Company Accounting: Tax Calculation, Deferred Tax Worksheet, Journal Entries

This document provides a comprehensive guide to accounting for company tax, including the preparation of tax worksheets, calculation of current tax liability, and deferred tax asset and liability balances. It also includes journal entries to recognize the current tax liability and deferred tax assets and liabilities. The document covers topics such as accounting for doubtful debt expense, depreciation expense, entertainment expense, insurance expense, fines and penalties, warranty expense, and more. It also includes examples and calculations for better understanding. This document is suitable for students studying company accounting or anyone interested in learning about tax accounting.

ACC322 - Company Accounting

Question 1: Accounting for Company tax
1. Prepare current tax worksheet; calculate current tax liability:
Current tax worksheet
for year ended 30th June 2017
Profit before income tax
$240,20
0
Add:
Doubtful debt expense $4,000
Depreciation expense:
Plant $2,025
building $475
Employees benefit expense
$12,00
0
Entertainment expense $7,200
Insurance expense $6,200
Fines and penalties $5,400
Warranty expense $8,500 $45,800
$286,00
0
Deduct:
Tax depreciation - plant
$18,00
0
Tax amortization development cost
$16,00
0
Tax insurance $6,200 -$40,200
Tax loss
$245,80
0
Current tax liability @ 30% $73,740
2. Prepare the deferred tax worksheet to calculate the deferred tax asset and
liability balances and adjustments for the year ended 30 June 2020.
Include all accounts and net balances where appropriate.
Deferred tax for the year
Tax depreciation greater than depreciation expense
=Accumulated depreciation for tax purposes greater than for accounting purposes
= The carrying amount of the depreciable asset is greater than the tax base
= Deferred tax liability

Increase in deferred tax liability = ($18000 — $2025) x 30% = $4,792.5
Doubtful debts expense greater than bad debts written off
= Allowance for doubtful debts for accounting purposes but not tax purposes
= The carrying amount of accounts receivable is less than the tax base
= Deferred tax asset
No changes in deferred tax asset
Long service leave expense greater than long service leave paid
= Provision for long service leave for accounting purposes but not tax purposes
= The carrying amount of the liability is greater than the tax base
= Deferred tax asset
No changes in deferred tax asset
3. Prepare the journal entries to recognize the current tax liability, deferred
tax assets, and liabilities at 30 June 2020
Tax entries for 30th June 2020
The journal entry for current tax is:
Income tax expense Dr. 73,740
Current tax liability Cr. 73,740
The journal entry for deferred tax is:
Deferred tax asset Dr. 300
Deferred tax liability Cr. 300
Current tax = $73,740
Deferred tax from origination and reversal of temporary differences = (8,250)
Income tax expense = $65,490
Question 2: Business combinations

1. Prepare the acquisition analysis in relation to the acquisition to determine the
gain on bargain purchase or goodwill.
Acquisition analysis at 1st July, 2019:
A. Net identifiable assets:
Carrying
Amount Adjustment
Fair
Value
Accounts Receivables 60,000 2,500 62,500
Land 360,000 -20,000 340,000
Building (net) 265,000 10,000 275,000
Equipment (net) 160,000 22,000 182,000
Plant Net 120,000 -7,500 112,500
Vehicles (net) 70,500 -3,500 67,000
Fair value of assets 1,035,500.00 3,500 1,039,000
Accounts Payables 35,000 0 35,000
Loan – ABC Bank 245,000
Share Capital 380,000 -
Retained earnings 407,000 -
Fair value of liabilities 1,067,000 35,000
Net identifiable assets = Share capital + retained earnings + Adjustment with fair value
= 380,000 + 407,000 + 3,500
= $790,500
B. Consideration transfer:
Paid off loan ABC bank 245,000
Distributed to owner 70,000
Land 110,000
Issue of shares (52000 * $12 per
share) 624,000
Total consideration transfer cost
1,049,000
Goodwill = Consideration transfer – Net identifiable assets
= $1,049,500 - $790,500
= $259,000

2. Prepare the journal entries in the records of Iron Ltd to record its acquisition of
Man Ltd on 1 July 2020.
Shares in Man ltd. Dr. 1,049,500
Paid off loan ABC bank Cr. 245,000
Distributed to owner Cr. 70,000
Land Cr. 110,000
Share capital Cr. 624,000
Acquisition expenses Dr. 15,500
Share capital Dr. 9,200
Cash Cr. 24,700
The acquisition-related costs are not part of the consideration transferred as those amounts are
not paid to the former shareholders of Man Ltd in exchange of their shares. Therefore, they are
not recognized as part of the investment in Man Ltd: the share issue costs are treated as a
reduction in the share capital (as all the share issue costs), while the remaining costs are
recognized as expenses in the year of acquisition.
Question 3: Consolidated financial statements, method, acquisition, business combination
valuation and intra-group transactions
1. Determine the gain on bargain purchase or goodwill as at acquisition date.
A. Net identifiable assets
Share capital $20,000
Inventory adjusted $950
Retained earnings $6,000
$26,950
Calculation of goodwill as at 31st Dec, 2020:

