Financial Statements - Taxation - and Corporate Social Responsibility

Question:

a) Prepare the necessary general journal entries (if any) at 30 June 2018.

b) Prepare the statement of financial position, statement of profit or loss and other comprehensive income and statement of changes in equity for the year ended 30 June 2018 in accordance with the requirements of AASB 101 and other applicable accounting standards.

c) Prepare at least 16 notes to the financial accounts that comply with applicable accounting standards.

Cradle Ltd commenced operations on 1 July 2017, and presented its first Statement of Comprehensive Income and Statement of Financial Position on 30 June 2018. The statements were prepared before considering taxation. The following information is available.

a) All office expenses and entertainment expenses incurred have been paid as at year end.

b) None of the long service leave expense has actually been paid. Deductions for tax purposes are only available when the amounts are paid and not as they are accrued.

c) Warranty expenses of $20,000 have been accrued and at year end actual payments of 5,000 have been made (leaving an accrued balance of $15 000). Deductions for tax purposes are only available when the amounts are paid and not as they are accrued.

d) The plant is depreciated over ten years for accounting purposes, but over five years for taxation purposes.

e) No bad debts have been written off during the financial year.

f) Cradle Ltd has some land which cost $1 200 000 and which has been revalued to its fair value of $1 600 000.

Required:

a) Prepare Statement to Determine Taxable Income.

b) Complete the Taxation Worksheet on next page, in accordance with AASB 112 Income Taxes.

c) Prepare the applicable journal entry or entries to record temporary differences, income tax expense and current tax payable for the year ended 30 June 2018.

Answer:

Answer 1:

Part a:

The following are the desired statements:

	Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance		Income Statement		Balance Sheet
Particulars	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit

Sales Revenue		9,90,000.00	9,000.00			9,81,000.00		9,81,000.00
Interest Revenue		98,500.00				98,500.00		98,500.00
Cost of Goods Sold	2,90,000.00				2,90,000.00		2,90,000.00
Distribution Expenses	93,000.00				93,000.00		93,000.00
Sales and Marketing Expenses	95,000.00				95,000.00		95,000.00
Administration Expenses	55,000.00				55,000.00		55,000.00
Interest Expense	55,000.00				55,000.00		55,000.00
Dividends Paid	32,000.00				32,000.00		32,000.00
Cash at bank	97,000.00		5,60,000.00	1,50,000.00	5,07,000.00				5,07,000.00
Inventories – 30 June 2018	1,23,000.00				1,23,000.00				1,23,000.00
Accounts Receivable	1,92,500.00			7,000.00	1,85,500.00				1,85,500.00
Provision for Doubtful Debts		8,000.00				8,000.00				8,000.00
Term deposit - due 30th September, 2018	3,37,000.00				3,37,000.00				3,37,000.00
Buildings	3,60,000.00				3,60,000.00				3,60,000.00
Motor Vehicles	3,40,000.00				3,40,000.00				3,40,000.00
Land	85,000.00		50,000.00		1,35,000.00				1,35,000.00
Goodwill	50,000.00				50,000.00				50,000.00
Warranty Provisions		25,000.00				25,000.00				25,000.00
Deferred Tax Liability		10,000.00				10,000.00				10,000.00
Accounts Payable		82,000.00		2,000.00		84,000.00				84,000.00
Accumulated Depreciation – Motor Vehicles		54,000.00				54,000.00				54,000.00
Accumulated Depreciation – Buildings		36,000.00				36,000.00				36,000.00
Bank Mortgage secured over buildings, due 1st May, 2019		2,40,000.00				2,40,000.00				2,40,000.00
Share Capital		5,60,000.00		5,60,000.00		11,20,000.00				11,20,000.00
Land Revaluation Surplus		50,000.00		50,000.00		1,00,000.00				1,00,000.00
Retained Earnings 30 June 2017		51,000.00				51,000.00				3,60,500.00
Settlement expense			1,50,000.00		1,50,000.00		1,50,000.00

