Accounting for Share Capital and Income Tax
| P-Share | $1.5/share | ||
| Ordinary Share | $1.2/share | $0.6/share at 50% | $0.3/Share at 25% |
| Date | Particulars | DR | CR |
| 31/03/2014 | Cash | 1200000 | |
| Application of Preference share | 1200000 | ||
| (Money received on application of preference shares :800000 x $1.50) | |||
| 31/03/2014 | Cash A/C DR | 1440000 | |
| Application of ordinary share | 1440000 | ||
| (2400000 x $0.60 (Money received on application of ordinary shares ) | |||
| 31/03/2014 | Application of Preference share | 1200000 | |
| Share Capital | 1200000 | ||
| (Allotment of 800000 preference shares.) | |||
| 31/03/2014 | Application | 1200000 | |
| Allotment | 600000 | ||
| Share Capital | 1800000 | ||
| (Allotment of 2000000 shares) |
| 31/03/2014 | Application | 240000 | |
| Cash trust | 240000 | ||
| (transfer of excess money to account of cash trust ) | |||
| 15/04/2014 | Cash trust | ||
| Cash | 600000 | ||
| Allotment | 600000 | ||
| (cash received on allotment 2000000 x $0.30) | |||
| 31/08/2014 | First and final call | 600000 | |
| Share Capital | 600000 | ||
| (call of $0.30 on 2000000 ordinary shares) | |||
| 30/09/2014 | Cash | 599100 | |
| First and Final call | 599100 | ||
| (Cash received on call : 1997000 x $0.30) | |||
| 15/10/2014 | Share Capital | 3600 | |
| Call | 900 | ||
| Forfeited Share | 2700 | ||
| (Forfeited 3000 shares ) | |||
| 15/10/2014 | Cash | 2250 | |
| Forfeited Share | 1350 | ||
| Share Capital | 3600 | ||
| (re-issue of forfeited shares for $0.75 per share paid in full) | |||
| 15/10/2014 | Forfeited Shares | 800 | |
| Cash | 800 | ||
| (Re-issue expenses paid off.) | |||
| 15/10/2014 | Forfeited Shares | 550 | |
| Share Capital | 550 | ||
| (Remaining forfeited amount transferred to share capital.) |
Accounting for Income Tax
| Twinkle Ltd Tax Account 30 June 2014 | ||
| Profit before tax | $ 80,000.00 | |
| Add: Company Account Expenses | ||
| Administration Expenses | $ 75,000.00 | |
| Salaries | $ 150,000.00 | |
| Warranty Expenses | $ 20,000.00 | |
| Long service Leave | $ 15,000.00 | |
| Insurance | $ 30,000.00 | |
| Depreciation Expense-Plant | $ 80,000.00 | $ 370,000.00 |
| Gross Profit | $ 450,000.00 | |
| Less: Tax Account Expenses | ||
| Administration Expenses | $ 75,000.00 | |
| Salaries | $ 150,000.00 | |
| Warranty Expenses | $ 10,000.00 | |
| Insurance | $ 45,000.00 | |
| Depreciation Expense-Plant | $ 100,000.00 | |
| Royalty Revenue (Exempt income) | $ 30,000.00 | $ 410,000.00 |
| Taxable Income | $ 40,000.00 | |
| Tax Expense | $ 12,000.00 | |
| Balances of Current Taxes | ||
| Current Tax Expense | $ 12,000.00 | |
| Current Tax Liability | $ 12,000.00 | |
| Depreciation of Plant | |||
| Year | Financial Depreciation | Tax Depreciation | Temporary differences |
| 1 | $ 80,000.00 | $ 100,000.00 | $ 20,000.00 |
| 2 | $ 80,000.00 | $ 100,000.00 | $ 20,000.00 |
| 3 | $ 80,000.00 | $ 100,000.00 | $ 20,000.00 |
| 4 | $ 80,000.00 | $ 100,000.00 | $ 20,000.00 |
| 5 | $ 80,000.00 | $ (80,000.00) | |
| Balances of Deferred Taxes | |||
| Differed Tax Liability | $ 6,000.00 | ||
| Deferred Tax Asset | $ (24,000.00) |
(II)
| JOURNAL ENTRIES | |||
| 30-Jun-14 | Debit $ | Credit $ | |
| Current Tax Expense | $ 12,000.00 | ||
| Current Tax Liability | $ 12,000.00 | ||
| Tax incurred and due for the period | |||
| 30-Jun-14 | Debit $ | Credit $ | |
| P&L Account | $ 6,000.00 | ||
| Deferred Tax Liability | $ 6,000.00 | ||
| Deferred Liability due for depreciation difference | |||
| 30-Jun-19 | Debit $ | Credit $ | |
| Deferred Tax Asset | 24000 | ||
| P&L Account | 24000 | ||
| Deferred Tax Asset account created to reverse the deferred liability | |||
(III)
| Twinkle Ltd Income Statement 30 June 2014 | ||
| Gross Profit | $ 360,000.00 | |
| Royalty Revenue (Exempt income) | $ 90,000.00 | |
| Less: Expenses | ||
| Administration Expenses | $ 75,000.00 | |
| Salaries | $ 150,000.00 | |
| Warranty Expenses | $ 20,000.00 | |
