|
|
1000
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|
1000
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- The tax rate is 30 per cent.
- As at the date of acquisition, all assets of Beach Ltd were at fair value, other than the property, plant and equipment, which had a fair value of $530000. Beach Ltd adopts the cost model for measuring its property, plant and equipment. The property, plant and equipment is expected to have a remaining useful life of 10 years, and no residual value.
- One year following acquisition it was considered that Beach Ltd's goodwill had a recoverable amount of $60000.
- Beach Ltd declared a dividend of $40000 on 10 July 2014, with the dividends being paid from pre- acquisition retained earnings.
- The statements of financial position and statements of comprehensive income of Sandy Ltd and Beach Ltd one year after acquisition are as follows:
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Sandy Ltd S000
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Beach Ltd $000
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Assets
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|
|
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Cash
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80
|
40
|
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Accounts receivable
|
50
|
50
|
|
Inventory
|
140
|
123
|
|
Land
|
600
|
400
|
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Property, plant and equipment
|
900
|
700
|
|
Accumulated depreciation
|
-300
|
-313
|
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Investment in Beach Ltd
|
900
|
|
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Total assets
|
2370
|
1000
|
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Liabilities
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|
|
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Accounts payable
|
100
|
10
|
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Dividends payable
|
100
|
50
|
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Loan
|
670
|
140
|
|
Shareholders' equity
|
|
|
|
Share capital
|
1000
|
500
|
|
Retained earnings
|
500
|
300
|
|
|
2370
|
1000
|
|
Reconciliation of opening and closing retained earnings
|
|
|
|
Profit after tax
|
400
|
190
|
|
Retained earnings -30 June 2014
|
300
|
200
|
|
Interim dividend
|
-90
|
-40
|
|
Final dividend
|
-110
|
-50
|
|
Retained earnings -30 June 2015
|
500
|
300
|
REQUIRED
Prepare the consolidated statement of financial position for the above entities as at 30 June 2015.