Total	22,04,500.00	22,04,500.00	7,69,000.00	7,69,000.00	28,07,500.00	28,07,500.00	7,70,000.00	10,79,500.00	20,37,500.00	20,37,500.00
							3,09,500.00			-
				-		-

Part b:

		Journal entries:

30.06.2017	a	Bank	5,60,000.00
		To Share Capital		5,60,000.00

	b	No entry since the provision is a current liabilityes which means a short term liability for 12 months

30.06.2018	c	Land	50,000.00
		To Land revaluation surplus		50,000.00

15.07.2018	d	Profit and Loss	1,50,000.00
		To Bank		1,50,000.00

15.07.2018	e	Sales	2,000.00
		To Accounts payable		2,000.00

05.07.2018	f	Sales	7,000.00
		To Accounts receivables		7,000.00

Statement of Income:

Particulars	Amounts in $	Amounts in $

Sales Revenue		9,81,000.00
Interest Revenue		98,500.00

Total revenue		10,79,500.00
Less: expenses:
Cost of Goods Sold	2,90,000.00
Distribution Expenses	93,000.00
Sales and Marketing Expenses	95,000.00
Administration Expenses	55,000.00
Interest Expense	55,000.00
Settlemnt expense	150000	7,38,000.00

Earnings before taxes		3,41,500.00
Less: taxes @ 30%		1,02,450.00

Earnings after taxes		2,39,050.00

Statement of equity:

Particulars	Amounts in $	Amounts in $

Opening balance	51,000.00
Add: net profit earned during the year	2,39,050.00
Less: dividend paid	32,000.00

Closing balance	2,58,050.00


Statement of financial position:

Particulars	Amounts in $	Amounts in $

Assets:
Cash at bank	5,07,000.00
Inventories – 30 June 2018	1,23,000.00
Accounts Receivable	1,85,500.00
Provision for Doubtful Debts	-8,000.00
Term deposit - due 30th September, 2018	3,37,000.00	11,44,500.00

Non-current Assets:
Buildings	3,24,000.00
Motor Vehicles	2,86,000.00
Land	1,35,000.00
Goodwill	50,000.00	7,95,000.00
Total assets		19,39,500.00
Liabilities:
Warranty Provisions	25,000.00
Deferred Tax Liability	10,000.00
Accounts Payable	84,000.00
Taxes payable	1,02,450.00	2,21,450.00
Non-current liabilities and shareholders equity:

Bank Mortgage secured over buildings, due 1st May, 2019	2,40,000.00
Share Capital	11,20,000.00
Land Revaluation Surplus	1,00,000.00
Retained Earnings 30 June 2017	2,58,050.00	17,18,050.00

Total shareholders’ equity		17,18,050.00

Total liabilities and shareholders’ equity		19,39,500.00

		-

Part c:

The following are the notes to financial statements:

The warranty provisions relates to 12 months
During the year, the company had issued about 560,000 new shares
The company follows the fair value method to record in the assets and liabilities
The company had a dispute with Environment Protection Agency and $150,000 were payable by it.
A customer who had $70,000 due to us has become insolvent
The land has been revalued during the year
The bank mortgage has buildings as security
The company uses single statement method for the purposes of preparing the financial statements
No other change in accounting estimate has been made
No change in the method of depreciation has been made during the year
The company had land revalued and the depreciation was charged on it
The income tax rate is 30%.
The financial statements are authorised for issue on 31st July 2018.
The company has no prior period items
The company has followed all the Accounting Standards for the purposes of preparing in the financial statements
All of the Accounting policies have been the same and no change has taken place during the year

Answer 2:

Part a:

a)	Statement of Taxable Income	$
	Accounting Profit Before Tax		3,25,000	97500
	Add:
	Book Depreciation	35,000
	Doubtful Debts	5,000
	Long Service Leave Expenses	40,000
	Warranty Expenses	20,000	1,00,000

	Less:
	Depreciation for Tax Purposes	70,000
	Warranty expenses actually paid	5,000	75,000