| Long service Leave | $ 15,000.00 | |
| Insurance | $ 30,000.00 | |
| Depreciation Expense-Plant | $ 80,000.00 | $ 370,000.00 |
| Profit Before tax | $ 80,000.00 | |
Property, Plant and Equipment
| JOURNAL ENTRIES | |||
| 30-Jun-14 | Debit $ | Credit $ | |
| Residential Land | $ 100,000.00 | ||
| Revaluation Surplus | $ 100,000.00 | ||
| Increase in residential land’s fair value than carrying value in revaluation | |||
| 30-Jun-14 | Debit $ | Credit $ | |
| Income tax expense | $ 30,000.00 | ||
| Deferred tax liability | $ 30,000.00 | ||
| 30% tax charged on surplus revaluation | |||
| 30-Jun-14 | Debit $ | Credit $ | |
| Revaluation Surplus | 100000 | ||
| Share Capital Account | $ 70,000.00 | ||
| Income tax expense | 30000 | ||
| Transferred the revaluation surplus amount to the capital account | |||
| 30-Jun-14 | Debit $ | Credit $ | |
| Loss on revaluation of land | 200000 | ||
| Factory Land | 200000 | ||
| Decrease in fair value of factory land than carrying value | |||
| 30-Jun-14 | Debit $ | Credit $ | |
| Deferred tax liability | 60000 | ||
| Income tax expense | 60000 | ||
| Written off tax incurred on revaluation loss of factory land | |||
| 30-Jun-14 | Debit $ | Credit $ | |
| Building | 200000 | ||
| Revaluation Surplus | 200000 | ||
| Increase in building fair value than carrying value in revaluation | |||
| 30-Jun-14 | Debit $ | Credit $ | |
| Income Tax expense | 60000 | ||
| Deferred Tax liability | 60000 | ||
| Tax incurred on revaluation surplus | |||
| 30-Jun-14 | Debit $ | Credit $ | |
| Revaluation Surplus | 200000 | ||
| Share Capital Account | 140000 | ||
| Income tax expense | 60000 | ||
| Transferred the revaluation surplus amount to the capital account | |||
(2) Response to Director
According to the AASB 116 (2009, Paragraph 31), the revaluation should be carried at sufficient regularity, so that materiality of that asset should not be lost with that carrying value. There are certain assets which are revaluated on a frequent basis, due to their volatility in fair values. Therefore, when fair value of a revaluated asset differs in terms of materiality from carrying value then further revaluation is required. Hence the Directors of Petersen Ltd, should not worry about the Fair value of factory land, as the development project of multi-million dollar is about to be approved, and according to AASB 116 (2009, Paragraph 34) another revaluation can be carried at that time too. It can be estimated that the fair value might increase.
Bibliography
- AASB 110, (2010). Events after the Reporting Period. Retrieved from:
- https://www.aasb.gov.au/admin/file/content105/c9/AASB110_07-04_COMPdec09_0111.pdf
- AASB 116, (2009). Property, Plant and Equipment. Retrieved from:
- https://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04_COMPjun09_0709.pdf
Assignment Charles Sturt University
Formula View
Question No. 02
| Date | Particulars | DR | CR |
| 41729 | Cash | 1200000 | |
| Application of Preference share | 1200000 | ||
| (Money received on application of preference shares :800000 x $1.50) | |||
| 41729 | Cash A/C DR | 1440000 | |
| Application of ordinary share | 1440000 | ||
| (2400000 x $0.60 (Money received on application of ordinary shares ) | |||
| 41729 | Application of Preference share | 1200000 | |
| Share Capital | 1200000 | ||
| (Allotment of 800000 preference shares.) | |||
| 41729 | Application | 1200000 | |
| Allotment | 600000 | ||
| Share Capital | 1800000 | ||
| (Allotment of 2000000 shares) |
| 41729 | Application | 240000 | |
| Cash trust | 240000 | ||
| (transfer of excess money to to cash trust a/c) | |||
| 41744 | Cash trust | ||
| Cash | 600000 | ||
| Allotment | 600000 | ||
| (cash received on allotment 2000000 x $0.30) | |||
| 41882 | First and final call | 600000 | |
| Share Capital | 600000 | ||
| (call of $0.30 on 2000000 ordinary shares) | |||
| 41912 | Cash | 599100 | |
| First and Final call | 599100 |
| 41927 | Share Capital | 3600 | |
| Call | 900 | ||
