Reference no: EM133117743
Questions -
Q1. Sam Ltd acquired a Machine from Pak Ltd for the following consideration: Cash $125 000, Land in the books of Sam Ltd the land is recorded at its cost of $980 000. It has a fair value of $950 000.
Sam Ltd also agrees to assume the Pak Ltd bank loan liability of $75 000 as part of the Machine acquisition.
Required - Calculate the acquisition cost of the Machine and provide the journal entries that would appear in Sam ltd.'s books to account for the acquisition of the Machine.
Q2. Mel Ltd acquires some machinery at the cost of $200 000 on 1 July 2020. On 30 June 2021, the machinery, which has an accumulated depreciation balance of $50 000, is assessed as having a fair value equal to $120 000. Mel Ltd measures machinery at fair value.
Required - Provide the journal entries to reflect the revaluation decrement.
Q3. On 1 July 2021, EBY Ltd issues $1 million in 10-year debentures that pay interest every six months at a coupon rate of 10 per cent. At the time of issuing the securities, the market requires a rate of return of 12 per cent. Interest expense is determined using the effective-interest method.
The formula for PV of $1 in n periods =1/(1+k)n Formula for the present value of an annuity of $1 per period for n periods = where k is the discount rate expressed in decimal.
Required - Determine the issue price of the debenture
Q4. MAP Ltd acquired an item of equipment and entered into a non-cancellable lease agreement with ELM Equipment Ltd on 1 January 2019. The lease consists of the following:
Date of inception: 1/1/19
Duration of lease: 5 years
Life of leased asset: 6 years
Lease payments (annual): $250,000 (annual) which includes $30,000 for Maintenance and insurance costs per annum.
Guaranteed residual value
(Added to final payment): $70,000
Interest rate: 6%
Required - Determine the present value of minimum lease rental payment.
Q5. Assume that for a particular company, the only temporary difference for tax-effect accounting purposes relates to the depreciation of a newly acquired machine. The Machine was acquired on 1 July 2018 at the cost of $800,000. Its useful life is considered to be ?ve years, after which time it is expected to have no residual value. For tax purposes, it can be fully written off over two years. The tax rate is assumed to be 30 per cent.
Required - Determine whether the depreciation of the Machine will lead to a deferred tax asset or a deferred tax liability?