	Taxable Income		3,50,000	105000

	Current Tax	30%	1,05,000	7500

Part b:

Item	Carrying amount	Tax Base	Deductible Temporary Difference	Taxable Temporary Difference	Income Tax Expense	Revaluation Surplus	Tax Payable
	$	$	$	$	$	$	$
Assets
Cash	82,000	82,000	-	-	-
Inventory	1,58,000	1,58,000	-	-	-
Receivables (Net)	5,85,000	5,90,000	5,000	-	1,500
Plant - net	3,15,000	2,80,000	-	-35,000	-10,500
Land	12,00,000	12,00,000	-	-	-	4,00,000
Total Assets	23,40,000	23,10,000	5,000	-35,000	-9,000	4,00,000
Liabilities
Payables	2,65,000	2,65,000	-	-	-
Provision for long service leave	40,000	-	-	-40,000	-12,000
Provision for warranty	15,000	-	-	-15,000	-4,500
Loan Payable	2,45,000	2,45,000	-	-	-
Total Liabilities	5,65,000	5,10,000	-	-55,000	-16,500
Net Assets	17,75,000	18,00,000	5,000	20,000	7,500
Temporary difference for year		-25,000
Loss Carried forward
Movement for the period
Tax effected at 30%	5,32,500	5,40,000	1,500	6,000	97,500		1,05,000
Taxable Income	3,25,000	3,50,000
Income Tax adjustment						1,20,000

Part c:

Journal Entries
		$
Land	Dr.	4,00,000.00
Revaluation Surplus	Cr.		4,00,000.00

Revaluation Surplus	Dr.	1,20,000.00
Income Tax Adjustment	Cr.		1,20,000.00

Current Tax	Dr.	1,05,000.00
Deferred Tax	Cr.		7,500.00
Provision for Tax	Cr.		97,500.00

Answer 3:

Part A:

Part a:

Particulars	Amounts in $	Amounts in $

Purchase consideration		1,52,800.00
Less:
Share capital	80,000.00
Retained earnings	68,800.00	1,48,800.00

Goodwill		4,000.00

Part b:

Journal entries:

Share capital	80,000.00
Retained earnings	68,800.00
Goodwill	4,000.00
To investment in George Ltd		1,52,800.00

Patents	12,000.00
Plant	8,000.00
To Profit and Loss		20,000.00

Part B:

As per AASB 10, which relates with the consolidated financial statements, the term “Control” is defined as the case wherein an investor is involved or is engrossed in the involvement within an entity and the fact that whether the control exists or not shall be determined by the part.

An investor is stated to have control over the investee when there are certain rights or there are certain variable returns as and when the investor gets involved. He is the one who exercises its powers to get the things done or interferes into the day to day functioning or the management of the company or the investee.

The control exists when the following occurs:

Power over the investee
Exposure or the rights to the returns when an investee gets involved
When the investor uses his power to the ability to use the power over and above the investee and this in turn affects the amount of the returns (AASB, 2018).

Hence, in the nutshell, if the investor has a significant control over the day to day functioning of the investee, then the investor is stated to have control over the investee. In the given case, GPS Ltd has a significant control over its investee SPG since it has 60% control over it which is the majority of the management.

Answer 4:

The concept of social responsibility comprises of 2 main ideas, the first being the responsibility of the company towards reporting of the financial statements which would make sure that the company has gone for transparency. But then it is also true that there are many of the different groups in which the shareholders requires in the businesses to operate form the non-financial sectors. This includes in the human rights, the ethics which pertain to the business. This further includes in the human rights, business ethics. Environmental practices, contributions form the various companies etc. the most efficient and the important form of the economic efficiency is considered to be the social and environmental performance of the company.

Each and every company is very responsible for the actions that it undertakes and so, it is equally responsible to disclose all of these facts in a form of a report. Being the company which is working in this environment which is using the environment to make money, the company is responsible to take the initiatives so that the environment could be saved for the future generations and also give something back to it is that it can be enjoyed by others too.

