Camberwell Services Ltd: Tax Effect Accounting Assignment Solution

This document presents a comprehensive solution to a company accounting assignment centered on tax effect accounting. The assignment covers various aspects, including calculating the current tax liability, deferred tax assets and liabilities, and preparing relevant journal entries. The solution begins with a detailed current tax worksheet, adjusting the before-tax profit for items like depreciation, entertainment expenses, and government grants to arrive at the taxable profit and current tax liability. It then calculates deferred tax assets and liabilities, considering the differences between accounting and taxable profits, and the tax effects of revaluation gains. The document also provides the necessary journal entries to record the provisions for income tax, deferred tax liabilities, and deferred tax assets. The solution also includes the value of assets and liabilities acquired by Block Limited in Wilson Ltd, along with the purchase consideration and the calculation of goodwill. The document also explains the requirements for parent organizations to prepare consolidated financial statements in accordance with AASB 10, and provides journal entries for the acquisition of assets and liabilities of Wilson Ltd. Further, the document provides solutions for business combinations including calculation of gain on purchase, and consolidation entries. The solution includes detailed workings and calculations, ensuring a clear understanding of the concepts and their application in accounting practice. This assignment demonstrates a solid understanding of tax effect accounting, business combinations, and consolidation principles.

Running head: COMPANY ACCOUTNING
Company Accounting
Name of the Student:
Name of the University:
Authors Note:

1
COMPANY ACCOUTNING
Contents
Answer 1:.........................................................................................................................................2
Answer 2:.........................................................................................................................................7
Part A:........................................................................................................................................11
Part B:........................................................................................................................................11
Answer 3:.......................................................................................................................................13
Answer 4:.......................................................................................................................................24
References:....................................................................................................................................37

2
COMPANY ACCOUTNING
Answer 1:
Question 1:
Requirement 1:
Current tax worksheet
Current tax liability
Particulars Amount ($) Amount
($)
Before tax profit as per Comprehensive income statement 400,493.
00
Add/ (Less): Items of revenue and expenditures
Depreciation on:
Plant 50,000.00
Motor vehicles 55,000.00
Building 8,000.00
Entertainment expenses is not allowed as deduction 18,000.00
Revaluation profit on land is not subjected to income tax
Government grant is not treated as income for start up (10,000.00)
Office supplies expenses and purchases are same at $15,000

3
COMPANY ACCOUTNING
Depreciation allowed for tax purposes on:
Plant (75,000.00)
Motor vehicles (33,000.00)
Bad debt expenses is allowed as deduction
Interest revenue is taxable hence, no adjustment is necessary
Rent revenue is taxable hence, no adjustment is needed
Employee benefit expenses is allowed as deduction Assuming it has been paid
Net increase / (decrease) in profit 13,000.
00
Taxable profit 413,493.
00
Current tax liability @30% 124,047.
90
Less: Total tax paid (Note I) 116,050.
00
Tax payable 7,997.
90

4
COMPANY ACCOUTNING
Tax payable is $7,997.90 as can be seen from the above calculation (Beresford, 2016).
Note I:
Note I:
Tax instalments paid
Instalment date Instalment amount
($)
28.07.2018 22,500.00
28.10.2018 31,420.00
28.02.2019 30,380.00
28.04.2019 31,750.00
Total tax paid for 2018-2019 116,050.00
Requirement 2:
Deferred tax assets as on June 30, 2019
Particulars Amount ($) Amount ($)
Deferred tax assets as on June 30, 2018 40,500.0
0
Add/ (less): For transactions in 2018-19

5
COMPANY ACCOUTNING
Accounting profit 400,493.00
Taxable profit 413,493.00
Deferred tax liability for 2018-19 3,900.0
0
44,400.0
0
Deferred tax liabilities as on June 30, 2019
Particulars Amount ($) Amount ($)
Deferred tax liabilities as on June 30, 2018 38,100.0
0
Add/ (less): For transactions in 2018-19
Tax effects on Revaluation profit on land 30,000.0
0
Deferred tax liability for 2018-19 68,100.0
0
Deferred tax liability is $68,100 (Parker, 2018).
Requirement 3:
Date Particulars Debit ($) Credit ($)

