Detailed Solutions for Company Accounting 2019 Assignment Questions

This document presents a comprehensive solution to a company accounting assignment. It addresses multiple questions, including detailed journal entries, computations for deferred tax assets and liabilities, and the application of accounting principles to business combinations. The solution includes calculations for taxable income, deferred tax, and the impact of various transactions on financial statements. Furthermore, it provides an in-depth analysis of business combinations, outlining the necessary steps for recording assets, liabilities, and goodwill. Additional questions delve into consolidated financial statements, requiring journal entries to eliminate intercompany transactions and unrealized profits. The assignment also considers the impact of depreciation, impairment, and dividends on the financial statements. The document includes thorough explanations, making it a valuable resource for students studying company accounting.

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
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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
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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
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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
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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)
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Company Accounting 2019
Answer to Question No.2 (Part B)
Business Combination
A business combination is essentially an event or transaction where an
acquirer acquires control of either one or over one business. Further, a
business can be defined as a set of integrated assets and activities, which
are capable of being managed and conducted with an intention of offering a
return to the investing members or other participants, owners and members.
Generally, business combinations refer to transactions in which one company
gains control, or at least controlling interest, in another company. A business
combination can be aptly defined as amalgamation of the assets of two or
more business entities for their consolidation as a single entity under single
ownership. A business combination can be managed easily through the way
of a voluntary acquisition, a merger, or a hostile takeover. A business
combination is not a part or creation of new joint venture neither it involves
acquiring an asset which do not form part of business. (AccountingTools.com,
2019)
Three important aspects of business definition are that a business consists of
inputs and processes applied to those inputs that have the ability to create
outputs. Only Purchasing of some asset or liabilities does not amount to
business combination.
Different forms of business combination that might take are
(I) Vertical combination
(II) Horizontal combination
(III) Circular combination
(IV) Diagonal combination
A combination of different business who is involved in the manufacturing and
distribution of different product. (Merriam-Webster, 2019)
A combination of business who are engaged in the manufacturing of same
type of products. For example, Holcim group and Lafarge Cement.
When the firm is involved in manufacturing different types of product
together it is known to be mixed or circular combination. (Sai, 2019)
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Company Accounting 2019
A diagonal business combination means the combination in which two or
more entity performing the said services under the one management.
Answer to Question No.3 (1)
All amount in $
Computation of Surplus on Fair Valuation
Particulars Carrying
Amount
Fair
Valuation
Surplus/
(Deficit)
Plant (cost $300,000) 186,000 190,000 4,000
Trademark 100,000 110,000 10,000
Inventory 70,000 80,000 10,000
Equipment (cost $80,000) 50,000 53,000 3,000
Land 50,000 70,000 20,000
Machinery (cost $18,000) 15,000 16,000 1,000
Fittings (cost $15,000) 10,000 10,000 -
Goodwill 25,000 (25,000)
Guaranteed Payable (“d”) - 10,000 (10,000)
Total Fair Valuation Surplus/(Deficit) 13,000
Computation of Fair Vale of Net Identifiable assets acquired
Particulars Amount ($)
Share capital 200,000
General reserve 25,000
Retained earnings 45,000
Fair Valuation Surplus 13,000
Dividend Payable (Since acquired on cum-div) 10,000
Total 293,000
Goodwill = Cost of Investment in shares of Fish Limited – Fair Value of Net Identifiable assets
= $ 320,000 - $293,000
= $ 27,000
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Company Accounting 2019
Answer to Question No.3 (2) & (3)
In the books of Cat Limited
Journal Entries
Journal
Ref.
Date Particulars Debit ($) Credit ($)
01 Jul 2017 Equity Share Capital 200,000
General Reserve 25,000
Retained Earnings 45,000
Dividend Payable 10,000
Goodwill on Acquisition 27,000
Business Combination Valuation Reserve
(BCVR)
13,000
Investment in Fish Limited 320,000
(Being Investment and equity share knock
off entry on consolidation and recording of
Goodwill and BCVR)
(a) 30 Jun 2019 Retained Earnings 38,000
Depreciation Expenses – Plant 38,000
Accumulated Depreciation - Plant 76,000
(Being Depreciation on plant for 5-year life
at acquisition date and was expected to be
used on a straight-line basis over that
time)
Deferred Tax Asset 22,800
Retained Earnings 11,400
Tax Expenses 11,400
(Being Tax effect of above entry)
(c) 30 Jun 2019 Retained Earnings 4,000
Depreciation Expenses – Machinary 3,000
Accumulated Depreciation - Machinary 7,000
(Being Depreciation on plant for 4-year life
at acquisition date, was sold on 1 January
2019)
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Company Accounting 2019
In the books of Cat Limited
Journal Entries
Journal
Ref.
