
HI6006 Competitive Strategy Editing Service
Delivery in day(s): 4
A.Small proprietary company is a company whose consolidated revenue is less than $25 million for the financial year where large proprietary company is company where revenue is $25 million or more for the FY of the company.
B. Small proprietary company is a company whose consolidated gross assets are less than $12.5 million at the end of FY where large proprietary company is company where gross assets of such company is $12.5 million or more at the end of FY. (Zielstra & Zipf, 2010).
C. Small proprietary company is a company which holds less than 50 employees at the end of FY where large proprietary company holds more than 50 employees at the end of FY.
Date | Accounts | Debit | Credit |
| Cash Trust a/c Dr. To Share Application a/c | 300,000
|
300,000 |
| Receipt of application money |
|
|
| Share Application a/c Dr. To Share Capital a/c | 300,000
| 300,000 |
| Issue of 300,000 $1 fully paid ordinary shares |
|
|
| Bank a/c Dr. To Cash Trust a/c | 300,000
| 300,000 |
| Transfer of application funds to bank (Weygandt, et. al., 2015) |
|
|
3.
Date | Account | Debit | Credit |
| Cash Trust a/c Dr. (1000*100) To 8% Debenture application a/c |
100,000
| 100,000 |
| Receipt of application money for debentures |
|
|
| 8% Debenture application a/c Dr. To 8% Debenture a/c | 100,000
| 100,000 |
| Issue of Debentures |
|
|
| Bank a/c Dr. To Cash Trust a/c | 300,000
| 300,000 |
| Transfer of application funds to bank on issue of debentures(Bhattacharyya, 2012) |
|
|
Account | Debit | Credit |
Freehold land and building a/c Dr. Plant and Equipment a/c Dr. Motor Vehicles a/c Dr. Inventory a/c Dr. Accounts Receivable a/c Dr. Allowance for doubtful debts a/c Dr. General Reserves a/c Dr. (Balancing figure) To Accounts Payable To Business Purchase (Shah, 2013) | 400,000 150,000 74,000 164,000 100,000 15,000 12,000 |
115,000 800,000 |
Acquisition of business |
|
|
Business Purchase a/c Dr. To Equity Capital (500,000 equity shares of $1 each) To Bank | 800,000 |
500,000 300,000 |
Payment of Purchase Consideration(Shah, 2013) |
|
|
Reserves are specific portions of profits which are set aside by the companies for future contingencies. These reserves are beneficial for the companies from security point of view as to reduce the risk of loss in business in future. These reserves are helpful in providing the security to the businesses in relation to all types of financial risks that are related to business plan. From such reserves companies can look for its expansion plans as well as companies can invest in various portfolios which are profitable for the company. These reserves are beneficial for the companies in avoiding future probable losses (Montoro & Moreno, 2011).
Three types of reserves that can be established are as follows.
1. Debenture redemption reserve
2. Investment fluctuation reserve
3. Reserve for doubtful debts (Montoro & Moreno, 2011)
Date | Account | Debit | Credit | ||||||||||||||||||
1st Qtr | PAYG tax withholding a/c Dr.
| 11,000 |
| ||||||||||||||||||
| To PAYG tax instalment payable |
| 11,000 | ||||||||||||||||||
| PAYG Tax Instalment due for quarter |
|
| ||||||||||||||||||
1st Qtr | PAYG tax instalment payable
| 11,000 |
| ||||||||||||||||||
| To Bank |
| 11,000 | ||||||||||||||||||
| Payment of PAYG tax instalment for quarter |
|
| ||||||||||||||||||
2ndQtr | PAYG tax withholding a/c Dr.
| 11,000 |
| ||||||||||||||||||
| To PAYG tax instalment payable |
| 11,000 | ||||||||||||||||||
| PAYG Tax Instalment due for quarter |
|
| ||||||||||||||||||
2nd Qtr | PAYG tax instalment payable
| 11,000 |
| ||||||||||||||||||
| To Bank |
| 11,000 | ||||||||||||||||||
| Payment of PAYG tax instalment for quarter |
|
| ||||||||||||||||||
3rd Qtr | PAYG tax withholding a/c Dr.
