Tutorial Questions 2

This document provides answers to tutorial questions on various topics such as income tax payable, journal entries for income tax accounting, consolidated worksheet entries, non-controlling interest calculation, and more. It includes detailed explanations and calculations for each question.

Tutorial Questions 2

Contents
MAIN BODY...................................................................................................................................4
Question 1:.......................................................................................................................................4
Determining the net aggregate income tax payable for year before 30 Jun. 2020:................4
Determining by what sum deferred liability balances as well as deferred tax assets would rise
or decline for year to Jun 30, 2020 due to the depreciation amount, doubtful debts and
other long-service leave:.........................................................................................................4
Making the journal entries needed to account income tax, so the recognition requirements are
fulfilled:..................................................................................................................................5
Deferred tax liabilities account balances and deferred tax assets as on June 30, 2020:.........5
Question 2:.......................................................................................................................................5
1. On July 1, 2019...................................................................................................................5
2. On July 1, 2019...................................................................................................................6
Question 3........................................................................................................................................6
a).............................................................................................................................................6
i) Preparing consolidated worksheet entries with respect to Liala Ltd as on 30th Jun. 2017 with
regards to intragroup transfers of inventories:........................................................................6
ii) Computation of figure of the cost of goods sold which is to be stated within consolidated
income statements for year 2017 with respect to intra-group revenues:................................7
b) Entering journal entries as of 30 Jun. 2017 to minimise or eliminate any intra-group
transfers of equipment:...........................................................................................................8
Question 4:.......................................................................................................................................9
a) On the basis of given information, computing non-controlling interest sum as on 30th Jun
2019:.......................................................................................................................................9
b) Making required journal entries to identify sum of non-controlling interest as on 30th Jun,
2019:.....................................................................................................................................10
Question 5:.....................................................................................................................................10
(a) Reproducing and completing the provided controlling as well as non-controlling interests
table along with required calculations:.................................................................................10
(b) Percentage figure of voting in Son 7 Ltd which is controlled by Daddy Ltd:................11

(c) Percentage figure of dividend being declared by the Son 7 which is to be received by the
Daddy Ltd:............................................................................................................................11

MAIN BODY
Question 1:
Determining the net aggregate income tax payable for year before 30 Jun. 2020:
Current Tax work sheet for year ended 30th June, 2020
Details Amounts ($) Amounts ($)
Profit before deducting income tax $ 80,000
Addition:
Doubtful debts exp. $ 3,000
Depreciation expense-plant $ 7,000
long-service leave expense $ 4,000 $ 14,000
$ 94,000
Less:
Bad debts written off $ 2,000
Tax Depreciation - Plant $ 8,000 $ 10,000
Taxable Income $ 84,000
Current Tax liability @ 30% $ 25,200
Determining by what sum deferred liability balances as well as deferred tax assets would rise or
decline for year to Jun 30, 2020 due to the depreciation amount, doubtful debts and other long-
service leave:
Deferred tax liability: "Deferred tax liabilities relates to sum of temporary discrepancies
between balance sheet profits and taxable profits, primarily in contrast to higher amount
of deductions made in prior years towards risk and making provisions and valuation of
the tangible non-material items. Deferred tax assets and liabilities generally offset where right to
repay current tax assets for the associated deferred tax liabilities are legitimately revocable.
"Substitute tax credits" is tax charged for release for taxation purposes of the goodwill reported
in past years, covering advance payments of existing taxes.
Deferred tax asset: This is Business asset that typically occurs either when Business
has advance taxes paid. These taxes are reported on balance sheet as just an income, and are

