Depriciation of Plant

Page 1 of 5 ACT503 : Corporate Accounting Semester 1, 202 1 This assignment is 30% of y our course grade . You MUST follow these ins truc tion s : Submission Requirements : This assignment is to be submitted before 23.59pm Sun day 23 rd May in Week 11 Assignments are to be submitted by one of the following means; DO NOT LODGE BY FAX nor EMAIL nor at LECTURER'S OFFICE KEEP A COPY • The assignment must be lodged on or before the due date indicated in the assignment details. Only word docs and excel will be acceptable. Handwritten answers will be rejected. Points are given for the quality of your calculation formats even if your final calculations are not correct. • The assig nment must conform to the requirements set out in this assignment • The assignment must be lodged online via the ACT503 Learnline Assignment Lodgement link on the ACT503 Learnline site . Ensure your file is named using a file naming convention that allows the lecturer to identify to whom it belongs. Failure to use an acceptable file naming convention may result in your assignment lodgement being rejected. • DO NOT LODGE VIA EMAIL or FAX - assignments lodged by email or fax will not be accepted. • KEEP A COPY - Ensure you have a copy of the assignment lodged. If you have submitted assessment work electronically, please make sure you have a backup copy. • Assignment lodgements will be acknowledged automatically on the Learnline site, on submission. • DO NOT submit an assignment front sheet. Resubmission As a general rule resubmission of assessment items is NOT possible, however the Lecturer may ask for resubmission if it is deemed appropriate. Details for such resubmission will be made available by the Lecturer if and when the situation occurs. University Plagiarism policy Plagiarism is the unacknowledged use of material written or produced by others or a rework of your own material. All sources of information and ideas used in assignments must be referenced. This applies whether the information is from a book, journal artic le, the internet, or a previous essay you wrote or the assignment of a friend. Plagiarism policy is available at Student Breach of Academic Integrity Procedures http://www.cdu.edu.au/ governance/doclibrary/pro -092.pdf Page 2 of 5 EXTENSIONS AND LATE LODGEMENTS LATE ASSIGNMENTS WILL GENERALLY NOT BE ACCEPTED UNLESS AN EXTENSION TO THE DUE DATE HAS BEEN GRANTED BY THE BUSINESS ADMINISTRATOR. Exceptions will only be made where assignments are late due to special circumstances that are supported by documentary evi dence and may be subject to a penalty of 5% of assignment marks per day. Partially completed assignments will be accepted with appropriate loss of marks for the incomplete portion. Should students foresee potential difficulties with submission of assessment items, they should contact the lecturer immediately the difficulties come to notice, to discuss suitable arrangements etc. for the submission of those assessment times. An Application for Assignment Extension or Special Consideration should be c ompleted and provided to [email protected] This application form, explanation and instructions is available on the ACT503 CDU Learnline course site or direct from http://learnline.cdu.edu.au/units/lb_school_templates/deployed/assignment_extension.docx Please note that it is now College policy that all extension requests must be approved by the Business Administrator. The lecturer is no longer able to personally approve extension requests. Leaving a request for an extension, special assessment, or special consideration until the last moment, based on grounds that students could have reasonably been able to foresee, may result in the application being r ejected. ASSIGNMENT INFORMATION This Assignment is worth 30% of the total assessment for this unit. This assignment will be marked out of 100 and scaled down to being out of 30. The assignment has 3 questions. QUESTION 1 (25 marks ) Bill Ltd profit before income tax for the year ended 30 June 2021 is $500,000 including the following expenses Depriciation of plant $35,000 Impairment of Goodwill 13,000 Long -service leave 30,000 Holiday pay 20,000 Doubtful debts 55,000 Entertainment Costs 15,000 Depreciation of buildings 5,000 The statements of financial position of the company at 30 June 2020 and 2021 showed the following information: 2020 2021 Assets Cash $73,000 $82,000 Inventory 127,000 158,000 Receivables 430,000 585,000 Allowance for doubtful debts (20,000) (40,000) Plant 350,000 350,000 Acc Depreciation - Plant (70,000) (105,000) Buildings 100,000 100,000 Acc Depreciation - Buildings (25,000) (30,000) Goodwill (net) 63,000 50,000 Deferred tax asset 28,000 ? Page 3 of 5 Liabilities Payables $247,000 $265,000 Long -service leave payable 30,000 50,000 Holiday pay payable 20,000 30,000 Deferred Tax liability 8,000 ? Additional Information a. An item of plant is purchased at a cost of $350 000 on 1 July 2018. For accounting purposes it is expected to have a life of ten years; however, for taxation purposes it can be depreciated over 7 years. b. For taxation purpose, the depreciation of building is not allowed. c. Total bad debts written off for the year were $35,000 . d. Amount paid for long -service