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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