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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

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