Tax Q1 by arnold1

VIEWS: 77 PAGES: 16

									                            Carrying
                              Value     Tax Base    Difference    Tax Rate      DTA/(DTL)
Cash                           60,000      60,000          -
Accounts Receivable            50,000      60,000       10,000          30%         3,000
Prepaid Insurance              20,000                  (20,000)         30%        (6,000)
Inventory                      80,000      80,000          -
Plant                         450,000     400,000      (50,000)         30%       (15,000)
Land                          600,000     400,000     (200,000)          0%           -
                            1,260,000   1,000,000                                 (18,000)

Accounts Payable              60,000      60,000           -
Provision for Warranty        40,000                    40,000          30%        12,000
Loan Payable                 400,000     400,000           -
                             500,000     460,000                            0      12,000

Net Assets                   760,000     540,000                                   (6,000)

                                                    Taxable Income                700,000
                                                    Tax Rate                          30%
                                                    Current Tax Liability         210,000

                                                    Income Tax Expense            216,000

Journal Entries

Dr ITE                       216,000
 Cr Current Tax Liability                210,000
 Cr DTL                                    6,000
                             A         B         C         D

Accounting Profit/(Loss)     50,000    30,000    10,000    (10,000)

Add-back
Formation Cost                5,000                         8,000
Accounting Depreciation       4,000     2,000     4,000     2,000
Long Service Leave Expense                                  4,000
Allowance for Bad Debts       3,000     2,000     5,000
                             12,000     4,000     9,000    14,000
Less
Tax Depreciation              8,000     3,200     3,200     5,000
Long Service Leave Paid                                     2,400
Bad Debts Written off                   2,000     3,000
                              8,000     5,200     6,200     7,400

Taxable Income               54,000    28,800    12,800     (3,400)

Tax Rate                         30%       30%       30%       30%

Current Tax Liability        16,200     8,640     3,840     (1,020)
                                 Carrying
                                  Value     Tax Base Difference     Tax Rate   DTA/(DTL)    Journal Entries
(a) Asset                           50,000     50,000
    Accumulated Depreciation       (10,000)   (15,000)                                      Dr ITE       1,500
                                    40,000     35,000     (5,000)        30%      (1,500)    Cr DTL                 1,500
                                                             -
(c) Research & Development          30,000        -     (30,000)         30%      (9,000)   Dr ITE       9,000
                                                                                             Cr DTL                 9,000
(d) June 2003
    Accounts Receivable            50,000      50,000
    Allowance for D/Debts           6,000         -
                                   44,000      50,000      6,000         30%       1,800

   June 2004
   Accounts Receivable             54,000      54,000
   Allowance for D/Debts           (4,000)        -
                                   50,000      54,000      4,000         30%       1,200

   Decrease in DTA                                                                  600     Dr ITE            600
                                                                                             Cr DTA                  600
(b) June 2003
    Long Service Leave Payable     75,000         -       75,000         30%      22,500

   June 2004
   Long Service Leave Payable      70,000         -       70,000         30%      21,000

   Decrease in DTA                                                                 1,500    Dr ITE       1,500
                                                                                             Cr DTA                 1,500
                                       FC (000)     E/Rate     FJD (000)
Sales                                      3,000             7       429

Purchases                                 (1,000)            7        (143)
Closing Inventory                            350             8          44

Wages                                      (400)             7         (57)
Interest                                    (50)             7          (7)
Other Expenses                             (550)             7         (79)
Depreciation                               (300)             7         (43)

Profit                                    1,050                       144


                                       FC (000)     E/Rate       FJD (000)
Bank                                       1,500             8         188
Inventories                                  350             8          44
Non-current Assets                         2,000             8         250
Accumulated Depreciation                    (300)            8         (38)
                                           3,550                       444

Loan                                        500              8         63
Share Capital                             2,000              6        333
Retained Profits                          1,050                       144
Foreign Currency Translation Reserve                                  (96)
                                          3,550                       444
30-Mar Dr Inventory                 33,333
        Cr Accounts Payable                  33,333

