Corporate Accounting Study Material

This study material provides a detailed explanation of various topics in Corporate Accounting. It covers determining taxable income and income tax payable, journal entries for income tax, calculating non-controlling interest, and more. The content also includes journal entries and consolidation worksheet entries for practical understanding.

Corporate Accounting
1

Contents
QUESTION 1..................................................................................................................................3
a) Determining the taxable income and income tax payable.......................................................3
b) Determining increase or decrease of deferred liability and deferred tax asset........................3
c) Journal entries for income tax.................................................................................................4
d) Balances of the deferred tax liability and deferred tax asset...................................................4
QUESTION 2..................................................................................................................................4
Journal entries of Quick Buck Ltd at 1 July 2019.......................................................................4
QUESTION 3..................................................................................................................................5
a) Liala Ltd..................................................................................................................................5
b) Journal entries in 30 June 2017 to eliminate the intra group transfers of equipment..............6
QUESTION 4..................................................................................................................................6
a) Calculating the non-controlling interest as at 30 June 2019....................................................6
b) Journal entries..........................................................................................................................7
QUESTION 5..................................................................................................................................8
a) Table for controlling and non controlling interest...................................................................8
b) Percentage of the voting in Son 7 Ltd that will be controlled by the Daddy Ltd....................9
c) Percentage of the dividend declared by Son 7 Ltd that will be received by the Daddy Ltd....9
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QUESTION 1
a) Determining the taxable income and income tax payable
All amount in $
Particulars Amount ($)
Net profit before tax 80000
Add: Depreciation Expense on plant 7000
Add: Doubtful debt expense 3000
Add: Long service leave expense 4000
Less: Tax depreciation on plant (8000)
Less: Bas debts written off (2000)
Taxable income 84000
Income tax payable (Tax rate 30% * 84000) 25200
b) Determining increase or decrease of deferred liability and deferred tax asset
Increase or decrease in deferred liability due to depreciation
Particulars Amount ($)
Tax depreciation on plant 8000
Depreciation Expense on plant 7000
Increase in deferred liability [(8000 – 7000)*30%] 300
Increase or decrease in deferred liability due to doubtful debts
Particulars Amount ($)
Doubtful debt expense 3000
Bad debts written off 2000
Increase in deferred liability [(3000 – 2000)*30%] 300
Increase or decrease in deferred liability due to long service leave
Particulars Amount ($)
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Long service leave expense 4000
Long service leave paid 0
Increase in deferred liability [(4000)*30%] 1200
c) Journal entries for income tax
Date Particulars L.F. Debit ($) Credit ($)
30 June Income tax expense account Dr. 25200
To current tax liability account 25200
(Income tax being paid)
30 June Deferred tax asset account Dr. 1500
To deferred tax liability account 300
To Income tax expense account 1200
(Tax expense and liability being paid
off)
d) Balances of the deferred tax liability and deferred tax asset
Balance of the deferred tax liability at 30 June 2020 – $300
Balance of the deferred tax asset at 30 June 2020 – $1500
QUESTION 2
Journal entries of Quick Buck Ltd at 1 July 2019
Date Particulars L.F. Debit ($) Credit ($)
1 July Business Purchase Account Dr. 193600
To Eldorado Ltd. 193600
(Business of Eldorado Ltd. purchased by
issuing 8000 shares for $2.40 each and
paid $1600 for costs of issuing the
shares)
1 July Machinery account Dr. 67000
4

