Loveshine

(Note: use IFRS where required)

Loveshine is an Australian retailer that sells skincare, make-up, hair care and body products. It only sells products that meet its strict ethical and environmental standards.

Loveshine does not sell products that are harmful to the environment (eg those that contain toxic ingredients or are packaged in single-use plastic). The company maintains an ethical supply chain that produces no harmful impacts on people or animals.

Loveshine provides consumers with information about their products to help consumers make ethical, environmentally friendly and well-considered choices with their purchase from Loveshines online and retail stores.

Loveshine has developed its own range of personal care products called Naturelove. This range includes shampoo, conditioner, toothpaste and beauty creams. All products in the Naturelove range are produced under the highest ethical standards and contain no toxic ingredients. All Naturelove packaging can be composted or returned for recycling at Loveshines retail stores.

The corporate tax rate applicable to Loveshine is 30%.

Corporate bond

In April 2020 Loveshine sold one of its warehouses for $500,000, resulting in a higher-than-normal cash balance at 30 June 2020. On 1 July 2020, Loveshine invested this excess cash in a five-year corporate bond.

The following information is relevant to the bond:

Face value $500,000

Premium 2% over its face value

Transaction costs Nil

Interest payment date 30 June, annually

Effective interest rate 2.3217%

Coupon rate 2.75%

The bond was not credit-impaired when purchased. The bond is classified at fair value through other comprehensive income (FVTOCI). The fair value of the bond at 30 June 2021 is $513,500. The fair value of the bond at 30 June 2022 is $514,000. No entries have been recorded for the bond for the year ended 30 June 2022. For income tax purposes, the tax base of the corporate bond is equal to its initial purchase price.

Green Energy Limited

Loveshine has an investment in Green Energy Limited, a company that is committed to renewable energy. Green

Energys values align strongly with Loveshines values and Loveshine regards this investment as a long-term strategic investment. Loveshines investment is small, representing under 5% of Green Energys share capital.

The following information is relevant to the investment:

The initial purchase price was $150,000 with no transaction costs. The investment is classified at fair value through other comprehensive income (FVTOCI). The fair value of the investment at 30 June 2021 is $200,000. The fair value of the investment at 30 June 2022 is $220,000. No dividends have been received during the year. No entries have been recorded for the investment in the current financial year. For income tax purposes, the tax base of the equity investment is equal to its initial purchase price. The fair value movements are only recognised for tax purposes when the shares are sold, and any gain or loss is realised

Required

(a) Prepare journal entries for the investments in the corporate bond and Green Energy Limited for the year ended 30 June 2022. Ignore any tax implications. (b) Prepare an extract of the other comprehensive income section of the statement of profit or loss and other comprehensive income to reflect the investments in the corporate bond and Green Energy Limited for the year ended 30 June 2022. Ignore any tax implications. (c) Calculate the temporary difference and prepare the journal entry to record the deferred tax implications relating to the investment in Green Energy Limited at 30 June 2022.