31-May Dr Accounts Payable          33,333
        Cr Realised Exchange Gain             1,754
        Cr Cash                              31,579
      Ranking                                                                     Liquidation Account                       Journal Entries
                                                        Carrying Amounts                    Proceeds
(i)   Secured Creditor with Fixed Charge                 Land & Buildings (net)     54,000 Land & Buildings        40,000   Dr Acc Depn - Buildings      2,000
                                                        Plant & Machinery (net)     26,000 Plant & Machinery       10,000   Dr Carrying Amount          54,000
      Mortgage on Land and Buildings           40,000   Inventory                   19,400 Inventory                6,500     Cr Buildings                         42,000
                                                        Shares                      18,000 Shares                   4,500     Cr Land                              14,000
(ii) Preferential Creditors with priority               Trade Debtors (net)         35,624 Trade Debtors           20,000   (Carrying Amounts of Land & Buildings)
                                                        Goodwill                    29,000
      Liquidation Costs                         2,520   Unredorded Expenses                  Discount Received              Dr Cash                     60,000
                                                        Telephone                      210 Trade Creditors          2,154     Cr Proceeds on Sale                  60,000
(iii) Secured Creditors with Floating Charge            Long Service Leave           1,400                                  (Proceeds on Sale of Land & Buildings)
                                                        PAYE Deductions              4,000 Loss on Liquidation    107,000
      Debenture (including Interest)           26,720   Liquidation Expenses         2,520                                  Dr Proceeds on Sale          60,000
                                                                                   190,154                        190,154     Cr Carrying Amount                     54,000
(iv) Preferential Creditors                                                                                                   Cr Gain on Sale                         6,000
                                                                                  Receipts & Payments                       (Off-set Proceeds & Carrying Amount)
      PAYE Deductions                           4,000    Proceeds                            Mortgage              46,500
      Long Service Leave                        1,400   Land & Buildings             40000 Liquidation Expenses     2,520   Dr Mortgage                  45,000
      Employees Wages                             600    Plant & Machinery          10,000 Debtenture              26,720   Dr Interest                    1,500
                                                         Inventory                   6,500 PAYE Deductions          4,000   Dr Commission                  3,000
(v) Unsecured Creditors                                  Shares                      4,500 Long Service Leave       1,400   Dr Transfer to Liquidator    10,500
    Balance of Mortgage (including Interest)    6,500    Trade Debtors              20,000 Employee Wages             670     Cr Cash                                 60,000
    Balance of Wages                               70                                        Directors Fees         2,400   (Pay costs & transfer balance to liquidator)
    Directors Fees                              2,400   Call                        30,000 Telephone                  210
    Telephone                                     210                                        Trade Creditors       16,500
    Trade Creditors                            16,500                                        Bank Overdraft        10,080
    Bank Overdraft                             10,080                              111,000                        111,000

                                                                           Shareholders' Distribution Account
                                                        Loss on Liquidation        107,000 Balances
                                                                                             General Reserve        2,000
                                                                                             Share Capital         75,000

                                                                                             Call                  30,000
                                                                                   107,000                        107,000
                              Liquidation Account                              Proceeds                                            31,925
Retained Earnings                 7,000
Carrying Amounts                         Proceeds                              Payments
Accounts Receivable              23,250 Accounts Receivable            7,200   Liquidation Expenses                    1,500
Inventories                      24,750 Inventories                    5,250   Debenture                              20,400       21,900
Plant & Equipment                48,100 Plant &Equipment              15,000   Preferential Creditors
Goodwill                         19,750                                        Salary                                  2,400
                                         Gain on Land & Buildings     15,000   Income Tax                              2,850        5,250
Liquidation Costs                 1,500 Loss on Liquidation           81,900
                               124,350                               124,350   Cash Available for Unsecured Creditors               4,775
                                                                                                                    Balance     Payment
Proceeds                        30,000                                         Balance of Salary                          800         276
Payments                       (10,500)                                        Accounts Payable                        13,050       4,499
                                19,500                                                                                 13,850       4,775
Net Book Value                   4,500                                         Cents per dollar                                      0.34
Gain on Land & Buildings        15,000
                                                                               Creditor                 Amount Paid
                             Receipts & Payments                               Tax                        2,850
Balances                                Payments                               Employees                  2,676
Cash at bank                    2,000 Liquidation Expenses             1,500   Accounts Payable           4,499
Cash on hand                      150 Debenture                       20,400
Proceeds                                Salary                         3,200
Accounts Receivable             7,200 Preference Dividends             2,100
Inventories                     5,250 Accounts Payable                13,050
Plant &Equipment               15,000 Income Tax                       2,850
From Mortgage holder           19,500 Shareholders Distribution        6,000


                                49,100                                49,100

                       Shareholders' Distribution Account
Preference Dividends             2,100 Balances
Loss on Liquidation             81,900 Preference Shares              15,000
Cash                             6,000 Ordinary Shares                75,000
                                90,000                                90,000

Cash Distribution
Preference Shareholders     15/90                            1,000
Ordinary Shareholders       75/90                            5,000
                                                             6,000
Fair Value of Identifiable Net Assets

Trade Debtors                           3,800           (c)   Balance Sheet
Equipment                               4,800                 Flavour Ltd
                                        8,600                 As at 1 April 2006
Less Trade Creditors                    3,000
                                        5,600                 Cash at Bank         (500 + 6000)   6,500
                                                              Total Assets                        6,500
Cost of Acquisition                     6,000
                                                              Share Capital                       5,000
Goodwill                                 400                  Retained Profits     (1000 + 500)   1,500
                                                                                                  6,500
Dr Trade Debtors                        3,800
Dr Equipment                            4,800
Dr Goodwill                               400
 Cr Trade Creditors                             3,000
 Cr Payable to Flavour Ltd                      6,000

