Company Accounting 2019: Business Combination, Surplus on Fair Valuation

Company Accounting 2019
Table of Contents
Answer to Question No.1............................................................................................................................3
Answer to Question 1 (1).........................................................................................................................3
Answer to Question 1 (2).........................................................................................................................3
Answer to Question 1 (3).........................................................................................................................4
Answer to Question 1 (4).........................................................................................................................4
Answer to Question No.2 (Part A) (1)..........................................................................................................5
Answer to Question No.2 (Part A) (2)..........................................................................................................6
Answer to Question No.2 (Part B)...............................................................................................................7
Business Combination.............................................................................................................................7
Answer to Question No.3 (1).......................................................................................................................8
Answer to Question No.3 (2) & (3)..............................................................................................................9
Answer to Question No.3 (4).....................................................................................................................13
Answer to Question No.3 (5) (a)................................................................................................................14
Answer to Question No.3 (5) (b)................................................................................................................15
Answer to Question No.3 (5) (c)................................................................................................................16
Answer to Question No.4 (1).....................................................................................................................17
Answer to Question No.4 (2).....................................................................................................................18
Answer to Question No.4 (3).....................................................................................................................18
Answer to Question No.4 (4).....................................................................................................................19
Answer to Question No.4 (5).....................................................................................................................20
Bibliography...............................................................................................................................................23
Name of the Student Page 2

Company Accounting 2019
Answer to Question No.1
Answer to Question 1 (1)
In the books of Baby Shark Limited
Journal Entries
Date Particulars Debit ($) Credit ($)
30 June 2019 Retained Earnings 1,800
Deferred Tax Assets 1,800
(Being deduction of earlier years disallowed by
Australian Tax Officer)
Answer to Question 1 (2)
Baby Shark Limited
Computation of Tax for the year ended 30 June 2019
Particulars Amount ($) Amount ($)
Profit before tax (A) 92,550
Add: Expenses Disallowed in Tax (B)
Carrying amount of plant sold 30,000
Amortization of development costs 15,000
Depreciation expense - equipment 5,500
Depreciation expense – plant 24,000
Provision for employee benefits (Incremental Provision) 4,400
Doubtful debts expense 8,100
Entertainment expense 13,200
Goodwill impairment 2,000
Insurance expense 12,900
Proceeds from sale of plant 33,000
Warranty expense 1,500
Accrual for accounting fees (“g”) 4,500 154,100
Less: Expenses Allowed/Income Exempt in Tax (C)
Proceeds from sale of plant 33,000
Government grant (exempt income) 2,200
Development expenditure (125% of 45,000) (“j”) 56,250
Plant Depreciation (“d”) 28,800
Equipment Depreciation (“e”) 7,000
Carrying amount of plant sold (“c”) 26,000
Doubtful Debts 7,900
Warranties 600
Insurance Expenses (Paid in Current Year) 10,700 172,450
Taxable Income (A+B-C) 74,200
Tax on above @ 30% 22,260
Name of the Student Page 3

Company Accounting 2019
Answer to Question 1 (3)
All amounts in $
Baby Shark Limited
Computation of Deferred Tax for the year ended 30 June 2019
Particulars
Carrying
Amount as
per Books
(2019)
Taxable in
Future
Deductible in
Future Tax Base
Temporary
Difference
(Taxable)
Temporary
Difference
(Deductible)
Assets
Cash 15,500 15,500
Trade receivable 31,800 27,100
Inventory 21,000 21,000 21,000
Prepaid insurance 3,400 3,400 3,400
Development costs 45,000 45,000 45,000
Plant – at cost 105,600 80,720 24,880
Equipment – at cost 33,500 23,000 10,500
Land – at fair value 450,000 250,000
Goodwill 2,000
Other debtors 142,400
Liabilities
Provision for employee
benefits
14,100 14,100 14,100
Provision for warranties 3,100 3,100 3,100
Borrowings 150,000 150,000
Other creditors 12,000 12,000
Temporary Differences for deferred Tax 83,780 17,200
Deferred Tax Asset @ 30% 5,160
Deferred Tax Liability @
30%
25,134
Balances as on 30 June
2018
42,804 10,140
Net Movement (17,670) (4,980)
Answer to Question 1 (4)
In the books of Baby Shark Limited
Journal Entries
Date Particulars Debit ($) Credit ($)
30 June 2019 Deferred Tax Liabilities 17,670
Deferred Tax Assets 4,980
Income Tax Expenses 12,690
Name of the Student Page 4

Company Accounting 2019
(Being Deferred Tax Entry done in books)
Answer to Question No.2 (Part A) (1)
Computation of Net Identifiable Assets on Fair Valuation
Particulars Carrying
Amount
Fair
Valuation Variation
Assets
Trade receivables 46,800 46,800 -
Inventory 23,200 28,000 4,800
Plant 101,800 112,000 10,200
Land 20,800 35,800 15,000
Brand Value - 10,000 10,000
Total assets 192,600 232,600 40,000
Liabilities
Trade payables 24,800 24,800 -
Provisions 24,000 24,000 -
Loans 17,200 17,200 -
Interest on Loan - 22,800 22,800
Annual Leave not recognised - 13,000 13,000
Total liabilities 66,000 1,01,800 35,800
Net Identifiable Assets acquired = $232,600 - $ 101,800 = $1,30,800
Sl.
No.
Computation of Purchase Consideration to acquire all the assets of Smuckos Ltd
Particulars Amount ($)
a. Shares issued to A Ordinary Shares of Scruffy Ltd 86,400
(60,000/3*2*$2.16)
b. Artworks to the owners of the B ordinary shares held in Smuckos Ltd. 58,000
c. Cash Paid to pay off the following liabilities in Books:
Trade payables 24,800
Loans 17,200
Interest on Loan 22,800
Liquidation Costs 4,000
Annual Leave not recognised 13,000
Total Purchase Consideration 226,200
Goodwill = Total Purchase Consideration – Net Identifiable Assets acquired
= $ 226,200 - $ 130,800
Name of the Student Page 5

Company Accounting 2019
= $ 95,400
Answer to Question No.2 (Part A) (2)
In the books of Scruffy Limited
Journal Entries
Date Particulars Debit ($) Credit ($)
01 Dec 2019 Business Combination 226,200
Vendors of smuckos Ltd 226,200
(Being Purchase Consideration due entry)
01 Dec 2019 Trade receivables 46,800
Inventory 28,000
Plant 112,000
Land 35,800
Brand Value 10,000
Goodwill 95,400
Trade payables 24,800
Provisions 24,000
Loans 17,200
Interest on Loan 22,800
Annual Leave not recognised 13,000
Business Combination 226,200
(Being Assets and Liabilities taken over recorded in
books)
01 Dec 2019 Vendors of smuckos Ltd 226,200
Equity Share Capital 40,000
Share Premium Account 46,400
Artwork 58,000
Cash 81,800
(Being Purchase consideration paid)
01 Dec 2019 Legal and Accounting Cost 800
Share issue expenses 400
Cash 1,200
(Being Legal and Accounting cost and share issue
expenses incurred)
Name of the Student Page 6