Determine how jack ltd should account for the results

Assignment Help Financial Accounting
Reference no: EM131041556

Question 1:

Accounting policies, changes in accounting estimates and errors

Blake Ltd is finalising its financial statements for the reporting period ending 30 June 2015. A number of unrelated scenarios still need to be considered and accounted for before the financial statements are finalised:

a) The company has, in the past, always recognised a provision for warranties equal to 5% of sales made during the year. Due to increasing warranty costs and the number of goods returned under warranty, the directors would like to increase the provision to 8% of sales made during the year. The provision for warranties account currently has a balance of $12,000, which is the balance carried forward from 30 June 2014. Sales for the year ended 30 June 2015 amounted to $460,000.

b) During the verification process for accounts payable, it was discovered that an amount of $80,000, incurred in May 2015 and payable to a supplier for raw materials, was recorded in the accounting records as $8,000. The $80,000 owing at 30 June 2015 was paid in July 2015.

c) During the verification process for office equipment, it became apparent that an item of office equipment that was thought to be on hand at 30 June 2014 had actually been destroyed in April 2014. The item had a cost of $40,000 and accumulated depreciation of $24,000. No depreciation has been calculated or recorded as yet for the year ended 30 June 2015.

d) During the verification process for accounts receivable, it was discovered that the sales manager had undertaken fraudulent activity - raising fake sales invoices in June 2015. The motivation of the manager was to ensure that his sales targets were met, so that he was eligible for his performance bonus. The fake sales invoices amounted to $122,000, with this entire amount included in the accounts receivable balance at 30 June 2015.

e) On 1 July 2014, the directors revised the useful life of its building (acquired 2 years earlier on 1 July 2012 for $600,000, with an estimated useful life of 20 years and residual value of nil on this date). On 1 July 2014, the remaining useful life was estimated to be 30 years. The building has been depreciated using the straight-line method over its useful life. No depreciation has been calculated or recorded as yet for the year ended 30 June 2015.

Assume all amounts are material for financial statement purposes.

Required:

With reference to AASB 108, explain whether each of the above scenarios is a change in accounting estimate or an error. State the appropriate accounting treatment (including any journal entries needed) for each scenario in the 2015 financial statements.

Question 2

Accounting for share capital

On 1 April 2015, Sage Ltd was registered and issued a prospectus inviting applications for 2,000,000 shares, at an issue price of $3.50, payable as follows:

- $1.00 on application
- $1.50 on allotment
- $0.50 on first call
- $0.50 on final call

By 30 April, applications had been received for 2,100,000 shares. At the directors' meeting on 3 May, it was decided to allot shares to the applicants in proportion to the number of shares for which applications had been made. The surplus application money was offset against the amount payable on allotment. All outstanding allotment money was received by 10 May. Legal costs re company formation were $7,000 and were paid on 11 May. Share issue costs of $3,000 were also paid on the same date.

The first call was made on 1 September 2015, with money due by 30 September 2015. The final call was made on 2 January 2016, with money due by 31 January 2016. All money owing in relation to the two calls was received by the due dates except for the holders of 100,000 shares who did not pay either call, and the holder of another 20,000 shares who did not pay the second call. On 10 March 2016, as provided in the company's constitution, the directors forfeited these 120,000 shares.

On 25 March 2016, the forfeited shares were reissued as fully paid for a consideration of $2.80 per share. Costs of forfeiture and reissue amounted to $4,000, and were paid. The constitution allowed for the refund of any balance in the forfeited shares account after reissue to former shareholders, so refunds were made on 28 March 2016.

Required:

Prepare the journal entries to record the transactions of Sage Ltd up to and including that which took place on 28 March 2016. Show all relevant dates, narrations and workings.

Question 3

Accounting for income tax

Frog Ltd has prepared its draft statement of profit or loss and other comprehensive income and statement of financial position on 30 June 2015. The statements are prepared before considering taxation. The following information is available:

Extract from statement of profit or loss and other comprehensive income for the year ended 30 June 2015

 

$

$

Gross profit

 

758,000

Other income:

 

 

Rent revenue

 

14,000

Royalty revenue (exempt from income tax)

 

5,000

Proceeds from sale of plant

 

29,000

 

 

 

Expenses:

 

 

Administration expenses

116,500

 

Doubtful debts expense

4,000

 

Salaries

270,200

 

Rent

26,000

 

Annual leave

13,500

 

Entertainment expenses (not tax deductible)