Dr Payable to Flavour Ltd               6,000
 Cr Cash                                        6,000

Dr Acc Depn - Equipment                 1,500
Dr Trade Creditors                      3,000
Dr Carrying Amount of Disposal          5,500
 Cr Trade Debtors                               4,000
 Cr Equipment                                   6,000

Dr Cash                                 6,000
 Cr Proceeds on Disposal                        6,000

Dr Proceeds on Disposal                 6,000
 Cr Carrying Amount of Disposal                 5,500
 Cr Gain on Disposal                              500
Fair Value of Identifiable Net Assets                       (ii)   Balance Sheet
                                                                   Brown Ltd
Debtors                                  20,000                    As at 1 January 2006
Inventory                                55,000
Plant                                   175,000
Buildings                               280,000                     Debtors             (80,000 + 20,000)               100,000
Trademarks                              200,000                     Inventory           (105,000 +55,000)               160,000
                                        730,000                    Vehicles             (140,000 - 40,000)              100,000
Less                                                                Plant               (500,000 + 175,000)             675,000
Bank Overdraft                           30,000                     Buildings           (750,000 + 280,000)           1,030,000
Creditors                                80,000                     Trademarks                                          200,000
Bank Loan                               120,000                     Goodwill                                             25,000
                                        230,000                                                                       2,290,000

Net Fair Value of INA                   500,000                     Creditors           (110,000 + 80,000)             190,000
                                                                    Provisions                                          35,000
Cost of Acquisition                                                 Debentures                                         450,000
Cash Consideration                      310,000                     Bank Loan            (120,000 + 310,000)           430,000
Shares in Amcor Ltd                     180,000                    Bank Overdraft       (30,000 - 20,000 + 5,000)       15,000
Vehicle                                  30,000
Solicitor's Costs                         5,000                    Share Capital                                        800,000
                                        525,000                     Retained Earnings   (310,000 - 10,000 + 70,000)     370,000
                                                                                                                      2,290,000
Goodwill                                 25,000

Dr Debtors                               20,000
Dr Inventory                             55,000
Dr Plant                                175,000
Dr Buildings                            280,000
Dr Trademarks                           200,000
Dr Goodwill                              25,000
 Cr Bank Overdraft                                 30,000
 Cr Bank Loan                                     120,000
 Cr Creditors                                      80,000
 Cr Payable to Field Ltd                          520,000
 Cr Solicitor's Fees Payable                        5,000

Dr Payable to Field Ltd                 520,000
 Cr Cash                                          310,000
 Cr Shares in Amcor Ltd                           110,000
 Cr Gain on Shares                                 70,000
Dr Acc Depreciation - Vehicle            10,000
Dr Loss on Transfer of Vehicle           10,000
 Cr Vehicle                                        50,000

Dr Solicitor's Fees Payable               5,000
 Cr Cash                                            5,000
Part A

(i) Fair Value of Identifiable Net Assets                       Revaluation of Inventory

   Share Capital                            300,000             Fair Value                 130,000
   Retained Profits                         150,000             Recorded                   120,000
   General Reserve                           43,000             Increase                    10,000
                                            493,000             Tax Effect @ 30%             3,000
   BCVR                                       7,000             BCVR                         7,000
   Total                                    500,000
   Less Recorded Goodwill                     3,000
                                            497,000

   Cost of Acquisition
   Purchase Consideration                   520,000
   Less Dividend Payable                     15,000
                                            505,000

   Goodwill
   Cost of Acquisition                      505,000
   Less Fair Value of INA                   497,000
                                              8,000
   Less recorded Goodwill                     3,000
   Unrecognised Goodwill                      5,000

(i) Dr Share Capital                        300,000
    Dr Retained Profits                     150,000
    Dr General Reserve                       43,000
    Dr BCVR                                   7,000
    Dr Goodwill                               5,000
      Cr Shares in S Ltd                              505,000

   Dr Dividend Payable                       15,000
     Cr Dividend Receivable                            15,000
(ii) Dr Cost of Goods Sold     10,000
      Cr Income Tax Expense              3,000
      Cr Transfer from BCVR              7,000

(iii) Dr Sales                 80,000
       Cr Cost of Goods Sold            76,000
       Cr Inventory                      4,000   25% of ($80,000 - $80,000/1.25)

   Dr DTA                       1,200
    Cr ITE                               1,200

   Dr Proceeds on Sale         75,000
    Cr Carrying Amount                  60,000   $100,000 - $40,000
    Cr Plant                            15,000

   Dr DTA                       4,500
    Cr ITE                               4,500

   Dr Acc. Depreciation          750             6/12 of $15,000 @ 10%
    Cr Depreciation                       750

   Dr ITE                        225
    Cr DTA                                225
Part B

 1 Calculate the minority interest share of equity at the time of acquisition
   Dr Equity Accounts
    Cr MI

 2 Calculate the minority interest share in movements of equity since the time of acquisition.
   This represents profits, transfers to and from reserves and additional capital contributions
   Dr Retained Profits
   Dr Reserves
    Cr MI

 3 Calculate the minority interest share for the current period.
   This represents current profits and other movements in equity such as dividends etc.