Goodwill = Considered transferred – Net identifiable assets
= $40,000 - $26,950 = $13,050
2. Prepare the consolidation journal entries for Captain Ltd immediately after
acquisition on 1 January 2020.
Business combination valuation entries
Inventory Dr. 950
Deferred tax liability Cr. 285
Business combination valuation reserve Cr. 665
Accumulated Depreciation – equipment Dr. 40,000
Equipment Cr. 34,000
Deferred tax liability Cr. 1,800
Business combination valuation reserve Cr. 4,200
Goodwill Dr. 6,000
Business combination valuation reserve Cr. 6,000
Pre-acquisition entries
Retained earnings (1/1/20) Dr. 6,000
Share capital Dr. 20,000
Business combination valuation reserve Dr. 11,300
Shares in America Ltd. Cr. 37,300
3. Prepare the consolidation journal entries for Captain Ltd as at 31
December 2020
Pre-acquisition entry 31st Dec, 2020
Retained earnings (31/12/2020) Dr. 17,300
Share capital Dr. 20,000
Shares in America Ltd. Cr. 37,300

4. Prepare the consolidation worksheet for the preparation of the consolidated financial
statements by Captain Ltd as at 31 December 2020.
Consolidated worksheet as at 31st December, 2020
Adjustments
Consolidated
worksheet
Captain Ltd America
Ltd Dr. Cr.
Sales revenue $50,000 $47,200 $97,200
Dividend revenue $2,000 $0 $2,000
Gain on sale of
property, plant and
equipment
$2,000 $4,000
$6,000
Other income $2,000 $4,000 $6,000
Total income $56,000 $55,200 $111,200
Cost of sales $42,000 $36,000 $78,000
Other expenses $6,000 $2,000 $8,000
Total expenses $48,000 $38,000 $86,000
Profit before income
tax
$8,000 $17,200
$25,200
Income tax expense $2,700 $3,900 $6,600
Profit for the period $5,300 $13,300 $18,600
Retained earnings
(1/1/20)
$12,300 $17,300
$29,600
$17,300 $19,300 $36,600
5. Prepare the Consolidated statement of profit or loss and other comprehensive income for the
year ended 31 December 2020.
Consolidated statement of profit and loss
Captain Ltd.
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for financial year ended 31st December, 2020
Income:
Sales revenue $97,200
Dividend revenue $2,000
Other income $6,000
$105,200

Expenses:
Cost of sales $78,000
Other expenses $8,000
$86,000
Trading profit $19,200
Gains (losses) on sale of non-current assets $6,000
Profit before income tax $25,200
Income tax expense $6,600
Profit for the period $18,600
Other items of comprehensive income 0
Comprehensive income $18,600
Question 4 - Non- Controlling interest
1. Determine the gain on bargain purchase or goodwill as at acquisition date using the full
goodwill method. Assume the fair value of the Non-Controlling Interest on 1 July 2015 was
$52,500
Full Goodwill Method:
= Considered transferred + Non-controlling interest – Net identifiable assets + Net adjustment
= $180,000 + $52,500 – (90,000 + 9,000 + 44,000) + $45,000
= $44,500
Carrying Amount Fair Value Adjustment
Inventories $62,000 $79,000 $17,000
Plant (Cost $145,000) 125,000 162,000 $37,000
Accounts Receivables 81,000 72,000 -$9,000
Net adjustment $45,000
2. Determine the gain on bargain purchase or goodwill as at acquisition date using the partial
goodwill method.
Partial goodwill method:
= Considered transferred – Net identifiable assets + Net adjustment
= $180,000 – 75% {(90,000 + 9,000 + 44,000) + $45,000}
= $39,000
3. Prepare the consolidation journal entries for Rocket Ltd using the partial goodwill method at 1
July 2015

Retained earnings Dr. 33,000
General reserve Dr. 6,750
Share capital Dr. 67,500
Adjustment Dr. 33,750
Goodwill Dr. 39,000
Shares in Raccoon Ltd. Cr. 180,000
4. Prepare the consolidation journal entries for Rocket Ltd using the partial goodwill method at
30 June 2020
(a) Business combination valuation entries at 30 June 2020
Inventory Dr. 13,000
Deferred tax liability Cr. 3,900
Business combination valuation reserve Cr. 9,100
Accumulated depreciation – Plants Dr. 20,000
Plants Cr. 20,000
(b) Pre-acquisition entries at 30 June 2020
Retained earnings (1/7/2015) Dr. 44,000
Share capital Dr. 180,000
Business combination valuation reserve Dr. 9.100
Shares in Raccoon Ltd. Cr. 233,100
(c) NCI share of equity at 1 July 2015
Retained earnings (30/6/2020) Dr. 11,000
Share capital Dr. 22,500
General reserve Dr. 9,000
Business combination valuation reserve Dr. 10,000
NCI Cr. 52,500

(d) NCI share of equity changes from 1 July 2015 to 30 June 2019
Retained earnings (1/7/2015) Dr. 1650
Asset revaluation surplus (1/7/2015) Dr. 750
Business combination valuation reserve Cr. 525
NCI Cr. 1875
(e) NCI share of equity changes from 1 July 2019 to 30 June 2020
NCI share of profit Dr. 5325
NCI Cr. 5325
General reserve Dr 375
Transfer to general reserve Cr 375
Gains/Losses on revaluation of non current asset Dr 187.50
NCI Cr 187.50
Transfer from business combination valuation reserve Dr 2 625
Business combination valuation reserve Cr 2 625
NCI Dr 3 000
Dividend paid Cr 3 000