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Advanced Financial Accounting 7

Advanced Financial Accounting

Advanced Financial Accounting

Question 1

Lisa Limited

General Journal

1st July 2015

Accumulated depreciation

Gain on buildings disposal

Buildings

To record sale of buildings to Anderson Limited

$2,167,350

$350,000

$767,350

$1,750,000

1st July 2015

Gain on sale of land

To record sale of land to Anderson Limited

$2,167,350

$367,350

$1,800,000

1st July 2015

Leased land and Building

Lease liability

To record leased asset and liability at the inception of the finance lease

$600,000

$600,000

30th June 2016

Dr Executory expense

Dr Interest expense

Dr lease liability

To record lease payment of $600,000

$100,000

$260,082

$239,918

$600,000

30th June 2025

Dr interest expense

Dr lease liability

To record lease payment of $500,000

$260,082

$239,918

$500,000

Anderson Limited

General Journal

1st July 2015

Buildings

To record purchase of buildings

$2,167,350

$2,167,350

1st July 2015

To record purchase of land

$2,167,350

$2,167,350

1st July 2015

Lease receivable

Land and building

To record lease receivable at inception

$600,000

$600,000

30th June 2015

Lease receivable

Interest revenue

Executory expense

To record receipt of lease payment

$600,000

$239,918

$260,082

$600,000

30th June 2025

Lease receivable

Interest revenue

To record receipt of lease payment

$500,000

$239,918

$260,082

Question 2

Accounting for taxation

Calculations

Carrying value Tax base Temporary difference

Plant $400,000 $400,000

Accumulated depreciation$80,000 $100,000

$320,000 $300,000 $20,000 (Deffered tax liability)

Long service leave $20,000 $- $20,000(Deffered tax asset)

Warranty expenses $30,000 $10,000 $20,000(Deffered tax asset)

Insurance $20,000 $30,000 $10,000(Deffered tax liability)

Computation of tax to be paid

Accounting profit before tax $300,000

Add back accounting depreciation $80,000

Less: Depreciation for tax purposes ($100,000)

$280,000

Add back long service leave $20,000

Add back Warranty expenses $20,000

Less Insurance ($10,000)

Taxable profit $310,000

Tax thereof (30%) $93,000

If accounting profit is used

Accounting profit $300,000

Tax thereof $90,000

Tax difference =$93,000-$90,000 = $3,000

Journal entries to record taxable income

30/6/2015

Income tax expense

Deffered tax liability

To record deffered tax liability in respect of plant

30/6/2015

Income tax expense

Deffered tax liability

To record deffered tax liability in respect to Insurance

30/6/2015

Deffered tax asset

Long service leave

To record deffered tax asset in respect of long service leave

30/6/2015

Deffered tax asset

Warranty expense

To record deffered tax asset in respect to Warranty

30/6/2015

Income tax expense

Deffered tax asset

Income tax payable

To record income tax expense

Question 3

Consolidated statement of financial position

  1. Determination of goodwill

Fair value of consideration transferred $900,000

Less fair value of assets acquired and liabilities assumed :

Accounts receivable $70,000

Inventory $100,000

Land $400,000

Plant and equipment $430,000

Loan ($300,000) $700,000

Goodwill on acquisition date $200,000

Elimination entry

Share capital $500,000

Retained earnings $200,000

Goodwill $200,000

Investment in Beach Limited $900,000

Consolidation worksheet

Eliminations and adjustments

Accounts receivable

Inventory

Property, plant and equipment

Accumulated depreciation

Investment in beach limited

Goodwill

Total assets

Liabilities

Accounts payable

Dividends payable

Shareholders’ equity

Share capital

Retained earnings

Sandy Limited

Beach limited

Consolidated statement

Sandy Limited

Consolidated statement of financial position

As at 30th June 2015

Current assets $000

Accounts receivable 100

Inventory 263

Total current assets 483

Long-term assets

Land 1,000

Property, plant and equipment 1,600

Accumulated depreciation -613

Goodwill 60

Total long-term assets 987

Total assets 2,530

Liabilities

Current liabilities

Accounts payable 110 Dividend payable 110

Total current liabilities 220

Long-term liabilities

Total long-term liabilities 810

Total liabilities 1,070

Shareholders’ equity

Share capital 1,000

Retained earnings 500

Total shareholders’ equity 1,500

Shareholders’ equity and retained earnings 2,530