Calculate the end-of-period adjustments

Assignment Help Managerial Accounting
Reference no: EM131193881

Problem # 1

The summarised trial balance of Star Ltd as at 30 June 2017 is shown below.










Ordinary share capital (1 500 000 shares)





$1 062 500



General reserve (1/7/16)





175 000



Revaluation surplus (1/7/16)





60 000



Retained earnings (1/7/16)





104 500



Bank loan (long-term)





43 500



Deferred tax liability (1/7/16)





3 000



Mortgage (long-term)





50 000



Accounts payable





132 000



Provision for employee benefits (long-term)





75 000



Allowance for doubtful debts





37 500



Accumulated depreciation:













9 500



Office furniture













2 500



Land (at cost)


$  211 500






Factory buildings (at cost)


250 000






Accounts receivable


542 950






Plant (at cost)


90 000








651 100






Office furniture (at cost)


6 000








200 000






Cash at bank


278 800






Employee benefits expense


12 500











1 730 500



Raw materials and consumables used


1 083 100






Changes in inventories of finished goods and work in progress





3 100



Other expenses (excluding depreciation but including interest expense $31 000 on bank loan and mortgage)



    163 500









$3 489 450



$3 489 450


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%.


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:

Rent revenue

Bad debts expense

Depreciation expense - plant

Long-service leave expense



30 000

60 000

50 000

75 000


Extracts from the statements of financial position of the company at 30 June 2017 and 30 June 2016 showed the following assets and liabilities:



Statement of Financial Position (Extract)

as at 30 June














Accounts receivable

Allowance for doubtful debts

Other current assets


Accumulated depreciation


Accumulated depreciation


Deferred tax asset


Accounts payable

Provision for employee benefits

Rent received in advance

Deferred tax liability




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









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



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.


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).


- Adapted from Leo, K, Knapp, J, McGowan, S & Sweeting, J (2015) Company Accounting, 10th Edition, John Wiley & Sons Australia, Queensland.

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