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.

 

 

 

Debit

 

 

Credit

 

 

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:

 

 

 

 

 

 

 

Plant

 

 

 

 

9 500

 

 

Office furniture

 

 

 

 

850

 

 

Buildings

 

 

 

 

2 500

 

 

Land (at cost)

 

$  211 500

 

 

 

 

 

Factory buildings (at cost)

 

250 000

 

 

 

 

 

Accounts receivable

 

542 950

 

 

 

 

 

Plant (at cost)

 

90 000

 

 

 

 

 

Inventory

 

651 100

 

 

 

 

 

Office furniture (at cost)

 

6 000

 

 

 

 

 

Goodwill

 

200 000

 

 

 

 

 

Cash at bank

 

278 800

 

 

 

 

 

Employee benefits expense

 

12 500

 

 

 

 

 

Sales

 

 

 

 

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%.

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:

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:

 

PERFECT SKIN LTD

Statement of Financial Position (Extract)

as at 30 June

 

 

 

 

2017

 

2016

 

 

 

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

 

$

 

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.

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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