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ACFI2012 Patterson Ltd Statement

Patterson Ltd was registered on 18 March 2017, as a company with a constitution limiting the shares that could be offered to; 4 000 000 Ordinary A shares and 2 000 000 non-voting Ordinary B shares. The company issued a prospectus dated 12 May inviting the public to apply for 3 000 000 Ordinary A class shares at $2.50 per share. The terms of the shares on issue are $1.00 on application, $1.00 on allotment and $0.50 to be called within six months of allotment.

If the issue is oversubscribed the directors will make a pro-rata issue of shares and the excess application money will be applied to allotment and calls before any refunds will be given.On 15 May the directors also decided to issue 1 000 000 non voting Ordinary B shares as fully paid to the promoters for a payment of $2.00 per share.

On 30 June applications closed. Applications for 4 500 000 shares in total had been received with applicants for 1 500 000 shares paying $2.50 and the remainder paying only the application fee.

On 4 July the shares were allotted, with all allotment money owed, paid by the 30 July.

On 22 July share issue costs of $35,000 for the Ordinary A shares. The share issue costs related to legal expenses associated with the share issue and fees associated with the drafting and advertising of the prospectus and share issue.

The call on the Ordinary A shares was made on 25 August and due by 30 September. All call money was received except for the call on 20 000 shares. The directors met and forfeited the shares on 8 October. On 23 October the $2.50 shares were reissued at $2.20 fully paid to $2.50. Costs associated with reissuing the forfeited shares totalled $8,000. The money was refunded to the defaulting shareholders on 10 November.

The directors announced on 23 November that they were to make a further issue of 1 000 000 Ordinary A shares in 8 months time for $4.00 per share. They issued a call option on these shares, with $0.60 payable by 15 December. All options were sold.

Required:

  • Prepare a schedule for the Ordinary A share issue that shows the break-up of:
  • number of shares applied for;
  • number of shares allotted;
  • total cash received;
  • cash received that relates to application;
  • cash received that relates to allotment;
  • cash received that relates to calls (in advance); and
  • cash refunded.
  • Prepare journal entries for the above transactions. Note: the entries should be in strict date order of the underlying event. (Narrations required) 

Question 2 

Banjo Ltd began operations on 1 July 2016. Items in the statement of financial position as at 30 June 2018 are:

Year end balances

$

Inventory on hand

236,000

Accounts receivable

94,000

Allowance for Impairment

9,000

Goodwill (net)

71,000

Provision for Employee Entitlements

6,000

Accounts payable

73,000

Cash at Bank

35,000

Vehicles at cost

90,000

Vehicles: Accumulated Depreciation

37,500

Equipment at cost

400,000

Equipment: Accumulated Depreciation

200,000

Computers at cost

200,000

Computers: Accumulated Depreciation

100,000

Rent Payable

4,000

Prepaid Insurance

40,500

Deferred Tax Liability (before adjustment)

26,175

The depreciation regimes for the financial reports and the company income tax return respectively, are listed below. The company income tax rate is 30%.

Depreciation Regimes

Vehicles

Equipment

Computers

Depreciation rate:

   

Accounting

25%

25%

25%

Tax

40%

30%

50%

Method:

   

Accounting

Straight-line

Straight-line

Straight-line

Tax

Reducing Balance

Reducing Balance

Reducing Balance

Residual:

$15,000

Zero

Zero

During the year the company recognised the following transactions which are treated differently for tax and accounting purposes:

  • Insurance of $78,000 was paid during the year. Of this amount, $40,500 is prepaid for next year.
  • Rent of $4,000 is owing at the end of the year, $48,000 has paid in cash during the year.
  • Employee Entitlements (Annual, Sick and Long Service Leave) totalling $10,000 were expensed during the year. Payments of $4,000 were made.
  • Bad Debts expense was $9,000 for the year.
  • Goodwill was impaired by $12,000 during the year.

Items in the income statement which were treated the same for accounting and tax purposes were:

  • Sales $1,180,000
  • Cost of Goods Sold $615,500
  • Salaries and Wages $89,000
  • Other expenses $21,400

Answer:

  1. a) Schedule - Ordinary A shares:

Particulars

Share on which full amount is received

Share on which application amount is received

Total

Number of share applied for

1,500,000

3,000,000

4,500,000

Number of share allotted

1,000,000

2,000,000

3,000,000

Total cash received

3,750,000

3,000,000

6,750,000

Cash received that relates to application

1,000,000

2,000,000

3,000,000

Cash received that relates to allotment

1,000,000

1,000,000

2,000,000

Cash received that relates to calls

500,000

-

500,000

Cash refunded

1,250,000

-

1,250,000

(b) Journal Entries

Date

Particulars

Debit ($)

Credit ($)

15-May-17

Bank 

2,000,000

 

To Share Capital - Ordinary B shares

2,000,000

 

(Ordinary B shares issued to promoters as fully paid @$2)

  

30-Jun-17

Bank

6,750,000

 

To Share Application Money

6,750,000

 

(Share application money received on 6,000,000 shares)

  

04-Jul-17

Share Application Money

4,250,000

 

To Share Capital - Ordinary A shares

3,000,000

 

To Bank

1,250,000

 

(Allotment of shares made)

  

04-Jul-17

Share Allotment Money

3,000,000

 

To Share Capital - Ordinary A shares

3,000,000

 

(Allotment money due)

  

22-Jul-17

Share issue expenses

35,000

 

To Bank

35,000

 

(Share issue expenses relating to Ordinary A shares paid)