Fixtures and fittings account Dr. 68000
Vehicles account Dr. 35000
Current assets account Dr. 12000
Goodwill account Dr. 29600
To current liabilities account 18000
To Business purchase account 193600
(Assets and liabilities of Eldorado Ltd.
acquired and remaining value is paid as
Goodwill)
QUESTION 3
a) Liala Ltd.
(i) Consolidation worksheet entries
Date Particulars L.F. Debit ($) Credit ($)
30 June 2016 Sales account Dr. 12000
To cost of goods sold account 12000
(Intra entity sales)
30 June 2017 Cost of goods sold account Dr. 1600
To Inventory account 1600
(Intra entity inventory transfer)
Retained earnings account Dr. 200
To cost of goods sold account 200
(Being retained earnings gained)
Working notes:
Profit to Liala Ltd. = 12000 – 10000 = $2000
Profit % = 2000 / 12000 = 16.67%
Remaining amount in 2016 = 12000 * 80% = $9600
Unrealised profit (80%) = 9600 * 16.67% = $1600
Unrealised profit (20%) = 6000 * 20% = $1200
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= 1200 * 20 / 120 = $200
(ii) Amount of cost of goods sold
Particulars Amount ($)
Cost of goods sold of 80% inventory 9600
Cost of goods sold of 20% inventory 6000
Less: Unrealised profit (200)
Cost of goods sold 15400
b) Journal entries in 30 June 2017 to eliminate the intra group transfers of equipment
Date Particulars L.F. Debit ($) Credit ($)
30 June 2016 Plant account Dr. 50000
To loss on sale of plant 50000
(Intra entity transfer of plant)
30 June 2017 Plant account Dr. 50000
To loss on sale of plant 50000
(Intra entity transfer of plant. This
elimination process will repeated till
5 years)
QUESTION 4
a) Calculating the non-controlling interest as at 30 June 2019
Particulars Amount ($)
Inventory selling price 120000
Less: Inventory costs (60000)
Profit 60000
Less: Tax expense @ 30% (60000*30%) (18000)
Net profit 42000
Unrealised profit (42000 * 25% unsold stock) 10500
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Selling price of Equipment of plant 80000
Less: Value of Equipment of plant (60000)
Profit 20000
Less: Tax expense @ 30% (20000 * 30%) (6000)
Net profit 14000
Unrealised profit (14000 * 75% remaining useful life of equipment) 10500
Profit of the firm 200000
Less: Unrealised profit on unsold stock (10500)
Less: Unrealised profit on Equipment of plant (10500)
Adjusted profit 179000
Less: Non controlling share (179000 * 20%) 35800
Share of Giant Limited 143200
Particulars Amount ($) Net Amount ($)
(Amount * 20% non-
controlling share)
Share Capital 800000 160000
Retained earnings 200000 40000
General Reserves 400000 80000
Adjusted profit 179000 35800
Non controlling interest (Total) 315800
b) Journal entries
Date Particulars L.F. Debit ($) Credit ($)
Share Capital Dr. 160000
Retained earnings Dr. 40000
General Reserves Dr. 80000
To investment in subsidiary’s equity 280000
To Non controlling share 35800
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(Non controlling share being
recognised)
QUESTION 5
a) Table for controlling and non controlling interest
Daddy
interest
Son 1 Son 4 Son 2 Son 5 Son 7 Son 6 Son 3
Direct % 80% 0 80% 0 0 5% 27%
Indirect % 0 56%(1) 0 68%(2) 64.60%(3) 41.60%(4) 0
Non
controlling
interest
Direct % 20%(5) 30%(6) 20%(7) 15%(8) 5%(9) 40% 73%
Indirect % 0 14%(10) 0 17%(11) 30.40%(12) 13.40%(13) 0
Total 100% 100% 100% 100% 100% 100% 100%
(1) – 80 * 70% = 80%
(2) – [(80 * 30%) + (80 * 55%)] = 44 + 24 = 68%
(3) – [(44 * 95%) + (24 * 95%)] = 41.8 + 22.8 = 64.60%
(4) – [(80 * 45%) + (56 * 10%)] = 36 + 5.6 = 41.60%
(5) – 100 – 80 = 20%
(6) – 100 – 56 – 14 = 30%
(7) – 100 – 80 = 20%
(8) – 100 – 68 – 17 = 15%
(9) – 100 – 64.60 – 30.4 = 5%
(10) – 70 * 20% = 14%
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(11) – [(55 * 20%) + (30 * 20%)] = 11 + 6 = 17%
(12) – [100(24 + 44)] = 32 * 95% = 30.40%
(13) – [100 – 56] = 44 * 10% = 4.4%
45 * 20% = 9%
4.4 + 9 = 13.40%
b) Percentage of the voting in Son 7 Ltd that will be controlled by the Daddy Ltd
64.60%
c) Percentage of the dividend declared by Son 7 Ltd that will be received by the Daddy Ltd
5%
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