| Forfeited Share | 2700 | ||
| (Forfeited 3000 shares ) | |||
| 41927 | Cash | 2250 | |
| Forfeited Share | 1350 | ||
| Share Capital | 3600 | ||
| (re-issue of forfeited shares for $0.75 per share paid in full) | |||
| 41927 | Forfeited Shares | 800 | |
| Cash | 800 | ||
| (Re-issue expenses paid off.) | |||
| 41927 | Forfeited Shares | 550 | |
| Share Capital | 550 | ||
| (Remaining forfeited amount transferred to share capital.) |
Question No. 03
| Depreciation of Plant | |||
| Year | Financial Depreciation | Tax Depreciation | Temporary differences |
| 1 | =SUM(400000/5) | =SUM(400000/4) | =SUM(C106-B106) |
| 2 | =SUM(400000/5) | =SUM(400000/4) | =SUM(C107-B107) |
| 3 | =SUM(400000/5) | =SUM(400000/4) | =SUM(C108-B108) |
| 4 | =SUM(400000/5) | =SUM(400000/4) | =SUM(C109-B109) |
| 5 | =SUM(400000/5) | =SUM(C110-B110) | |
| Balances of Deferred Taxes | |||
| Deferred Tax Liability | =SUM(D106*0.3) | ||
| Deferred Tax Asset | =SUM(D110*0.3) |
| (ii) | |||
| JOURNAL ENTRIES | |||
| 41820 | Debit $ | Credit $ | |
| Current Tax Expense | 12000 | ||
| Current Tax Liability | 12000 | ||
| Tax incurred and due for the period | |||
| 41820 | Debit $ | Credit $ | |
| P&L Account | 6000 | ||
| Deferred Tax Liability | 6000 | ||
| Deferred Liability due for depreciation difference | |||
| 43646 | Debit $ | Credit $ | |
| Deferred Tax Asset | 24000 | ||
| P&L Account | 24000 | ||
| Deferred Tax Asset account created to reverse the deferred liability | |||
| Twinkle Ltd Income Statement 30 June 2014 | ||
| Gross Profit | 360000 | |
| Royalty Revenue (Exempt income) | 90000 | |
| Less: Expenses | ||
| Administration Expenses | 75000 | |
| Salaries | 150000 | |
| Warranty Expenses | 20000 | |
| Long service Leave | 15000 | |
| Insurance | 30000 | |
| Depreciation Expense-Plant | 80000 | =SUM(B136:B141) |
| Profit Before tax | =SUM(C133+C134)-(C141) | |
| 41882 | Debit $ | Credit $ | |
| Ordinary share Call Acc | =SUM(2400000*(1.2*0.25)) | ||
| Ordinary share Capital | =SUM(2400000*(1.2*0.25)) | ||
| Directors made the call on 2400000 ordinary shares @ $0.3 per share | |||
| 41912 | Debit $ | Credit $ | |
| Cash | =SUM(1997000*0.3) | ||
| Ordinary share Call Acc | =SUM(1997000*0.3) | ||
| Received the amount of 1997000 shares @ $0.3 per share | |||
| 41927 | Debit $ | Credit $ | |
| Ordinary Share Capital | =SUM(403000*1.2) | ||
| Forfeited Ordinary Share Acc | =SUM(403000*0.9) | ||
| Ordinary share Call Acc | =SUM(403000*0.3) | ||
| Call money of 403000 ordinary shares were not received and forfeited | |||
| 41927 | Debit $ | Credit $ | |
| Forfeited Ordinary Share Acc | =SUM(403000*0.45) | ||
| Cash | =SUM(403000*0.75) | ||
| Ordinary Share Capital | =SUM(403000*1.2) | ||
| Sold the forfeited shares of 403000 in full @ $0.75 per share | |||
|
| |||
| 41927 | Debit $ | Credit $ | |
| Forfeit ordinary Share Acc | =SUM(D61-B66) | ||
| Capital Reserve Acc | =SUM(D61-B66) | ||
| Remaining Forfeit has been transferred to Capital Reserve Acc, to create liability | |||
| 41927 | Debit $ | Credit $ | |
| Forfeiture and Reissue Expense | 800 | ||
| Cash | 800 | ||
| Expense incurred during forfeiture and reissue of shares | |||
Question No. 04 Formula:
| Twinkle Ltd Tax Account 30 June 2014 | ||
| Profit before tax | 80000 | |
| Add: Company Account Expenses | ||
| Administration Expenses | 75000 | |
| Salaries | 150000 | |
| Warranty Expenses | 20000 | |
| Long service Leave | 15000 | |
| Insurance | 30000 | |
| Depreciation Expense-Plant | 80000 | =SUM(B84:B89) |
| Gross Profit | =SUM(C89,C81) | |
| Less: Tax Account Expenses | ||
| Administration Expenses | 75000 | |
| Salaries | 150000 | |
| Warranty Expenses | 10000 | |
| Insurance | 45000 | |
| Depreciation Expense-Plant | 100000 | |
| Royalty Revenue (Exempt income) | 30000 | =SUM(B92:B97) |
| Taxable Income | =SUM(C90-C97) | |
| Tax Expense | =SUM(C98*0.3) | |
| Balances of Current Taxes | ||
| Current Tax Expense | 12000 | |
| Current Tax Liability | 12000 | |