Hence, this is the concept wherein the commitment of the company towards sustainability could be demonstrated. This serves as a tool through which the company extends a dialogue with the various stakeholders. This is the tool which shows or indicates in the impact of the activities of the company on the society. Today, these companies are getting involved in the international trade along with making many of the investments and indulge itself into the corporate social reporting which has gained some importance for a dialogue with the various different stakeholders. The type of the reporting that any company should disclose should be similar to what any company has been disclosing. It has been seen from many studies that there is a difference in reporting by the private companies form the public companies. The public companies disclose in this information more than when compared with the private companies. The studies have further shown that the level of the reporting of the corporate social and environmental actors are directly affected by the level of the capital which has been employed in by the companies (Mahadevappa, 2018).

The company undertaken is Super loop Limited.

The Annual report of the company states that the board has disclosed all of the material risks that could be faced in by the company or by the environment in the Directors report of the company (Annual report, 2017).

The company super loop has assured that it has dedicated itself towards the expansion of the rural digital capability and it would expand into the country of Australia. The company has promised to spend about $1,000,000 joining hands with the WA State government.

The company had also been announced as the grant recipient of the Digital farms programme. The company is dedicated towards the deployment of the telecommunications infrastructure in order to service in the WA Great Southern regional communities and this initiative would also be supported by the state government.

The main aim of this program is to join in hands with the government for the purposes of driving in the better connectivity for the agricultural and the pastoral businesses in the regional areas of the country of Western Australia.

The CEO of the company has the vision of taking digital connectivity to the various regional and rural Australia. He hopes to do this through the fixed fibre and the fixed wireless solutions. The company is very well associated with the stated government of WA. He is working towards making improvements in their service options once their infrastructure is online (Superloop, 2018).

The environmental and the social exporting is growing by each passing day and it is becoming more and more important for these companies to report what actions they are taking in order to make their environment secure and the way they are reporting the same. The recent years have witnessed many new reporting areas of which one is social and environmental reporting. The following up of this approach is also very important since it is feasible and also practical. The environmental and these social reporting is very much important since it is the duty of each and every company to give back something to the society and the environment in which it functions (Gray, 21198).

From the point of view of an investor, any person would like to invest in the company which is socially responsible towards its customers and in return is giving something back to its customers. It has to be responsible towards its environment too since it is something from which it derives in its revenues.

As far as the type of reporting and to whom the same should be reported, no such layout or no such specific format has been laid down, hence, the company could report its socially and environmental responsibility through any way and in any form which it may like.

And the report should be marked in or should be represented to the various stakeholders.

This would show in the fact that the company is indeed socially responsible and cares about roles duties towards the society.

Super loop complies with all of the laws, regulations and is very conscious about its role in the society and is also very conscious about the environment.

References:

Gray, R. (1997). Environmental and Social Accounting & Reporting. [online] www.st-andrews.ac.uk. Available at: https://www.st-andrews.ac.uk/media/csear/discussion-papers/CSEAR_dps-socenv-socacc.pdf [Accessed 13 Sep. 2018].

Ro.uow.edu.au. (2018). CORPORATE SOCIAL REPORTING PRACTICES IN INDIA. [online] Available at: https://ro.uow.edu.au/cgi/viewcontent.cgi?referer=https://www.google.co.in/&httpsredir=1&article=1017&context=acsear2012 [Accessed 13 Sep. 2018].

Superloop. (2018). Digital Farm initiative in Western Australia - Superloop. [online] Available at: https://www.superloop.com/digital-farm-initiative-in-western-australia/ [Accessed 13 Sep. 2018].

www.aasb.com. (2018). Consolidated Financial Statements. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf [Accessed 13 Sep. 2018].

www.superloop.com. (2018). Annual report 2017. [online] Available at: https://investors.superloop.com/FormBuilder/_Resource/_module/tLPydTM2DUStGfiPut9iFA/file/FY17_Annual_Report.pdf [Accessed 13 Sep. 2018]

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