| 11,000 |
| ||||||||||||||||||
| To PAYG tax instalment payable |
| 11,000 | ||||||||||||||||||
| PAYG Tax Instalment due for quarter |
|
| ||||||||||||||||||
3rd Qtr | PAYG tax instalment payable
| 11,000 |
| ||||||||||||||||||
| To Bank |
| 11,000 | ||||||||||||||||||
| Payment of PAYG tax instalment for quarter |
|
| ||||||||||||||||||
4th Qtr | PAYG tax withholding a/c Dr.
| 11,000 |
| ||||||||||||||||||
| To PAYG tax instalment payable |
| 11,000 | ||||||||||||||||||
| PAYG Tax Instalment due for quarter |
|
| ||||||||||||||||||
4th Qtr | PAYG tax instalment payable
| 11,000 |
| ||||||||||||||||||
| To Bank(Atwood, et. al., 2010) |
| 11,000 | ||||||||||||||||||
| Payment of PAYG tax instalment for quarter |
|
| ||||||||||||||||||
4th Qtr | Additional tax payable a/c Dr.
| 6,400 |
| ||||||||||||||||||
| To Bank |
| 6,400 | ||||||||||||||||||
| (168,000*30% - 44,000) |
|
| ||||||||||||||||||
| Additional tax payable for year |
|
| ||||||||||||||||||
4th Qtr | PAYG Tax withholding a/c Dr. To | 6,400 |
| ||||||||||||||||||
| To Additional tax payable |
| 6,400 | ||||||||||||||||||
|
|
|
| ||||||||||||||||||
| Balance transferred (Atwood, et. al., 2010) |
|
|
7. (a) Under tax payable accounting the appropriation f tax expenses in the books of accounts is made when the tax expenses are required to be paid whereas under tax effect accounting the appropriation of tax expenses in the books of accounts is made as and when they incur rather than when they are need to be paid (Taylor & Richardson, 2012).
(b)
| Item | Accounting treatment | Tax treatment |
1. | Depreciation | Charged on the basis of accounting rate | Charged On the basis of rate which is allowed under income tax laws |
2. | Revenue in advance | Not recorded as revenues in profit and loss statement but recognised as asset in balance sheet.(Taylor & Richardson, 2012) | Included in the taxable revenues of the period |
(c) Reporting entities shall adopt tax effect accounting method since they need to comply with the provisions of International Accounting Standard 12 ‘Income Taxes’ which requires for recognition of tax effect in the form of DTA and DTL (Taylor & Richardson, 2012).
8. (a)
Account | Debit | Credit | |
DTA a/c Dr. | $900 |
| |
To Profit & Loss Account |
| $900 | |
Explanation: |
Out of the doubtful debt expense of the company amounting to $9,000 only $6,000 have been written off against the opening balance of allowance of bad and doubtful debts and thus the remaining expense of $3,000 will be written off in the future years for which the tax deduction can be claimed and thus DTA will arise. The amount of DTA will be ($9,000 - $6,000)*30% = $900 (Finger, 2010).
| ||
(b) |
|
Account | Debit | Credit | |
Profit & Loss a/c Dr | $6,000 |
| |
To DTL |
| $6,000 | |
Explanation: | The revenue of $20,000 has not been recognised in the CY and thus will be recognised in next four years. In future years the tax will be payable on the revenues and thus the DTL will arise in the current year. The amount of DTL will be $20,000*30% = $6,000 (Finger, 2010).
| ||
(c) |
Account | Debit | Credit | |
Profit & Loss a/c Dr | $3,000 |
| |
To DTL |
| $3,000 | |
Explanation: | The accounting depreciation charged on plant and machinery is $50,000 ($200,000*25%) whereas the tax depreciation allowed is $60,000($200,000*30%). The accounting difference is $10,000. The accounting difference will be disallowed in future years for tax purposes and thus DTL will arise which amounts to $10,000*30% = $3,000 (Finger, 2010).
