Corporate Accounting Assignment

| February 25, 2017

Question
Corporate Accounting

1.

2. Must be word-processed, not hand written, word size 12 with ‘Times new roman’ font type and double-spacing.

3. Each answer must be clearly marked by the designated question to which it corresponds.

4. Please list any references (books, articles, web-based material) you use at the end of your assignment in alphabetical order, using the referencing style seen in academic articles (i.e. with in text references and bibliography, as in the Harvard referencing style).

Requirements:

Question 1

The following data are taken from the trial balance of Bula Island Limited on 30 June 2015 with selected comparative information provided for 30 June 2014.

2015

2014

Sales revenue

9,245,000

Interest revenue

850,000

Royalties revenue

1,450,000

Dividend revenue

150,000

Depreciation-building

147,500

Depreciation-plant

262,500

Depreciation-equipment

75,000

Research and development expenditure

1,650,000

Cost of goods sold

4,005,000

Warranty expense

195,000

Wages and salaries expense

3,475,000

Long service leave expense

235,000

Interest expense

305,000

Rates and taxes on property

145,500

Doubtful debts expense

142,500

Accounts receivable

675,000

375,000

Estimated uncollectible debts

182,000

95,000

Interest receivable

300,000

275,000

Royalties receivable

920,000

745,000

Land (at cost)

2,500,000

2,500,000

Buildings

3,200,000

3,200,000

Accumulated depreciation-buildings

442,500

295,000

Plant

2,100,000

2,100,000

Accumulated depreciation-Plant

787,500

525,000

Equipment

750,000

750,000

Accumulated depreciation-equipment

225,000

150,000

Wages and salaries payable

345,000

265,000

Provision for long service leave

355,000

245,000

Provision for warranty claims

130,000

115,000

Interest payable

100,000

100,000

Additional Information

1. All depreciable assets were acquired on 1 July 2012. For financial reporting purposes, depreciation is recognised on a straight line basis, over 20 years for buildings (estimated residual value $250,000), eight years for plant and 10 years for equipment. For tax purposes, straight line depreciation is applied over 40, 10 and eight years respectively.

2. After reviewing all relevant information, the directors determined that, at 30 June 2015, the plant was impaired by $250,000 (this is not reflected in the amounts presented in the trial balance).

3. On 30 June 2015, after careful consideration, the directors of Bula Island Ltd decided to adopt the fair value model for land; the fair value of land on 1 July 2014 was $3,500,000 and on 30 June 2015 was $3,250,000.

4. The research and development expenditure qualifies for the additional 25% taxation deduction.

5. The tax rate at 30 June 2014 was 30%. On 15 June 2015, legislation was enacted decreasing the tax rate to 25% effective 1 July 2015.

Required:

1. Calculate the amount of current tax expense. Use an appropriately labelled table for this task.

2. Prepare a deferred tax worksheet to calculate the amounts for deferred tax assets and deferred tax liabilities for the reporting period 30 June 2015. Use an appropriately labelled table for this task.

3. Prepare journal entries for the income tax expense related items for the reporting period 30 June 2015.

Question 2

Viti Ltd has three divisions, Dairy, Yoghurt and Chocolate, which operate independently of each other to produce milk products. The company has a headquarters and a research centre located in Nausori, with the divisions located throughout Fiji. The research centre interacts with all the divisions to assist in the improvement of the manufacturing process and the quality of the products manufactured by the entity.

There is not as yet any basis on which to determine how the work of the research centre will be allocated to each of the three divisions, as this will depend on priorities of the company overall and issues that arise in each division. The company headquarters provides approximately equal services to each of the divisions, but an immaterial amount to the research centre.

Neither the headquarters nor the research centre generates cash inflows.

On 30 June 2015, the net assets of Viti Ltd were as follows:

Dairy Division

Yoghurt Division

Chocolate Division

Head Office

Research Centre

Land

$ 440,000

$ 280,000

$ 160,000

$ 110,000

$ 67,000

Plant and equipment

840,000

620,000

540,000

80,000

45,000

Accumulated depreciation

(240,000)

(200,000)

(160,000)

(10,000)

(12,000)

Inventories

240,000

180,000

140,000

0

0

Accounts receivable

120,000

100,000

60,000

0

0

1,400,000

980,000

740,000

180,000

100,000

Liabilities

120,000

100,000

100,000

0

0

Net Assets

1,280,000

880,000

640,000

180,000

100,000

Management of Viti Ltd believes there are economic indicators to suggest that the company’s assets may be impaired. Accordingly, they have had recoverable amount assessed for each of the divisions:

Dairy Division $ 1,550,000

Yoghurt Division 1,000,000

Chocolate Division 750,000

The land held by Dairy division was measured at fair value using the revaluation model because of the specialised nature of the land. At 30 June 2015, the fair value was $440,000. The land held by Yoghurt division was measured at cost, and had a fair value less cost to sell of $270,264 at 30 June 2015.

Required:

Provide journal entries to account for the impairment of Viti Ltd as at 30 June 2015. Show all relevant working where required.

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