  

30-Jul-17

Bank

1,000,000

 

To Share Application Money

2,000,000

 

To Share Allotment Money

3,000,000

 

(Share allotment money received)

  

25-Aug-17

Share Call Money

1,500,000

 

To Share Capital - Ordinary A shares

1,500,000

 

(Call money due)

  

30-Sep-17

Bank

990,000

 

Share Application Money

500,000

 

To Share Call Money

1,490,000

 

(Share allotment money received on 2,980,000 shares)

  

08-Oct-17

Share Capital

50,000

 

To Share Forfeiture

40,000

 

To Share Call Money

10,000

 

(20,000 share forfeited for non-payment of call money)

  

23-Oct-17

Bank

44,000

 

Share Forfeiture

6,000

 

To Share Capital - Ordinary A shares

50,000

 

(Forfeited shares reissued)

  

23-Oct-17

Share Forfeiture

8,000

 

To Bank

8,000

 

(Share reissue charges paid)

  

10-Nov-17

Share Forfeiture (40,000-6,000-8,000)

26,000

 

To Bank

26,000

 

(Excess amount refunded to shareholders)

  

15-Dec-17

Bank (1,000,000*0.6)

600,000

 

To Equity Share Options

600,000

 

(Options sold @ $4)

Solution 2

Given Information

  

Year end balances

Amount (in $)

Inventory on hand

236,000

Accounts receivable

94,000

Allowance for Impairment

9,000

Goodwill (net)

71,000

Provision for Employee Entitlements

6,000

Accounts payable

73,000

Cash at Bank

35,000

Vehicles at cost

90,000

Vehicles: Accumulated Depreciation

37,500

Equipment at cost

400,000

Equipment: Accumulated Depreciation

200,000

Computers at cost

200,000

Computers: Accumulated Depreciation

100,000

Rent Payable

4,000

Prepaid Insurance

40,500

Deferred Tax Liability (before adjustment)

26,175

Calculation of Depreciation

  

Particulars

 Accounting Books (Straight Line)

 Income Tax Books (Reducing Balance)

 Vehicles

 Equipment

Computers

 Vehicles

 Equipment

Computers

Asset Cost

90,000

400,000

200,000

90,000

400,000

200,000

Residual Value

15,000

-

-

15,000

-

-

Rate of Depreciation

25%

25%

25%

40%

30%

50%

Depreciation for the year ended 30th Jun-17

18,750

100,000

50,000

36,000

120,000

100,000

Written Down Value as on 30th Jun-17

71,250

300,000

150,000

54,000

280,000

100,000

Depreciation for the year ended 30th Jun-18

18,750

100,000

50,000

21,600

84,000

50,000

Written Down Value as on 30th Jun-18

52,500

200,000

100,000

32,400

196,000

50,000

(a)

Computation of taxable income and tax payable for the year ended 30th Jun-18

   

Particulars

 $

Amount (in $)

Accounting profit before tax

164,850

 

Less: Allowed expenses

Depreciation - Vehicles

21,600

Depreciation - Equipment

84,000

Depreciation - Computers

50,000

Insurance expense paid

78,000

Rent expense paid

48,000

Employee Entitlements paid

4,000

285,600

 
 

Add: Disallowed expenses

Depreciation - Vehicles

18,750

Depreciation - Equipment

100,000

Depreciation - Computers

50,000

Insuance expense

37,500

Rent expense

52,000

Bad debt expense

9,000

Employee Entitlements expensed

10,000

Impairment of goodwill

12,000

289,250

 

Taxable income

168,500

Tax payable

50,550

(b)

Deferred tax worksheet for the year ended 30th Jun-18

     

Particulars

 Carrying amount as per accounts ($)

 Carrying amount as per tax ($)

 Deductible Temporary Differences ($) (DTA)

 Taxable Temporary Differences ($) (DTL)

Assets

Inventory on hand

236,000

236,000

-

-

Accounts receivable

85,000

94,000

9,000

-

Goodwill (net)

71,000

83,000

12,000

-

Cash at Bank

35,000

35,000

-

-

Vehicles

52,500

32,400

-

20,100

Equipment

200,000

196,000

-

4,000

Computer

100,000

50,000

-

50,000

Prepaid Insurance

40,500

-

-

40,500

 

Liabilities

Provision for Employee Entitlements

6,000

-

6,000

-

Accounts payable

73,000

73,000

-

-

Rent Payable

4,000

-

4,000

-

Total temporary diff.

31,000

114,600

Deferred tax @ 30%

9,300

34,380

Opening balances

26,175

Deferred tax movement for the year

9,300

8,205

(c) Journal entries

Particulars

Dr./ Cr.

Amount ($)

Amount ($)

Deferred tax asset

 Dr.

9,300

To Deferred tax liability

 Cr.

8,205

To Income tax expense

 Cr.

1,095

(Being deferred tax expense booked)

 
  

Current tax expense

 Dr.

50,550

To Current tax lability

 Cr.

50,550

(Being current tax expense booked)

 

As per AASB 112 "Income taxes", an entity can offset its deferred tax assets and deferred tax liabilities, if it fulfills the following criterias:

(a) the entity has a legally enforceable right to set-off current tax assets against current tax liabilities; and he deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority.

Offset Journal Entry

Particulars

Dr./ Cr.

Amount ($)

Amount ($)

Deferred tax liability

 Dr.

9,300

To Deferred tax assets

 Cr.

9,300

(Being deferred tax assets adjusted with deferred tax liabilities)

 

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