| ||
( i ) Cash flows from Operating Activities
Receipts from Customers | $ 260,000 |
|
Dividends Received | $ 18,000 |
|
Interest Income | $ 20,000 |
|
Payments to Suppliers | $ (160,000) |
|
Payments to Employees | $ (125,000) |
|
Taxation Paid | $ (22,000) |
|
Other Operating Expenses | $ (188,000) |
|
Net cash used in Operating Activities | (197,000) | $ |
( ii ) Cash flows from Investing Activities
Proceeds from disposal of Machinery | $ 41,000 |
|
Purchase of Property, Plant & Equipment | $ (270,000) |
|
Net cash used in Investing Activities | (229,000) | $ |
( iii ) Cash flows from Financing Activities
Proceeds of Share Issue | $ 2,00,000 |
|
Proceeds of Debenture Issue | $ 50,000 |
|
Dividends Paid | $ (40,000) |
|
Net Cash from Financing Activities |
| $ 2,10,000 |
Net decrease in cash and cash equivalents | $ (216,000) | |
Cash and cash equivalents at beginning |
| $ 324,000 |
Cash and cash equivalents at end of year |
| $ 108,000 |
Reconciliation of cash and cash equivalents | ||
| Cash at bank | $ 105,000 |
| Petty cash on hand | $ 3,000 |
| Cash and cash equivalents at end of year | $ 108,000 (Disatnik, et. al., 2013) |
| Operating profit after tax |
| $58,000 |
+ / - | Non Cash Items |
|
|
| Depreciation of non-current assets | $ 21,000 |
|
| Loss on sale of plant | $ 4,000 |
|
| Doubtful debts | $ 4,000 | $ 29,000 |
|
|
|
|
| Changes in Current Assets and Liabilities |
|
|
| Increase in Accounts Receivable | $ (1,000) |
|
| Increase in Bills Receivable | $(1,000) |
|
| Decrease in Inventory | $2,000 |
|
| Increase in Accounts Payable | $7,000 |
|
| Decrease in Taxation Payable | $(4,000) | $3,000 |
| Net cash from Operating Activities (Disatnik, et. al., 2013) |
| $32,000 |
The following questions are based on the material in Chapter 8:
10.
ASSETS |
|
| ||
CURRENT ASSETS |
| Note: | $ |
|
Cash and cash equivalents |
| 1 | $ 134,500 |
|
Trade and other receivables |
| 2 | $ 316,000 |
|
Inventories |
| 3 | $ 370,100 |
|
Other Current Assets |
| 4 | $ 31,900 | $ 852,600 |
|
|
| ||
NON CURRENT ASSETS |
|
| ||
Available for sale investments | 5 | $ 420,000 |
| |
Other financial assets | 6 | $ 145,000 |
| |
Property plant and equipment | 7 | $ 2,609,000 |
| |
Goodwill |
| 8 | $ 198,000 |
|
Other intangibles |
| 9 | $ 51,000 |
|
Other non-current assets |
| 10 | $ 30,000 | $ 3,453,000 |
TOTAL ASSETS |
|
|
| $ 43,056,000 |
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
Other Current liabilities |
|
| $ 654,000 |
|
NON CURRENT LIABILITIES |
|
|
|
|
Deferred tax liabilities | 11 | $ 155,300 |
| |
TOTAL LIABILITIES |
|
|
| $ 809,300 |
NET ASSETS |
|
|
| $ 3,496,300 |
|
|
|
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EQUITY |
|
|
|
|
Share capital |
|
| $ 1,000,000 |
|
Reserves |
| 12 | $ 448,700 |
|
Retained Earnings |
|
| $ 2,047,600 |
|
TOTAL EQUITY |
|
|
| $ 3,496,300 (Chen, et. al., 2011) |
|
|
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|
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(b) Notes to Statement of Financial Position | ||||
1. Cash and cash equivalents |
| |||
Cash at bank |
|
| $ 81,000 |
|
Cash on hand |
|
| $ 3,500 |
|
At call deposit |
|
| $ 50,000 | $ 134,500 |
|
|
| ||
2. Trade and other receivables |
| |||
Trade Receivables |
| $ 269,300 |
|
