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Prepare a schedule that shows the calculation of taxable income and current tax liability for Eagles Ltd for the year ending 30 June 2016

Prepare journal entries for the above transactions

 

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Question 1

Starman Ltd is a newly registered company. The company issued a prospectus dated 1 August 2015; inviting the public to apply for the following classes of shares. Only the ordinary shares have voting rights:

  • 570,000 Ordinary shares at $5 per share. The terms of the shares on issue are $2.00 on application, $1.00 on allotment, $1.40 on the first call and $0.60 on the second call.

 

  • 200,000Preferenceshares at $2 per share, $1.50 on application and $0.50 on 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 allotmentand calls before any refunds will be given.

On 30September 2015 applications closed and applications had been received for the following:

 

Ordinary Shares

Applications were received for 855,000 shares in total, with applications for 150,000 shares paying $5, applications for 450,000 shares paying $3.00and the remainder paying only the application fee.

 

Preference Shares

Applications were received for 210,000 Preference shares, with all applications received paying the application monies of$1.50.

On the 15October the shares were allotted, with all allotment money owed, paid by the 31October. On the 15October share issue costs of $25,000 for the Ordinary shares and $15,000 for the Preference shares were also paid. 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.

On 1 November the first call was made on the Ordinary shares and on 30 November all the call money was received.

On 1 April the following year, the second call was made on the Ordinary shares and on30April the call money was received except for the call on 15,000 shares. The shares were forfeited on 15 May. On 20 May the $5shares were reissued at $4.50 fully paid to $5.00.Costs associated with reissuing the forfeited shares totalled $12,000. The money was refunded to the defaulting shareholders on 25 May.

 

Required:

Prepare separate schedules, one for the Ordinary share issue and one for the Preference 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.

 

b.Prepare journal entries for the above transactions. Note: the entries should be in strict date order of the underlying event.

 

Question 2

EaglesLtd began operations on 1 July 2015 by purchasing an existing business for $820,000. The fair values of the assets of the purchased business were as follows:

Asset Fair value $
Vehicles 96,000
Equipment 440,000
Computer 212,000

 

The excess of the purchase consideration over the fair value of the assets acquired was recorded as goodwill.

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: $16,000 $30,000 $12,000

 

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

  • Insurance of $57,000 was paid for during the year. Of this amount, $39,600 is prepaid for next year.
  • Rent is paid for in arrears. $32,000 is owing at the end of the current year and $13,000 has been paid in cash.
  • Employee Entitlements (Annual, Sick and Long Service Leave) totalling $18,000 were provided for during the year. Payments of $3,000 were made.
  • Allowance for Impairment for Accounts Receivable was $7,000.

 

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

  • Sales $1,130,000
  • Cost of Goods Sold $525,000
  • Salaries and Wages $87,000
  • Other expenses $23,400

 

Other items in the statement of financial position as at 30 June 2016 are:

Year end balances $
Inventory on hand 344,000
Accounts receivable 98,000
Goodwill (net) 62,000
Provision for Employee Entitlements 15,000
Accounts payable 62,000
Cash at Bank 47,000

 

Additional information:

  • Debts of $1,000 were written off as bad during the year.
  • For year ended 30 June 2016 the profit before income tax of Eagles Ltd was $208,700.

 

Required:

a.Prepare a schedule that shows the calculation of taxable income and current tax liability for Eagles Ltd for the year ending 30 June 2016.

 

b.Prepare a worksheet that shows the calculation of deferred tax liabilities and deferred tax assets for Eagles Ltd as at 30 June 2016.

 

c.Provide journal entries to record the current tax liability, deferred tax assets (if any) and deferred tax liabilities (if any).  Apply the requirements of AASB 112 Income Taxes with respect to offset, noting that the Australian Tax Office (ATO) is the only income tax authority in Australia. Exclude journal narrations.

 

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