Reference no: EM132327541

Assignment

Question 1

KG Ltd issued a prospectus on 1 July 2019 to the public offering 5 million shares at $3.00 each. The prospectus specified that $1.60 per share is payable on application and a further

$1.00 will be payable on allotment.

The closing date for applications was 31 August 2019.

By the closing date, applications have been received for 7 million shares. To deal with the oversubscription, the directors of KG Ltd decided to issue shares to all subscribers on a pro- rata basis. Excess money received on application will be credited against the amounts due on allotment. All amounts due on allotment are paid by the due date of 15 September 2019.

On 30 November 2019, KG Ltd made the call for the outstanding balance of $0.40 per share with the amounts being payable by 31 December 2019.

Holders of 300 000 shares fail to pay the amount due of the call by the due date. On 15 January 2020 the directors forfeited the shares. The forfeited shares were cancelled and reissued on 15 February 2020 as fully paid to $3.00 on payment of $2.50 per share. The reissue of the forfeited shares cost $6 000. The balance in the forfeited shares account were refunded to the forfeited shareholders by 28 February 2020.

REQUIRED

Prepare general journal entries to record the above transactions. Show all workings.

Question 2

 At 30 June 2018, Spencer Ltd had the following temporary differences:

Asset or liability	Carrying amount ($000)	Tax base ($000)
Computers at cost	300	300
Accumulated depreciation	(60)	(100)
Computers (net)	240	200
Accounts receivable	100	100
Allowance for doubtful debts	(10)	0
Accounts receivable (net)	90	100
Provision for warranty costs	30	0
Provision for employee benefits (LSL)	20	0

The following information is available for the year ending 30 June 2019.

Statement of comprehensive income for Specialist Engineering Ltd for the year ended 30 June 2019 $000
Revenue	4 000
Cost of goods sold expense	(1 800)
Depreciation expense	(60)
Warranty expense	(90)
Bad and doubtful debts expense	(25)
Other expenses	(1 375)
Profit before tax	650

Additional information:

• Spencer Ltd depreciates computers over 5 years under accrual accounting but theATO does it over 3 years. Both the company and the ATO uses the straight-line method.
• During the year Spencer Ltd wrote off bad debts amounting to $15 000.
• Warranty costs of $70 000 were paid during the year.
• No amounts were paid for long-service leave during the year.
• There was no acquisition of plant and equipment during the year.
• The tax rate as at 30 June 2018 and 30 June 2019 was 30 per cent.

The following information is extracted from the statement of financial position at 30 June 2019:

	$000
Assets
Accounts receivable	120
Allowance for doubtful debts	(20)
Liabilities
Provision for warranty costs	50
Provision for employee benefits (LSL)	30

Required:

a) Calculate the amount of each of Spencer Ltd's temporary differences at 30 June 2018, and state whether it is deductible or taxable.

b) Determine the balance of the deferred tax liability and deferred tax asset as at 30 June 2018 and provide the journal entry.

c) Calculate Spencer Ltd's taxable income for the year ended 30 June 2019 and provide the journal entry.

d) Calculate the deferred tax for the year ended 30 June 2019 and provide the journal entry.

Question

 Ethan Ltd acquired all the issued shares (ex div.) of Darren Ltd on 1 July 2017 for $110 000. At this date Darren Ltd recorded a dividend payable of $10 000 and equity of:

Share capital	$54 000
Retained earnings	36 000
Asset revaluation surplus	18 000

 All the identifiable assets and liabilities of Darren Ltd were recorded at amounts equal to their fair values at acquisition date except for:

	Carrying amount	Fair value
Inventories	14 000	16 000
Machinery (cost $100 000)	92 500	94 000

The machinery was considered to have a further 5-year life. Of the inventory, 90% was sold by 30 June 2018. The remainder was sold by 30 June 2019.

Both Darren Ltd and Ethan Ltd use the valuation method to measure the land. At 1 July 2017, the balance of Ethan Ltd's asset revaluation surplus was $13 500.

In May 2018, Darren Ltd transferred $3 000 from the retained earnings at 1 July 2017 to a general reserve.

The tax rate is 30%.

The following information was provided by the two companies at 30 June 2018.

	Ethan Ltd	Darren Ltd
Profit before tax	$ 120 000	$ 12 500
Income tax expense	(56 000)	(4 200)
Profit for the year	64 000	8 300
Retained earnings (1/7/17)	80 000	36 000
	144 000	44 300
Transfer to general reserve	(0)	(3 000)
Retained earnings (31/7/18)	$144 000	$41 300
Share Capital	$360 000	$54 000
Retained earnings	144 000	41 300
General reserve	10 000	3 000
Asset revaluation surplus	18 500	20 000
Liabilities	42 500	13 000
	$575 000	$131 300
Land	$160 000	$20 000
Plant & Machinery	360 000	125 600
Accumulated depreciation -Plant & machinery	(110 000)	(33 000)

 

Inventories	55 000	18 700
Shares in Darren Ltd	110 000	0
	$575 000	$131 300

Required

A. Prepare the acquisition analysis and BCVR entries of Ethan Ltd at 1 July 2017, immediately after the acquisition.

B. Prepare the consolidation worksheet entries at 30 June 2018.                    

C. Complete the consolidation worksheet at 30 June 2018. (Suggested template below).

Consolidation Worksheet at 30 June 2018

	Ethan Ltd	Darren Ltd		Adjustments			Group
				Dr	Cr
Profit before tax	120 000	12 500
Income tax expense	(56 000)	(4 200)
Profit	64 000	8 300
Retained earnings (1/7/17)	80 000	36 000
Transfer from BCVR	-	-
	144 000	44 300
Transfer to general reserve	(0)	(3 000)
Retained earnings (30/6/18)	144 000	41 300
Share capital	360 000	54 000
BCVR	-	-
General reserve	10 000	3 000
	514 000	98 300
Asset revaluation surplus (1/7/17)	13 500	18 000
Gains	5 000	2 000
Asset revaluation surplus (30/6/18)	18 500	20 000
	532 500	118 300
Liabilities	42 500	13 000
	575 000	131 300
Land	160 000	20 000
Plant & machinery	360 000	125 600
Accum. depreciation	(110 000)	(33 000)
Inventory	55 000	18 700
Shares in Darren	110 000	0
	575 000	131 300