|
Allowance for Doubtful Debts | $ 5,200 | $ 264,100 |
| |
Bills Receivable ( due 12/16) |
| $ 2,000 | $ 316,100 | |
|
|
|
| |
3. Inventories |
| |||
Raw Materials at cost |
| $ 47,600 |
| |
Work in Progress at cost | $ 36,000 |
| ||
Finished Goods at cost |
| $ 286,500 | $ 370,100 | |
|
|
|
| |
4. Other current assets |
| |||
Spare parts |
| $ 7,400 |
| |
Accrued Income |
| $ 8,900 |
| |
Prepayments |
| $ 15,600 | $ 31,900 (Chen, et. al., 2011) |
(b) Continued…..Notes to Statement of Financial Position | |||
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| |
5. Available for sale investments |
|
| |
Shares in Listed Companies |
|
|
|
- at market value(Cost $370,000) |
|
| $ 420,000 |
|
|
|
|
6. Other Financial Assets |
|
|
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Shares in Private Companies |
|
|
|
- at Directors’ value(Cost $110,000) |
|
| $ 145,000 |
|
|
|
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7. Property, plant & equipment |
|
| |
Land & Buildings |
|
|
|
( revalue 30/06/16 ) independent valuer |
| $ 2,400,000 |
|
Plant & Machinery (at cost) | $ 267,000 |
|
|
Less Accumulated Depreciation | $ (58,000) | $ 209,000 | $ 2,609,000 |
|
|
|
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8. Goodwill |
|
|
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Goodwill (at cost) | $ 220,000 |
|
|
Less Accumulated Impairment | $ (22,000) |
| $ 198,000 |
|
|
|
|
9. Other Intangible Assets |
|
|
|
Licenses (at cost) | $ 85,000 |
|
|
Less Accumulated Amortisation | $ (34,000) |
| $ 51,000 |
|
|
|
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10. Other Non-Current Assets |
|
|
|
Bills Receivable ( due 15/03/18 ) |
|
| $ 30,000 |
|
|
|
|
11. Deferred Tax Liabilities |
|
|
|
Deferred Tax Labilities | $ 21,000 |
|
|
Revaluation Land, Buildings | $ 166,800 |
|
|
Revaluation Shares | $ 25,500 |
|
|
Deferred Tax Assets | $ (58,000) |
| $ 155,300 |
|
|
|
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12. Reserves |
|
|
|
Asset Revaluation Reserve |
|
|
|
- buildings | $ 556,000 |
|
|
- shares in listed companies | $ 50,000 |
|
|
- shares in listed companies | $ 35,000 |
|
|
- tax effect of revaluations | $(192,300) |
|
|
|
|
| $ 448,700 (Chen, et. al., 2011) |
| Fair value $ | Carrying Value $ |
Building | 105,000 | 105,000 |
Land | 70,000 | 75,000 |
Equipment | 60,000 | 60,000 |
Inventory | 30,000 | 30,000 |
Total | 270,000 | 270,000 |
| $ | Notes: |
Carrying Value | 75,000 | As at 30 June 2016 |
Less Recoverable amount | 70,000 | Note: fair value less costs to sell |
Impairment Loss | 5,000 |
|
(Lang, et. al., 2012)
| DR | CR |
Impairment loss a/c Dr | 5,000 |
|
To Land |
| 5,000 |
Narration: Journal entries to account for impairment loss under AASB136 |
( b )
| Fair value $ | Carrying Value $ |
Building | 105,000 | 105,000 |
Land | 62,500 | 75,000 |
Equipment | 60,000 | 60,000 |
Inventory | 30,000 | 30,000 |
Total | 270,000 | 270,000 |
(Lang, et. al., 2012)
| $ | Notes: |
Carrying Value | 75,000 | As at 30 June 2016 |
Less Recoverable amount | 62,500 | Note: value in use |
Impairment Loss | 12,500 |
|
| DR | CR |
Impairment loss a/c Dr | 12,500 |
|
To Land |
| 12,500 |
Narration: Journal entries to account for impairment loss under AASB136 |
(Lang, et. al., 2012)
