Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Colbeck Castle Limited ( CCL ) is a distributor of household products, located in Colbeck Hills, Portland. The company has three divisions, Kitchen, Bathroom and

Colbeck Castle Limited (CCL) is a distributor of household products, located in Colbeck Hills, Portland. The company has three divisions, Kitchen, Bathroom and the Luxury division. The company was incorporated on the 1st of January 2019 with a share capital of 12,000,000 ordinary shares of $4. On the date of the incorporation the company acquired two (2) delivery trucks at a cost of $12,000,000 each and decided to depreciate the trucks using the units of output method. The company planned to keep the trucks for a useful life of 300,000 miles each. The residual value of each truck is estimated to be $1,000,000.
On January 1,2020 CCL issued 8% convertible bonds at their nominal value of $27,000,000. The bonds are convertible at any time up to maturity into 50 ordinary shares for each $600 of bond. Alternatively, the bonds will be redeemed at par after 4 years. Similar non-convertible bonds carry an interest rate of 10%. On January 12021, the company issued 2,000,000 ordinary shares at a price of $5.50 which was fully subscribed. This was followed by a bonus issue of 1 share for 5 held on that date, funding came from the share premium account which at that date had a balance of $1,700,000 and retained earnings a balance of $2,520,000. Management of the company decided on the 30 November 2022 to close down the Luxury division because it was deemed to be under performing. Management held a meeting with the employees of this division in March 2023 and informed of its impending actions. The employees were informed that a buyer has been located and the sale would be completed by May 2023. The division was sold on 15 May 2023 for $150,000,000. On June 30,2022 one of the delivery trucks is involved in an accident and is sold for $700,000.CCL replaces this truck with a new truck at a cost of $11,000,000. The residual value of this truck will $1,200,000 after it is used for 300,000 miles. On January 1,2023 the directors of the company decided to acquire a specialised computer system under a five (5)-year lease commencing on that date. The computer systems remaining expected useful life is six (6) years. Five (5) payments are due to the lessor in the amount of $2,700,000 per year beginning December 31,2023. The lessees incremental borrowing rate is 15% and the rate lessors implicit rate is 12%.
1. Calculate the total depreciation to be charged on delivery trucks for the year ended 31 December 2022. The annual mileage of the trucks is given below:
Truck 1-2019: 60,000-2020: 70,000-2021: 90,000-2022: 50,000
Truck 2-2019: 55,000-2020: 70,000-2021: 56,000-2022: 44,000
Truck 3(New truck)-2022: 25,000
2.(a) Calculate the deferred taxation on truck 1 for the year ended 31 December 2019 if the inland revenue department for the purpose of capital allowance allowed for the truck to be written off over four years on the straight-line basis with nil residual value. The rate of taxation is 30%.
(b) Explain for the CFO of the company the difference between a deferred tax asset and deferred tax liability.
3. For the year ended 31 December 2020 determine the debt and equity components for the compound financial instrument issued by the company. Show the extracts of the Statement of Profit or Loss for the years 2020 & 2021 and the Statement of Financial Position as at 31 December 2020 & 2021 in regards to the compound financial instrument.
4. Show the journal entries to record the cash and bonus issue of shares on 1 January 2021 and explain two (2) advantages of issuing bonus shares.
5. Discuss how the treatment of the sale of the Luxury Division should be accounted for at the 31 Dember 2022 and 31 December 2023.
6.(a) Prepare the relevant journal entries for the first two (2) years on the lease acquired by the company on 1 January, 2023.
(b). Prepare the relevant financial statement extracts in the third year of the lease

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Horngrens Accounting

Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura, Carol A. Meissner, Jo Ann L. Johnston, Peter R. Norwood

10th Canadian edition Volume 2

978-0134213118, 134213114, 133855384, Google Book, 978-0133855388

More Books

Students also viewed these Accounting questions

Question

Discuss factors to consider when importing products and materials.

Answered: 1 week ago