Question 1

The following data are taken from the trial balance of Bula Island Limited on 30 June 2015 with selected comparative information provided for 30 June 2014.

	20X7	20X614
Sales revenue	9,245,000
Interest revenue	850,000
Royalties revenue	1,450,000
Dividend revenue	150,000
Depreciation-building	147,500
Depreciation-plant	262,500
Depreciation-equipment	75,000
Research and development expenditure	1,650,000
Cost of goods sold	4,005,000
Warranty expense	195,000
Wages and salaries expense	3,475,000
Long service leave expense	235,000
Interest expense	305,000
Rates and taxes on property	145,500
Doubtful debts expense	142,500
Accounts receivable	675,000	375,000
Estimated uncollectible debts	182,000	95,000
Interest receivable	300,000	275,000
Royalties receivable	920,000	745,000
Land (at cost)	2,500,000	2,500,000
Buildings	3,200,000	3,200,000
Accumulated depreciation-buildings	442,500	295,000
Plant	2,100,000	2,100,000
Accumulated depreciation-Plant	787,500	525,000
Equipment	750,000	750,000
Accumulated depreciation-equipment	225,000	150,000
Wages and salaries payable	345,000	265,000
Provision for long service leave	355,000	245,000
Provision for warranty claims	130,000	115,000
Interest payable	100,000	100,000

Additional Information

All depreciable assets were acquired on 1 July 2012. For financial reporting purposes, depreciation is recognised on a straight line basis, over 20 years for buildings (estimated residual value $250,000), eight years for plant and 10 years for equipment. For tax purposes, straight line depreciation is applied over 40, 10 and eight years respectively.

After reviewing all relevant information, the directors determined that, at 30 June 2015, the plant was impaired by $250,000 (this is not reflected in the amounts presented in the trial balance).

On 30 June 2015, after careful consideration, the directors of Bula Island Ltd decided to adopt the fair value model for land; the fair value of land on 1 July 2014 was $3,500,000 and on 30 June 2015 was $3,250,000.

The research and development expenditure qualifies for the additional 25% taxation deduction.

The tax rate at 30 June 2014 was 30%. On 15 June 2015, legislation was enacted decreasing the tax rate to 25% effective 1 July 2015.

Required:

Calculate the amount of current tax expense. Use an appropriately labelled table for this task.

Prepare a deferred tax worksheet to calculate the amounts for deferred tax assets and deferred tax liabilities for the reporting period 30 June 2015. Use an appropriately labelled table for this task.

Prepare journal entries for the income tax expense related items for the reporting period 30 June 2015.

AF314 Corporate Accounting Flexi-School - 2015 Individual Assignment (10%) 1. 2. 3. 4. Due Date: Monday 4th January (by 4pm) at the SOAF office. Penalty at 10% per day. Must be word-processed, not hand written, word size 12 with 'Times new roman' font type and double-spacing. Each answer must be clearly marked by the designated question to which it corresponds. Please list any references (books, articles, web-based material) you use at the end of your assignment in alphabetical order, using the referencing style seen in academic articles (i.e. with in text references and bibliography, as in the Harvard referencing style). Requirements: Question 1 The following data are taken from the trial balance of Bula Island Limited on 30 June 2015 with selected comparative information provided for 30 June 2014. Sales revenue Interest revenue Royalties revenue Dividend revenue Depreciation-building Depreciation-plant Depreciation-equipment Research and development expenditure Cost of goods sold Warranty expense Wages and salaries expense Long service leave expense Interest expense Rates and taxes on property Doubtful debts expense Accounts receivable Estimated uncollectible debts Interest receivable Royalties receivable Land (at cost) Buildings Accumulated depreciation-buildings 2015 9,245,000 850,000 1,450,000 150,000 147,500 262,500 75,000 1,650,000 4,005,000 195,000 3,475,000 235,000 305,000 145,500 142,500 675,000 182,000 300,000 920,000 2,500,000 3,200,000 442,500 2014 375,000 95,000 275,000 745,000 2,500,000 3,200,000 295,000 Plant Accumulated depreciation-Plant Equipment Accumulated depreciation-equipment Wages and salaries payable Provision for long service leave Provision for warranty claims Interest payable 2,100,000 787,500 750,000 225,000 345,000 355,000 130,000 100,000 2,100,000 525,000 750,000 150,000 265,000 245,000 115,000 100,000 Additional Information 1. All depreciable assets were acquired on 1 July 2012. For financial reporting purposes, depreciation is recognised on a straight line basis, over 20 years for buildings (estimated residual value $250,000), eight years for plant and 10 years for equipment. For tax purposes, straight line depreciation is applied over 40, 10 and eight years respectively. 2. After reviewing all relevant information, the directors determined that, at 30 June 2015, the plant was impaired by $250,000 (this is not reflected in the amounts presented in the trial balance). 3. On 30 June 2015, after careful consideration, the directors of Bula Island Ltd decided to adopt the fair value model for land; the fair value of land on 1 July 2014 was $3,500,000 and on 30 June 2015 was $3,250,000. 4. The research and development expenditure qualifies for the additional 25% taxation deduction. 5. The tax rate at 30 June 2014 was 30%. On 15 June 2015, legislation was enacted decreasing the tax rate to 25% effective 1 July 2015. Required: 1. Calculate the amount of current tax expense. Use an appropriately labelled table for this task. 2. Prepare a deferred tax worksheet to calculate the amounts for deferred tax assets and deferred tax liabilities for the reporting period 30 June 2015. Use an appropriately labelled table for this task. 3. Prepare journal entries for the income tax expense related items for the reporting period 30 June 2015. Question 2 Viti Ltd has three divisions, Dairy, Yoghurt and Chocolate, which operate independently of each other to produce milk products. The company has a headquarters and a research centre located in Nausori, with the divisions located throughout Fiji. The research centre interacts with all the divisions to assist in the improvement of the manufacturing process and the quality of the products manufactured by the entity. There is not as yet any basis on which to determine how the work of the research centre will be allocated to each of the three divisions, as this will depend on priorities of the company overall and issues that arise in each division. The company headquarters provides approximately equal services to each of the divisions, but an immaterial amount to the research centre. Neither the headquarters nor the research centre generates cash inflows. On 30 June 2015, the net assets of Viti Ltd were as follows: Land Plant and equipment Accumulated depreciation Inventories Accounts receivable Liabilities Net Assets Dairy Division $ 440,000 840,000 (240,000) 240,000 120,000 1,400,000 120,000 1,280,000 Yoghurt Division $ 280,000 620,000 (200,000) 180,000 100,000 980,000 100,000 880,000 Chocolate Head Office Division $ 160,000 $ 110,000 540,000 80,000 (160,000) (10,000) 140,000 0 60,000 0 740,000 180,000 100,000 0 640,000 180,000 Research Centre $ 67,000 45,000 (12,000) 0 0 100,000 0 100,000 Management of Viti Ltd believes there are economic indicators to suggest that the company's assets may be impaired. Accordingly, they have had recoverable amount assessed for each of the divisions: Dairy Division $ 1,550,000 Yoghurt Division 1,000,000 Chocolate Division 750,000 The land held by Dairy division was measured at fair value using the revaluation model because of the specialised nature of the land. At 30 June 2015, the fair value was $440,000. The land held by Yoghurt division was measured at cost, and had a fair value less cost to sell of $270,264 at 30 June 2015. Required: Provide journal entries to account for the impairment of Viti Ltd as at 30 June 2015. Show all relevant working where required