either paid it back to corporation or excluded from expected taxes. Those are the ones generated
because of disparity in time between book profits and taxable profits. That's because certain
products are permitted to be deducted from taxable income but some aren't deducted from them.
Increase in amount of deferred tax liability because of the depreciation = ($ 8000 - $ 7000) x 30
percent = $ 300
Increase in amount of deferred tax assets because of the doubtful written off = ($ 3000 - $2 000)
x 30 percent = $ 300
Increase in amount of deferred tax assets because of the long service leave = ($ 4000 - $ 0) x 30
percent = $ 1,200
Making the journal entries needed to account income tax, so the recognition requirements are
fulfilled:
Income tax expense Dr. $25,200
To Current tax liability $25,200
Deferred tax liabilities account balances and deferred tax assets as on June 30, 2020:
Deferred tax liability (closing balance) = Opening balance plus increment in deferred tax liability
= $ 18,000 + $ 300 = $ 18,300
Deferred tax assets closing balance = Opening balance + increase in deferred tax assets
= $ 15,000 + $ 1,500 = $ 16,500
Question 2:
1. On July 1, 2019
Machinery Dr $67,000
Fixture & Fittings Dr $68,000
Vehicles Dr $35,000
Current assets Dr $12,000
Goodwill Dr $28,000
To Current liabilities $18,000
To Share Capital (80,000 × $1) $80,000
To Paid in capital in excess of par {80,000 × ($2.40 - $1)} $112,000
(Being the acquisition is recorded)

We have debited all assets for reporting this as this increased asset values as well as credited
liabilities including stockholder equity, since it also enhanced.
2. On July 1, 2019
Paid in capital in excess of par $1600
To Cash $1600
(Being the share issuance cost is recorded)
We have debited paid in capital towards reporting this, because it decreased the shareholder
equity as well as credited cash because it decreased the assets.
Working notes:
For goodwill amount = Purchase considerations less net value of identifiable assets
= $ 192,000 - $ 164,000
= $ 28,000
The net identifiable asset come from = $ 67,000 + $ 68,000 + $ 35,000 + $ 12,000 - $ 18,000
= $ 164,000
Question 3
a)
i) Preparing consolidated worksheet entries with respect to Liala Ltd as on 30th Jun. 2017 with
regards to intragroup transfers of inventories:
1) Upstream
Here, following are key consolidated worksheet entries required to be passed
with respect to Lials ltd:
30 June, 2016 Sales A/c 12000
Cost of goods sold A/c 12000
(Being inter subsidiary sales are eliminated)
Calculation of unrealized Gross profit in inventory as on 30th June,2016
Profit Margin = 2000/12000 = 16.67 percent
80 percent of remaining year 2016
12000 x 80 percent = 9,600

Calculation of unrealized profit:
9,600 x 16.67 percent = 1,600
Costs of goods sold A/c 1600
Inventory A/c 1600
(To eliminated intra gross profit in ending inventory)
As on 30th June, 2017
No elimination here of the inter-corporation profit is required, since all the
related company benefit has been gained through reselling of the goods
to external party throughout current period.
2) Downstream
Computation of the unrealized profits:
20% remaining in hand = 6000 x 20 percent
$1,200
Unrealized profit = (1200 x 20/120)
$200
Date Particular Debit $ Credit $
Retained earnings 200
To Cost of goods sold 200
(To record the retained earnings)
ii) Computation of figure of the cost of goods sold which is to be stated within consolidated
income statements for year 2017 with respect to intra-group revenues:
Consolidated Income statement: Consolidated income statement which incorporates the sales,
expenses and profits of parent corporation and subsidiaries. Consolidated statements of income
show the aggregated description of whole company instead of its separate parts. Any sum owed
between the corporations involved in the declaration shall not be regarded. Private corporations
have very fewer standards for filing financial statements, but public corporations must publish
financial statements in compliance with the GAAP of Financial Accounting Standards Board.
Whenever a corporation reports globally, it should also comply with IFRS/IAS requirements set

down by relevant authorities. All GAAP and IFRS provide different requirements for businesses
who want to disclose consolidated accounts to subsidiaries. Generally, consolidation of income
statements needs a company to incorporate and merge all its revenue recognition functions in
attempt to generate annual financial reports showing outcomes in balance sheet and income
statement. Decisions to file consolidated accounts with subsidiary companies is generally made
on year-by-year basis but is often determined on basis of taxes or other benefits that occur. The
conditions for reporting consolidated financial statement including subsidiaries are largely
determined by amount of equity of parent company in subsidiary.
Steps to assess cost of goods sold that is to be recorded in company’s consolidated Income
statement:
Details Amount in $
Cost of goods sold of Upstream 9600
Add: Cost of goods sold downstream 6000
15600
Less: Unrealized profits -200
Cost of goods sold in consolidated Income statement 15400
b) Entering journal entries as of 30 Jun. 2017 to minimise or eliminate any intra-group transfers
of equipment:
Consolidation Journal Entry:
1. Corporation records Plant at amount of $150,000 that is acquisition/purchase price.
2. At period ended, intra-entry impact of such transaction required to be eliminated to fulfil
consolidation purposes.
Date Particulars Debit $ Credit $
Plant 50000
To loss on sale of plant 50000
(Being eliminating impacts of intra-entity
transfers of plant)
Note:
For each subsequent consolidation till plant is being sold, elimination process must
be repeated
Date Particulars Debit $ Credit $