2,000

 

Warranty expenses

12,000

 

Carrying amount of plant sold

40,000

 

Depreciation expense - plant

14,000

 

Depreciation expense - motor vehicles

8,000

 

Insurance

10,400

(516,600)

Accounting profit before tax

 

  289,400

Assets and liabilities as disclosed in the Statement of Financial Position as at 30 June 2015

 

2015

$

2014

$

Assets:

 

 

Cash

 196,500

7,000

Inventory

 210,000

85,000

Accounts receivable

76,000

 34,000

Less Allowance for doubtful debts

(8,600)

(5,000)

Rent receivable

 2,000

3,000

Prepaid insurance

 1,200

500

Plant - cost

70,000

120,000

Less Accumulated depreciation

(46,000)

(42,000)

Motor vehicles - cost

32,000

32,000

Less Accumulated depreciation

(20,500)

(12,500)

Deferred tax asset

 ?

17,160

 

 

 

Liabilities:

 

 

Accounts payable

 17,300

12,800

Provision for annual leave

 16,200

23,000

Provision for warranties

 21,500

18,700

Current tax liability

 ?

32,600

Deferred tax liability

 ?

2,925

Loan payable

 20,000

30,000

Additional information:

o All administration, rent and salaries expenses incurred have been paid as at year end.
o Tax deductions for annual leave, warranties, insurance and rent are available when the amounts are paid, and not as amounts are accrued.
o Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.
o Rent income is taxed when amounts are received, and not as amounts are accrued.
o The company can claim a tax deduction of $10,500 for depreciation on plant, and $12,000 for depreciation on motor vehicles. Accumulated depreciation for tax purposes at 30 June 2014 was $31,500 for plant, and $18,750 for motor vehicles.
o The plant sold during the year (sold on 1 July 2014) had been purchased for $50,000 on 1 July 2013. For taxation purposes, the plant was depreciated at 15% p.a.
o The tax rate is 30%.

Required:

i) Determine the balance of any current and deferred tax assets and liabilities as at 30 June 2015, in accordance with AASB 112.

ii) Prepare the journal entries to record the current tax liability and movement in the deferred tax assets and deferred tax liabilities.

Question 4

Property, plant and equipment

Walkie Ltd acquires a new motor vehicle on 1 July 2013 for $90,000. The motor vehicle is expected to have a useful life of six years, and has an estimated residual value of $10,000. The straight-line method of depreciation is used.

On 1 July 2014, the directors of Walkie Ltd decide to adopt the revaluation model for motor vehicles. The motor vehicle is revalued to $85,000 and its useful life is reassessed: it is expected, at that date, to have a remaining useful life of nine years. The estimated residual value remains unchanged at $10,000.

On 30 June 2015, the motor vehicle is revalued to $52,000. On this date, the directors determine that the useful life and residual value does not need to be reassessed.

On 30 June 2016, it is determined that the fair value of the motor vehicle does not differ materially from its carrying amount. It is also determined that the useful life and residual value does not need to be reassessed.

On 1 January 2017 it is unexpectedly sold for $45,000.

Required:

Prepare journal entries for Walkie Ltd between 1 July 2013 and 1 January 2017 to record the above. Show narrations and all relevant workings. Assume a tax rate of 30%.

Question 5

Impairment of assets

Jack Ltd has a division that represents a separate cash generating unit. At 30 June 2015, the carrying amounts of the assets of the division, valued pursuant to the cost model, are as follows:

Assets:

$

Cash

42,000

Plant and equipment

600,000

Less: accumulated depreciation

(120,000)

Land

800,000

Inventory

90,000

Accounts receivable

27,000

Patent

150,000

Goodwill

     10,000

Carrying amount of cash generating unit

1,599,000

 

The receivables were regarded as collectable, and the inventory's fair value less costs to sell was equal to its carrying amount. The patent has a fair value less costs to sell of $140,000, and the land has a fair value less costs to sell of $825,000.

The directors of Jack estimate that, at 30 June 2015, the fair value less costs to sell of the division amounts to $1,500,000, while the value in use of the division is $1,560,000.

As a result, management increased the depreciation of the plant and equipment from $40,000 p.a. to $45,000 for the year ended 30 June 2016.

By 30 June 2016, the recoverable amount of the cash generating unit was calculated to be $55,000 greater than the carrying amount of the assets of the unit.