Date | Account | Debit | Credit |
30 June 2014 | Impairment allowance a/c Dr | $5,000 |
|
| To Goodwill |
| $5,000 |
| Impairment allowance for the year |
|
|
| Impairment loss a/c Dr. | $5,000 |
|
| To Impairment allowance |
| $5,000 |
| Balance transferred |
|
|
30 June 2015 Hint:Carefully consider whether you think a journal is required at 30/6/15.
At 30 June 2015 the fair value of goodwill is increased which is appreciation and thus no impairment is required to be provided for. No journal is needed (Carlin & Finch, 2010). |
Provide your explanation if no journal is required:
Date | Account | Debit | Credit |
30 June 2016 | Impairment allowance a/c Dr | $10,000 |
|
| To Goodwill |
| $10,000 |
| Impairment allowance for the year |
|
|
| Impairment loss a/c Dr. | $10,000 |
|
| To Impairment allowance |
| $10,000 |
| Balance transferred |
|
|
13. (a)
Date | Account | Debit | Credit |
30 June 2016 | Share Capital a/c Dr. | $60,000 |
|
| Reserves a/c Dr. | $15,000 |
|
| Retained Earnings a/c Dr. | $5,000 |
|
| To Investment in Yellow Ltd |
| $80,000 |
| Journal entry to eliminate the investment in Yellow Ltd by Red Ltd. |
|
|
(b)
Worksheet extract as at 30 June 2016 | Red Ltd | Yellow Ltd | Eliminations | Consolidation | |
Dr | Cr | ||||
Operating Profit after tax | 48,000 | 33,000 | 81,000 | ||
Retained Earnings 01/07/15 | 20,000 | 5,000 | 5,000 | 20,000 | |
68,000 | 38,000 | 5,000 | 101,000 | ||
Appropriations | 28,000 | 14,000 | 42,000 | ||
Retained Earnings 30/06/16 | 40,000 | 24,000 | 64,000 | ||
Share Capital | 200,000 | 60,000 | 60,000 | 200,000 | |
Reserves | 72,000 | 15,000 | 15,000 | 72,000 | |
Shares in Yellow Ltd | 80,000 | 80,000 | - |
(Mohd, et. al., 2012)
Zielstra, D., & Zipf, A. (2010). A comparative study of proprietary geodata and volunteered geographic information for Germany. In 13th AGILE international conference on geographic information science (Vol. 2010).
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Bhattacharyya, A. K. (2012). Financial Accounting for business managers. PHI Learning Pvt. Ltd.
Shah, P. (2013). Financial Accounting. OUP Catalogue.
Montoro, C., & Moreno, R. (2011). The use of reserve requirements as a policy instrument in Latin America.
Atwood, T. J., Drake, M. S., & Myers, L. A. (2010). Book-tax conformity, earnings persistence and the association between earnings and future cash flows. Journal of Accounting and Economics, 50(1), 111-125.
Taylor, G., & Richardson, G. (2012). International corporate tax avoidance practices: evidence from Australian firms. The International Journal of Accounting, 47(4), 469-496.
Finger, C. A. (2010). Using judgment to measure the allowance for doubtful accounts. Global Perspectives on Accounting Education, 7, 9.
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Lang, M., Lins, K. V., & Maffett, M. (2012). Transparency, liquidity, and valuation: International evidence on when transparency matters most. Journal of Accounting Research, 50(3), 729-774.
Carlin, T. M., & Finch, N. (2010). Evidence on IFRS goodwill impairment testing by Australian and New Zealand firms. Managerial Finance, 36(9), 785-798.
Mohd Nasir, N., Othman, R., Said, J., & Ghani, E. K. (2012). Financial reporting practices of charity organisations: A Malaysian evidence.