Plant 50000
To loss on sale of plant 50000
(Being eliminating the impacts of intra- entity
transfer of plant)
Question 4:
a) On the basis of given information, computing non-controlling interest sum as on 30th Jun
2019:
Non-controlling interest: Non-controlling interest, often regarded as the minority interest, is type
of ownership which the shareholder holds below 50% of the outstanding equity and has no
controlling over decisions. Sum of Non-controlling interest is calculated at the entity's net-asset
value and therefore do not reflect future voting rights. There are usually two forms of the non-
controlling interests: direct non-controlling interests and indirect non-controlling-interests.
Herein, Direct non-controlling-interest shall obtain a proportionate share of all the pre-and post-
acquisition declared equity of the subsidiary. Indirect non-controlling-interest shall only obtain a
proportionate share of the sums of the subsidiary after acquisitions.
Non-controlling interest as on 30/06/2019
Details Total
Share
percenta
ge Amount
Share Capital $ 800000 20%
$
160,000
Profits & reserves
Retained earnings $ 200000 20% $ 40,000
General reserves $ 400000 20% $ 80,000
Profit of the year June 2019 $ 179000 20% $ 35,800
Non-Controlling interest as at 30/06/2019
$
315,800
Working Notes
Details Amount
Profit after taxation of year $ 200,000
Less: Unrealized gain/profit on stock (inter-
company) $ 10,500

Less: Profit on sale of machinery $ 10,500
Adjusted Profit $ 179,000
Sharing of Non-controlling stakeholders @ 20
percent $ 35,800
Sharing of Giant Ltd 80% $ 143,200
Stock Reserves on unsold inventories
Details Amount
Sales $ 120,000
Less: Cost $ 60,000
Profit before tax $ 60,000
Tax @ 30% $ 18,000
Profit after tax $ 42,000
Unsold stock 25 percent
Unrealized Profit $ 10,500
Net gain on sales of machinery
Particulars Amount
Sales $ 80,000
Less: Cost $ 60,000
Profit before tax $ 20,000
Tax @ 30% $ 6,000
Undepreciated life (3 years from 4 years) 75 percent
Unrealized profit $ 10,500
b) Making required journal entries to identify sum of non-controlling interest as on 30th Jun,
2019:
Particulars Debit Credit
Share Capital A/c
Retained earnings A/c
General reserves A/c
Profit of the year A/c /
$ 160,000
$ 40,000
$ 80,000
$ 35,800

Non-controlling interest A/c
(being non-controlling interest recognized)
$ 315,800
Question 5:
(a) Reproducing and completing the provided controlling as well as non-controlling interests
table along with required calculations:
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% 0% 68% 64.60% 41.60% 0%
Non-controlling
interest
Direct % 20% 30% 20% 15% 5% 40% 73%
Indirect % 0% 14% 0% 17% 20.40% 13.40% 0%
Total 100% 100% 100% 100% 100% 100% 100%
Working note:
Daddy Interest Son 1 Son 4 Son 2 Son 5 Son 7 Son 6 Son 3
A. Direct%
B. Indirect% (80 *
70%)
(80*55%)
+
(80*30%)
(Son5 *
95%)
(70*10%)
+
(80*45%)
C. Non-
controlling
interest
D. Direct % (100-80) (100-
70)
(100-
80)
(100 – 55
+ 30)
(100 –
95)
(100 – 45
+ 5 + 10)
(100 – 27)
Indirect % Balancing
figure
(100 – (A
+ D)
- - - - - -
(b) Percentage figure of voting in Son 7 Ltd which is controlled by Daddy Ltd:
Daddy Ltd. having aggregate 64.60% of voting rights in Son 7
(c) Percentage figure of dividend being declared by the Son 7 which is to be received by the
Daddy Ltd:
Daddy Ltd. Would receive aggregate of 25.40% of the total dividend amount declared by the Son
7.