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

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:

- 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:

REQUIRED

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