   Dr MI Share of Profits
    Cr Dividends Paid/Declared
    Cr MI
(i)    Acquisition Analysis

       Fair Value of Identifiable Net Assets                    Revaluation of Assets   Inventory   Plant
       Share Capital                         240,000            Fair Value                  19,000       130,000
       Retained Profits                        1,600            Recorded                    16,000       126,000
       General Reserve                         8,000            Increase                      3,000        4,000
                                             249,600            Tax Effect @ 30%                900        1,200
       BCVR                                    4,900            BCVR                          2,100        2,800
       Total                                 254,500
       Less Recorded Goodwill                  6,000
                                             248,500

       Cost of Acquisition
       Purchase Consideration               270,000
       Less Dividend Payable                 14,400
                                            255,600

       Goodwill
       Cost of Acquisition                  255,600
       Less Fair Value of INA               248,500
       Goodwill                               7,100
       Less Recorded Goodwill                 6,000
       Adjustment Required                    1,100

(ii)   Revaluation at 30 June 2004

       Dr Accumulated Depreciation           22,000
        Cr Plant                                       18,000
        Cr DTL                                          1,200
        Cr BCVR                                         2,800

       Dr Depreciation                        1,000             ($4,000/4)
       Dr Retained Profits                    1,000             ($4,000/4)
        Cr Acc. Depreciation - Plant                    2,000
          Dr DTL                           600
           Cr ITE                                    300
           Cr Retained Profits                       300

(iii)     Pre-acquisition Elimination

          Dr Share Capital              240,000
          Dr Retained Profits             3,700             (1,600 + 2,100)
          Dr General Reserve              8,000
          Dr BCVR                         2,800             (4,900 - 2,100)
          Dr Goodwill                     1,100
            Cr Shares in Alpha Ltd                255,600

(iv)      Elimination Entries

(a)       Dr Retained Profits              210
          Dr ITE                            90
           Cr Cost of Goods Sold                     300

(b)/(c)   Dr Sales                       20,000
           Cr Cost of Goods Sold                   19,680
           Cr Inventory                               320   ($1,600 - $1,600/1.25)

          Dr DTA                            96
           Cr ITE                                     96

(d)       Dr Payables                     3,600
           Cr Receivables                           3,600

(e)       Dr Dividend Revenue            31,200
           Cr Interim Dividend Paid                14,400
           Cr Final Dividend Declared              16,800
          Dr Dividend Payable            16,800
           Cr Dividend Receivable                  16,800
(i)     Acquisition Analysis

        Fair Value of Identifiable Net Assets

        Share Capital                            80,000
        Retained Profits                         20,000
        Total                                   100,000
        80% acquired                             80,000

        Cost of Acquisition                      96,000

        Goodwill                                 16,000

(ii)    Pre-acquisition elimination entry

        Dr Share Capital (80%)                   64,000
        Dr Retained Profits (80%)                16,000
        Dr Goodwill                              16,000
          Cr Shares in Doe Ltd                            96,000

        Dr Share Capital (20%)                   16,000
        Dr Retained Profits (20%)                 4,000
          Cr Minority Interest                            20,000

(iii)   Elimination Entries

(a)     Dr Sales                                 40,000
         Cr Cost of Goods Sold                            40,000

(b)     Dr Other Income                            900
         Cr Expenses                                        900

(c)     Dr Other Income                            200
         Cr Expenses                                        200

(d)     Dr Sales                                  4,000
         Cr Cost of Goods Sold                             3,000
         Cr Inventory                                      1,000

        Dr DTA                                     300
         Cr ITE                                             300

        Dr MI                                      140
          Cr MI Share of Profit                             140
        (20% of $1,000 - $300)

(e)     Dr Other Income (80%)                      400
        Cr Proposed Final Dividend                 400

       Dr Provision for Dividend           400
        Cr Receivables                             400

(iv)   MI Share of Profit and Dividends

       Dr MI Share of Profit              1,000
         Cr MI                                    1,000
       (20% of $5,000)

       Dr MI                               100
         Cr Proposed Final Dividend                100
       (20% of $500)

								
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