Reference no: EM132886855

ACACT203A Financial Accounting - TAFE NSW

CASE STUDY

On 1 July 2020, Tempest Holdings Ltd commenced operations by purchasing an existing business for $350 000. The purchase was partly financed by a 5 year bank loan, negotiated on the day and repayable in full at the end of the term. In the meantime, interest is payable at 9% per annum on the outstanding balance. The balance of the purchase was completed by the cash generated from an initial share issue. Applications had been invited for 100 000 $2.50 shares, payable in full on application on a first-come, first-served basis. By purchase date, the shares were fully subscribed and duly allotted. There were no share issue costs.

The fair values of the assets of the purchased business were as follows:

There were no outstanding or contingent liabilities. The excess of the purchase consideration over the fair value of the assets acquired was recorded as goodwill. None of the depreciable assets has a residual value.

During the first year of operations, the company recognised the following additional aggregate cash transactions:

Additional Information:

After receiving the preliminary figures for the year, the directors of Tempest Holdings Ltd convened a board meeting on 30 June 2021 and resolved the following:

• Declared a cash dividend of 10c per share, payable on 31 August 2021;
• Transfered $10 000 out of retained earnings into plant maintenance reserve;
• Revalued the freehold land by $20 000 (valuation by registered valuer, E. J. Holden & Assoc;
• Noted that the journal entry to support the tax-effected revaluation was:

Dr Land 20,000
Cr Deferred Tax Liability 6,000
Cr Asset revaluation reserve 14,000

• Instructed the company accountant to complete the 2021 tax return. (company tax rate 30 %) [Please note that all impacting differences between the tax and financial reporting systems with respect to timing, recognition and amounts have been embodied into the trial balance template. Only a minimal tax note will be possible].
• Adopted the credit manager's recommendation that no bad debts be written off;
• Noted that 80% of the accrued employee entitlements were due to be settled within the following year.

Required:

For the year ending 30 June 2021,

1. Using the pro forma schedule supplied, prepare a preliminary trial balance for Tempest Holdings Ltd [working paper only- no marks awarded but must be included];

2. Prepare a statement of comprehensive income for Tempest Holdings Ltd in accordance with the requirements of AASB 101 (classify expenses by function) (see AASB101 paras 97-105);

3. Prepare a statement of financial position for Tempest Holdings Ltd in accordance with AASB 101. Use the current/non-current presentation format and supply a "net assets" line item;

4. Prepare a statement of changes in equity for Tempest Holdings Ltd in accordance with the requirements of AASB 101;

5. Prepare appropriate notes to the accounts. Include the note on the next page as note 1 (you may optionally add accounting policies to this note).

Attachment:- Financial Accounting.rar