Required:

Determine how Jack Ltd should account for the results of the impairment test at 30 June 2015 and 30 June 2016, and prepare any necessary journal entries. Show all workings and provide references to the relevant accounting standard to support your answer.

Reference no: EM131041556

Questions Cloud

Explain if any amounts received by raelene : BLO2206 TAXATION LAW AND PRACTICE ASSIGNMENT. Raelene was a secondary school teacher. She was also an excellent athlete specialising in the hurdles. Fully explain if any of the above amounts received by Raelene will be assessable income
Support for financial transparency : One of the companies using NetSuite's Cloud ERP software commented that "Not only does NetSuite support our business growth, but it also benefits our investor and strategic partner relations. With its support for financial transparency, informatio..
Different exchange rates and stock indices : An Excel spreadsheet containing over 900 days of daily data on a number of different exchange rates and stock indices can be downloaded from the author's website. Choose one exchange rate and one stock index. Estimate the value of in the EWMA mode..
What is the rate of return on stock : 1. The Frisco Company just paid $2.20 as its annual dividend. The dividends have been increasing at a rate of 4% annually and this trend is expected to continue. The stock is currently selling for $63.60 a share. What is the rate of return on this..
Determine how jack ltd should account for the results : Determine how Jack Ltd should account for the results of the impairment test at 30 June 2015 and 30 June 2016, and prepare any necessary journal entries. Show all workings and provide references to the relevant accounting standard to support your ..
Room and begin rummaging through the archive boxes : The budget is being prepared on a month-by-month basis, by analysing the same month from the previous three years. January and February have been completed, so you need to start working on March.
Explore wikipedia entry concept map and then create your own : Write down ideas you are considering for your topic and begin organizing them (a process called "brainstorming"). Explore the Wikipedia entry Concept Map and then create your own. During your brainstorming, use the websites bubble.us, Mindmeister,..
What prompted the rise in the domestic slave trade : How did older slaves prepare younger generations to deal with the brutal realities of slavery (punishments, sexual exploitation, poor diet, intolerable working conditions, etc)?
What are byods and how are they currently being used : The report is to be based on the following case study scenarioabout Bring Your Own Devices - What are BYODs and how are they currently being used. You should explore a range of applications of BYOD,for example, in areas such as healthcare, educatio..

Reviews

Write a Review

Financial Accounting Questions & Answers

  Financial statement terminology

Financial statement terminology.

  Questionbelow is information on total assets for several

questionbelow is information on total assets for several funds of the city of dublin all amounts are in thousands of

  Problem 1 balance sheetsdecember 31

problem 1 balance sheetsdecember 31 20x6nbsppeonyltd.asterltd.assetsnbspnbspcashnbsp 62500nbsp 25000accounts

  What is superiors stockholders equity

The Superior Company has provided the following account balances: Cash $152,000; Short-term investments $18,000. Requirement: What is Superior's stockholders' equity?

  What is the interest rate on the annuity option

You have just won the lottery! You can either receive $5,000 a year for 15 years or $50,000 as a lump sum payment today. What is the interest rate on the annuity option?

  Determine dividends per share for preferred and common stock

Determine the dividends per share for preferred and common stock for each year.

  Expalin how might it do so without being currently taxed

A U.S. manufacturer wants to conduct business through a foreign subsidiary organized in a low tax jurisdiction. Expalin how might it do so without being currently taxed on the subsidiary's foreign earnings?

  Balance sheet for springtime national bank

The balance sheet for Springtime National Bank as of yesterday is shown below. Use it to answer the questions that follow. The required reserve ratio is 12%.

  Nutritional interventions and acupuncture intervention

Give information about the Nutritional interventions and Acupuncture intervention for ADHD.

  Income is credited to its earnings and profits account

On January 2, Chaz transfers cash of $93,000 to a newly formed corporation for 100% of the stock. In its initial year, the corporation has net income of $23,250. The income is credited to its earnings and profits account. The corporation distributes ..

  Issuance of the bonds and entries to be passed post issue

Xonic Corporation issued $7,600,000 of 20-year, 8 percent bonds on April 1, 2015, at 102. Interest is due on March 31 and September 30 of each year, and all of the bonds in the issue mature on March 31, 2035. Swanson's fiscal year ends on December 31..

  What amount should be reported as rent expense

XXXX Hospital paid $4,600 of rent expense during 20X2. Its balance sheets reported prepaid rent expense as follows: Required: What amount should be reported as rent expense in Easter Hospital's 20X2 statement of operations? Please explain.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd