ACC-ACF2100 Take-home Test Solution: Financial Accounting, 2020

This document presents a comprehensive solution to the ACC-ACF2100 take-home test, focusing on financial accounting principles and their application. The solution includes detailed journal entries for various transactions, such as share applications, allotments, and preference share redemptions. It also features a current tax worksheet, calculating taxable profit and tax liability based on accounting profit and relevant adjustments. Furthermore, the document addresses deferred tax implications, explaining the impact of bad debts and providing journal entries for tax adjustments. The solution incorporates analysis of financial statements and addresses key accounting concepts like bad debts and deferred tax, offering a thorough understanding of the financial accounting principles examined in the take-home test.

Questions

Table of Contents
Question 2.............................................................................................................................................3
Question 3.............................................................................................................................................4
Question 4.............................................................................................................................................4

Question 2
Date Journal entry DR/
CR
Amount Amount
31/03/2020 Bank A/c Dr 26,70,000
To Equity share Application A/c Cr 26,00,000
To 10% Redeemable preference share
application A/c
Cr 70,000
(Being Application money received for
13,00,000 equity share and 35,000 fully
payable 10% preference share)
1/04/2020 Equity Share Application A/c Dr 26,00,000
To Equity Share Capital A/c Cr 20,00,000
To Equity Share Allotment A/c Cr 6,00,000
(Being share application money transferred to
capital account)
02/04/2020 10% Redeemable preference share application
A/c
Dr 70,000
Underwriter’s A/c Dr 30,000
To 10% Redeemable preference share capital
A/c
Cr 1,00,000
(Being 50,000 10% preference share issued)
30/04/2020 Equity Share Allotment A/c Dr 20,00,000
To Equity Share Capital A/c Cr 20,00,000
(Being allotment amount due)
30/04/2020 Bank A/c Dr 18,00,000
To Equity Share Allotment A/c Cr 18,00,000
(Being Balance Allotment amount received)
30/04/2020 Bank A/c Dr 23,500
To Underwriter’s A/c Cr 23,500
(Being application of Preference shares
received from underwriter less commission)
01/10/2020 Bank A/c Dr 3,50,000
Equity Share capital A/c Cr 3,50,000
(Being Right shares issued)
01/11/2020 10% Preference share capital A/c Dr 1,00,000
Premium on redemption of 10% preference
share A/c
Dr 5,000
To 10% Preference shareholder A/c Cr 1,05,000
(Being amount payable on redemption of

preference share transferred to share holders)
01/11/2020 10% preference shareholder A/c Dr 1,05,000
To P&L A/c Cr 1,05,000
Question 3
Current Tax Worksheet for the year ended 30 June 2020
Accounting profit before income tax 54,000
Add:
Fines and penalties expense 1,500
Bad debts expense 4,150
Depreciation expense – Plant 24,000
Rent expense 7,700
Annual leave expense 8,500
45,850
99,850
Deduct:
Government grant (exempt from tax) 3,500
Tax deduction for plant 28,800 32,300
Taxable profit 67,550
Add exempt Income 3500
Taxable profit 68,050
Tax Liability @30% 20,415
Income Tax Expenses A/c Dr 20415
To Current Tax liability Cr 20,415
Question 4
4.1 Bad debt is an amount which is not received from a company’s debtors it is an amount
which is to be recovered from debtors, company make provision in the name of doubt full
debts for those debtor which company think will fail to pay. As per income tax a company
can claim deduction for all non deductible expenses. In the above case company does not
write off any bad debts so it can not claim any deduction. So this will have no impact on the
current liability tax as it cannot claim any deduction because it did not write off any bad
debts.

In the case of deferred tax it will be created as a deferred tax liability as company has to pay
tax on this amount, if it would have written off even a partial amount than it will be eligible
to claim deduction.
4.2. a.) Journal Entry for current Tax adjustment
Income Tax Expenses A/c Dr 9507
To Current Tax Expenses Cr 9507
4.2. b.) Journal Entry for movement of deferred tax asset and deferred tax liability
Current Tax expenses A/c Dr 9507
Deferred Tax assets Dr 90
To Income Tax payable Cr 9597