Date Particulars Debit ($) Credit ($)
Deferred Tax Asset 2,100
Retained Earnings 1,200
Tax Expenses 900
(Being Tax effect of above entry)
(d) 30 Jun 2019 Retained Earnings 4,000
Guaranteed Payables 4,000
(Being the balance of this liability was still
considered to be $4,000 at 30 June 2019)
(e) 30 Jun 2019 Retained Earnings 11,700
Patents 9,000
Deferred Tax Liability 2,700
(Being recording of impairment on Patent
and tax impact theron)
30 Jun 2019 Cash 17,000
Retained Earnings 17,000
(Being Sale of patent on 1 January 2019,
for $17,000)
(g) 30 Jun 2019 Retained Earning 3,500
Deferred Tax Assets 1,500
Goodwill 5,000
(Being Goodwill was written down by
$5,000 at 30 June 2018 by Cat Ltd as a
result of an annual impairment test and
tax effect on the same)
Additional
(a) 30 Jun 2019 Retained Earning 5,000
Interim Dividend 5,000
(Being the interim dividend of $5,000 was
paid by Fish Ltd in the current year)
(b) No Entry required
(c) 30 Jun 2019 Plant 10,000
Deferred Tax Asset 1,500
Retained Earning 3,500
Inventory 15,000
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Company Accounting 2019
In the books of Cat Limited
Journal Entries
Journal
Ref.
Date Particulars Debit ($) Credit ($)
(Being elimination of plant transferred and
lying unsold with tax effect on the same)
(d) 30 Jun 2019 Sales 9,000
Cost of Sales 9,000
(Being elimination of intra group sales)
(d) 30 Jun 2019 Retained Earning 210
Deferred Tax Asset 90
Inventory 300
(Being elimination of unrealized profit on
unsold inventory transferred)
(e) 30 Jun 2019 Sales Revenue 18,000
Cost of Sales 14,000
Inventories 4,000
(Being Intra group sales elimination)
Deferred Tax Assets 1,200
Retained Earnings 1,200
(Being Tax effect on above entries)
(f) 30 Jun 2019 Retained Earning 1000
Furniture 1000
(Being Profit on sale of furniture to be
eliminated)
Depreciation Expenses – Furniture 1000
Accumulated Depreciation – Furniture 1000
Current Tax Liability 300
Tax Expenses 300
(Being depreciation on furniture recorded
and tax effect on same)
(g) 30 Jun 2019 Gain on Sale of Land 25,000
Deferred Tax Assets 7,500
Land 25,000
Retained Earning 7,500
(Being eliminate profit on sale of land and
tax impact theron)
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Company Accounting 2019
In the books of Cat Limited
Journal Entries
Journal
Ref.
Date Particulars Debit ($) Credit ($)
Loan to Fish Limited 12,000
Loan from Cat Limited 12,000
(Being inter company loan elimination)
(h) 30 Jun 2019 Sales Revenue 12,000
Cost of Sales 9,000
Plant 3,000
(Being elimination of intercompany sale of
plant)
Depreciation expenses – Plant 450
Accumulated depreciation – Plant 450
(Being depreciation on plant provided)
Current Tax Liability 1,035
Income tax expenses 1,035
(Being tax effect on above entries)
(i) 30 Jun 2019 Gain on sales of motor vehicle 10,000
Motor vehicle 10,000
(Being elimination of intra group profit on
sale of motor vehicle)
Retained Earning 1000
Depreciation – Motor Vehicle 2000
Accumulated Depreciation – Motor
Vehicle
3000
(Being depreciation provided on Motor
Vehicle transferred)
Deferred Tax Assets 300
Current Tax Liability 600
Tax Expenses 600
Retained Earning 300
(Being tax effect on above entries)
30 Jun 2019 Dividend Payable 4,000
Final dividend 4,000
(Being elimination of final dividend of Fish
Ltd.)
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