leave and holiday pay during the year ended 30 June 2021 were $20,000 and $ 15 ,000 respectively. e. Income tax rate were For year ended 30 June 2020 and prev ious years 33% For year ended 30 June 2021 25% Requirement 1. Calculate the amount of current income tax expense, current tax liability, deferred income tax assets, and deffered income tax liability by using worksheets for the year ended 30 June 2021. (15 mark) 2. Prepare the balance day journal entries for income tax, including the change in the tax rate and the deffered tax asset and deferred tax liability accounts. (5 mark) 3. How will a change in the tax rate impact on the balances of deferred tax assets and deferred tax liabilities? Should any such change be reflected in the reported profit of the reporting entity when the tax rate changes? (5 mark) QUESTION 2 (25 marks ) Sam Ltd enters into a 5 years lease non -cancellable agreement with West Ltd on 1 st July 2020. The lease is for an item of truck that has a fair value of $476912 at the inception of the lease. Sam Ltd’s incremental borrowing rate is 9% The truck is expected to have an economic life of 6 years, after which it will have an expected residual salvage value of $50,000. There is a purchase option that Sam Ltd will be able to exercise at the end of 5 year for $70,000. The rate of interest implicit in the lease is quoted as being 8%. There are to be 5 annual payments of $120,000 being made at the end of each year along with an up - front payment of $30,000. The annual lease payment includes $20,000 representing payment to the lessor for the insurance and maintenance of the truck. Required a) Prepare the journal entries for the year ending 30 June 2021 and 30 June 2022 (For both Sam Ltd and West Ltd) Show the Lease receipts and payments schedule (15 mark) b) Prepare the portion of the statement of financial position related to the leased asset and leased liability for the year ending 30 June 2021 and 30 June 2022 (For Sam Ltd) (5 mark) c) Prepare the journal entries for the year ending 30 June 2025 (For Sam Ltd) (5 mark) Page 4 of 5 QUESTION 3 (50 marks ) Berry Ltd acquired 70% of the shares of James Ltd on 1 st July 201 6 for $5 40,000. The James Ltd equity consisted of the following items at acquisition date Share Capital $500,000 General Reserve 80,000 Retained Earnings 50,000 Asset revalution reserve 20,000 All identifiable assets and liabilities of James Ltd are recorded at fair value at this date except for inventory for which the fair value was $10,000 greater than carrying amount and plant which had a carrying amount of $150,000 (Accumulated depreciation net of $40,000) and a fair v alue was $170,000 . The plant ha s a further 5 years life. The Financial information for both companies at 30 June 202 0 is as follows: Berry Ltd James Ltd Sales Revenue $720,000 $530,000 Other revenue 240,000 120,000 Cost of Sales (610,000) (410,000) Other expenses (230,000) (160,000) Profit before tax $120,000 $80,000 Tax expense (40,000) (25,000) Profit for the period $80,000 $55,000 R/E at 1/07/20 200,000 112,000 Dividend Paid (20,000) (10,000) Dividend declared (25,000) (15,000) R/E at 30/06/21 $235,000 $142,000 Share capital 600,000 500,000 Asset revaluation reserve 20,000 60,000 General reserve 80,000 100,000 Total equity $9 35,000 $80 2,000 Dividend payable 25,000 15,000 Other Liabilities 25,000 25,000 Total Liabilities 50,000 40,000 Total Equity and Liabilities $9 85,000 $8 42,000 Receivables 80,000 30,000 Inventory 100,000 170,000 Plant nd Equipment 20 0,000 50 0,000 Page 5 of 5 Acc Depreciation (115,000) (88,000) Land 100,000 80,000 Share in James Ltd 40,000 - Deferred Tax assets 50,000 40,000 Other assets $30,000 $110,000 Total Assets $9 85,000 $8 42,000 Other Information a. The management of Berry ltd values any non -controlling interest in James Ltd at fair value. b. During the current financial year James Ltd sold inventory to Berry Ltd for 23,000, recording a profit before tax of $3000. Fifty percent of this inventory is still on hand with Berry Ltd. c. During the 20 19 -202 0 period, Berry Ltd sold inventory to James Ltd for $18,000. The inventory cost Berry $16,000 to produce. James Ltd has not sold any of these items. d. During the current financial year James ltd paid 1000 to Berry Ltd for services rendered e. During the 201 8-19 period, James ltd sold inventory to Berry Ltd. At 30 June 20 19 , Berry Ltd still had inventory on hand on which James Ltd had recorded a before tax profit 0f $4,000. f. On 1 July 201 8, James ltd sold plant to Berry ltd for $150,000, recording a profit of 20,000 before tax. Berry Ltd applies 10% p.a straight -line method of depreciation in relation to these assests. g. The balance of the reserve at 1 July 2019 were $35000 for Berry Ltd and $50000 for James Ltd. Required a) Prepare the consolidated Worksheet Journal entries for 30 June 202 0. (20 mark) b) Prepare the consolidated Worksheet for 30 June 202 0. (15 mark) c) Prepare the consolidated financial statements of Be rry Ltd and its controlled entity for the reporting period ending 30 June 202 0. (15 mark) [Hints: Consolidated Statement of Comprehensive Income; Consolidated Statement of Financial Position; Consolidated Statement of Change s in Equity]