Reference no: EM131055903

Advanced Financial Accounting

Question 1: Accounting for Lease

Owing to low liquidity, Lisa Ltd decides on 1 July 2015 to sell its land and buildings to Anderson Ltd. The carrying values of the land and buildings in the books of Lisa Ltd, at 1 July 2015, are:

Land at cost                                $1800000

Buildings, at cost                         $1750000

Accumulated depreciation              $350000

The land and buildings are sold for $4334 700 (their fair value), with the amount being allocated equally as follows:

Land                                           $2167350

Buildings                                     $2167350

Immediately following the sale, Lisa Ltd decides to lease back the land and buildings from Anderson Ltd. The term of the lease is 20 years. The implicit interest rate in the lease is 12 per cent. It is expected that the buildings will be demolished at the end of the lease term. The lease is non-cancellable, returns the land and buildings to Anderson Ltd at the end of the lease, and requires the following lease payments:

Payment on inception of the lease on 1 July 2015               $600000

Payment on 30 June each year starting 30 June 2016         $500000

There is no residual payment required

REQUIRED

a) Provide the entries for the sale and leaseback in the books of Lisa Ltd as at 1 July 2015.

b) Provide the entries for the purchase and lease in the books of Anderson ltd as at 1 July 2015

c) Provide the entries in the books of Lisa Ltd as at 30 June 2025.

d) Provide the entries in the books of Anderson Ltd as at 30 June 2025.

Question 2: Accounting for Income Tax

MR Limited commences operations on 1 July 2014 and presents its first statement of comprehensive income and first statement of financial position on 30 June 2015. The statements are prepared before considering taxation. The following information is available:

Statement of comprehensive income for the year ended 30 June 2015

 

Gross profit Expenses		730000
Administration expenses	80000
Salaries	200000
Long-service leave	20000
Warranty expenses	30000
Depreciation expense-plant	80000
Insurance	20000	430000
Accounting profit before tax		300000

 

Assets
Cash		20000
Inventory		100000
Accounts receivable		100000
Prepaid insurance		10000
Plant-cost	400000
less Accumulated depreciation	80000	320000
Total assets		550000
Liabilities
Accounts payable		80000
Provision for warranty expenses		20000
Loan payable		200000
Provision for long-service leave expenses		-20000
Total liabilities		320000
Net assets		230000

Other information

- All administration and salaries expenses incurred have been paid as at year end.

- None of the long-service leave expense has actually been paid. It is not deductible until it is actually paid.

- Warranty expenses were accrued and, at year end, actual payments of $10000 had been made (leaving an accrued balance of $20000). Deductions are available only when the amounts are paid and not as they are accrued.

- Insurance was initially prepaid to the amount of $30 000. At year end, the unused component of the prepaid insurance amounted to $10000. Actual amounts paid are allowed as a tax deduction.

- Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.

- The plant is depreciated over five years for accounting purposes, but over four years for taxation purposes.

- The tax rate is 30 per cent.

REQUIRED

Provide the journal entries to account for tax in accordance with AASB 112.

Question 3: Consolidation

Sandy Ltd acquired 100 per cent of the issued capital of Beach Ltd on 30 June 2014 for $900 000, when the statement of financial position of Beach Ltd was as follows:

 

	$000		$000
Assets
Accounts receivable	70	Loan	300
Inventory	100
Land	400	Shareholders' equity
Property, plant and equip.	700	Share capital	500
Accumulated depreciation	-270	Retained earnings	200
	1000		1000

- The tax rate is 30 per cent.

- As at the date of acquisition, all assets of Beach Ltd were at fair value, other than the property, plant and equipment, which had a fair value of $530000. Beach Ltd adopts the cost model for measuring its property, plant and equipment. The property, plant and equipment is expected to have a remaining useful life of 10 years, and no residual value.

- One year following acquisition it was considered that Beach Ltd's goodwill had a recoverable amount of $60000.

- Beach Ltd declared a dividend of $40000 on 10 July 2014, with the dividends being paid from pre- acquisition retained earnings.

- The statements of financial position and statements of comprehensive income of Sandy Ltd and Beach Ltd one year after acquisition are as follows:

 

	Sandy Ltd $000	Beach Ltd $000
Assets
Cash	80	40
Accounts receivable	50	50
Inventory	140	123
Land	600	400
Property, plant and equipment	900	700
Accumulated depreciation	-300	-313
Investment in Beach Ltd	900
Total assets	2370	1000
Liabilities
Accounts payable	100	10
Dividends payable	100	50
Loan	670	140
Shareholders' equity
Share capital	1000	500
Retained earnings	500	300
	2370	1000
Reconciliation of opening and closing retained earnings
Profit after tax	400	190
Retained earnings -30 June 2014	300	200
Interim dividend	-90	-40
Final dividend	-110	-50
Retained earnings -30 June 2015	500	300

REQUIRED

Prepare the consolidated statement of financial position for the above entities as at 30 June 2015.