ACT305 Corporate Accounting- Buildit Ltd a Fabricating Company

Task

1. Buildit Ltd, a fabricating company, bought an industrial drill on 1st July 2020 for a price of $150,000. The CFO estimated that the drill had a useful life of 6 years and a straight line basis of depreciation was applied. One year later, on 1st July 2021 due to technological improvements the CFO determined that the drill would have to be replaced earlier in order to remain competitive. The remaining useful life was estimated to be 4 years. The accounting depreciation rate was changed to reflect this alteration.

The drill was sold for $69,000 on 30 June 2023. This equipment attracted a tax depreciation rate of 35% p.a. The company tax rate is 30%.

Required

For each of the 3 years ended 30 June 2021, 2022 and 2023, calculate the carrying amount and tax base of the drill, and show the deferred tax journal entry at the end of each year. Provide explanations for your answer.

2. At the 1st July 2022 Towelling Ltd had the following financial position:

Carrying amount Fair value

Assets Current assets

Cash

$270,000

$270,000

Accounts receivable

1,080,000

1,080,000

Total current assets

$1,350,000

 

Non-current assets

 

 

Plant and equipment

$2,835,000

$2,160,000

Accumulated depreciation

(810,000)

 

Fixtures and fittings

1,215,000

1,147,500

Accumulated depreciation

(135,000)

 

Motor vehicles

1,080,000

823,500

Accumulated depreciation

(270,000)

 

Land

1,485,000

2,025,000

Total non-current assets

$5,400,000

 

Total assets Liabilities

$6,750,000

 

Current liabilities

 

 

Accounts payable

$135,000

$135,000

Total current liabilities

$135,000

 

Non-current liabilities

 

 

Long term loan

$540,000

$540,000

Total non-current liabilities

$540,000

 

Total liabilities

$675,000

 

Net assets Equity

$6,075,000

 

Share capital – 135,000 ordinary shares

$3,375,000

 

Retained earnings

2,700,000

 

Total equity

$6,075,000

 

 
Cotton Ltd had purchased all the assets and taken over all the liabilities of Towelling Ltd on 1st July 2022.
 
The purchase consideration included Cotton Ltd issuing to the Towelling Ltd shareholders 6 Cotton Ltd shares and giving them a cash payment of $2.70 for each one Towelling Ltd share held. The Cotton Ltd shares were deemed to have a fair value of $9.45 each. The costs of issuing the Cotton Ltd shares amounted to $810. The Towelling Ltd shareholders would also have a patent transferred to them. This patent was internally generated by Cotton Ltd with a carrying value of $540,000 and was deemed to have a fair value of $1,350,000.
 
At 30th June 2022 Towelling Ltd had noted in its financial statements a contingent liability due to a guarantee that the company had given for another company’s loan. No value had been placed on the guarantee but the fair value at the date of acquisition was assessed at $54,000.
 
Prior to the acquisition of Towelling Ltd Cotton Ltd sought advice from lawyers and accountants and at the completion of the acquisition their fees amounted to $13,500.

Required

Complete the journal entries in the books of Cotton Ltd recording the acquisition of Towelling Ltd.

3. Benjamin Ltd owns all of the issued share capital of Franklin Ltd.

The following transactions occurred during the financial year ending 30th June 2022.

(a) On 15th January 2022 Benjamin Ltd purchased inventory from Franklin Ltd for $52,800 which gave Franklin Ltd a pre-tax profit of $15,840. Benjamin Ltd sold one quarter of the inventory to external parties for $16,500 and the remainder were sold back to Franklin Ltd for $71,500 on account.
(b) On 1st February 2021 Benjamin Ltd sold equipment, which had cost Benjamin Ltd $374,000 with an accumulated depreciation balance at the time of sale of $44,000, to Franklin Ltd for $352,000. Franklin Ltd applies a 10% straight line depreciation rate to equipment. On 30th June 2022 Franklin Ltd sold the equipment to Jefferson Ltd for $220,000.
(c) Benjamin Ltd, owns a car dealership and sold a car on 1st July 2021 to Franklin Ltd which Franklin Ltd classified as a motor vehicle. The sale price was $44,000 with a cost of sales of $22,000. Franklin depreciates motor vehicles at 20% on a straight-line basis.
(d) Franklin Ltd purchased a new production facility on 1st September 2021 for $1,600,000. The factory equipment required calibrating and staff training to enable them to operate it. To facilitate this Benjamin Ltd provided management staff to oversee the calibration and training at a cost to Benjamin Ltd of $22,000 for which they billed Franklin Ltd $110,000. This latter cost Franklin Ltd treated as part of the cost of installation and added it to the cost of the facility. Franklin Ltd depreciates the facility on a reducing balance basis at a yearly rate of 30%.

Required 

Prepare the adjusting consolidation worksheet journal entries for the year ended 30th June 2022 to eliminate the intragroup transactions.

4. On 1st July 2021 Jensen Ltd acquired 80% of the issued shares of Interceptor Ltd for $315,200. The equity of Interceptor Ltd at that date comprised:

Share capital (250,000 ordinary shares)

$250,000

Retained earnings

49,375

General reserve

100,000

 
The assets and liabilities of Interceptor Ltd were all valued at fair value except for:
 

 

Carrying

amount

Fair

value

Land

$230,000

$250,000

Machinery (cost $187,500)

125,000

150,000

Inventory

81,250

100,000

Required

Prepare the adjusting consolidation worksheet journal entries for the years ended 30th June 2022 and 30th June 2023.

5. Your client Iced Ltd, which controls a number of companies, has recently purchased a 24% shareholding in Tea Ltd. The new accountant, Mr Bushell, has asked your advice about the preparation of the Iced Ltd’s consolidated accounts with respect to the shareholding in Tea Ltd. They are confused about the term “significant influence” and how they should include Tea Ltd’s results in the consolidated accounts.

Required

Write a business letter to the accountant explaining the term “significant influence” and how to recognise it, and the appropriate method for including Tea Ltd’s results in Iced Ltd’s consolidated accounts.

Marks will be awarded for the content of the letter, the structure of the business letter and the manner in which it is presented.

Read less
QUALITY: 100% ORIGINAL PAPER – NO PLAGIARISM – CUSTOM PAPER

Leave a Reply

Your email address will not be published. Required fields are marked *