6
COMPANY ACCOUTNING
30-Jun-
19
Profit and loss account 124,047.90
Provisions for income tax 124,047.90
(Being provision for income tax made)
30-Jun-
19
Revaluation profit on land 30,000.00
Deferred tax liabilities 30,000.00
(Being deferred tax liabilities for revaluation profit on land is
recognized)
30-Jun-
19
Deferred tax assets 3,900.00
Provision for income tax 3,900.00
(Being deferred tax assets recognized for difference between
accounting and taxation profit)

7
COMPANY ACCOUTNING
Answer 2:
Value of assets and liabilities acquired by Block Limited in Wilson Ltd
Particulars Amount ($) Amount ($)
Trade receivables 30,000.0
0
Inventory 45,800.0
0
Land 500,000.0
0
Building 725,000.0
0
Plant and machinery 106,000.0
0
1,406,800.00
Less: Provision for environmental restoration 175,000.0
0
Net asset acquired 1,231,800.00
Number of shares issued in Block Limited (120000 x 5) 600,000.0

8
COMPANY ACCOUTNING
0
Value of each share 2.
45
Purchase consideration 1,470,000.00
Internal set off
Number of shares held in Wilson Limited 5,000.0
0
Value of investment 528,500.0
0
Purchase consideration in respect of above (5000 x 5) x 2.45 61,250.0
0
Goodwill:
Purchase consideration 1,470,000.00
Less: net asset acquired 1,231,800.00
Goodwill arising on acquisition 238,200.0
0
Add: Goodwill arising on Investment set off (528500 - 61250) 467,250.0

9
COMPANY ACCOUTNING
0
Total goodwill arising on acquisition 705,450.0
0
Additional payment on the date of acquisition
Issue of additional shares 1,700.0
0
Legal and accounting fees 2,300.0
0
Accrued employee benefits 13,000.0
0
Accrued loan interest 11,250.0
0
Other accrued expenses 762.0
0
Solicitor fees 2,690.0
0
31,702.0
0
Net goodwill arising on acquisition 737,152.0

10
COMPANY ACCOUTNING
0
Net goodwill is $737,152 (Schaefer, 2017).
Part A:
Part B:
Australian Accounting Standards Board (AASB) has issued AASB 10 to state the requirements
for the parent organizations to prepare consolidated financial statements in accordance with the
standard procedures. AASB 10 makes it clear that an entity controlling another entity by
acquiring majority of its shares or by any other means such as controlling the board of the
company must prepare and present consolidated financial statements in accordance with the
guidelines of this standard (Beresford, 2016)..
An entity controlling 51% or more of the share capital of another entity will be considered the
controlling entity or parent company of the latter and is responsible to prepare consolidated
financial statements to report the financial performance and position of the parent and subsidiary
in consolidation (Wilson & Key, 2017).
The assets and liabilities of the parent and subsidiaries must be accumulated as per the due
process along with the amount of revenue and expenditures to prepare and present the
consolidated financial statements of the parent (Wilson & Key, 2018).
Journal entries
Particulars Debit ($) Credit ($)

11
COMPANY ACCOUTNING
Sundry assets:
Trade receivables 30,000.00
Inventory 45,800.00
Land 500,000.00
Building 725,000.00
Plant and machinery 106,000.00
Goodwill (Arising on acquisition) 238,200.00
Provision for environment restoration 175,000.00
Purchase consideration 1,470,000.00
(Being assets and liabilities of Wilson Ltd taken over)
Issue of additional shares 1,700.00
Legal and accounting fees 2,300.00
Accrued employee benefits 13,000.00
Accrued loan interest 11,250.00
Other accrued expenses 762.00
Solicitor fees 2,690.00
Cash 31,702.00