AF314 Corporate Accounting

Flexi-School - 2019

Individual Assignment (20%)

1. Due Date: Monday 6th January (by 4pm) at the SOAF office. Penalty at 10% per day.
2. Must be word-processed, not hand written, word size 12 with ‘Times new roman’ font type and
double-spacing.
3. Each answer must be clearly marked by the designated question to which it corresponds.
4. 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 2018 with
selected comparative information provided for 30 June 2017.

2018 2017
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

1. All depreciable assets were acquired on 1 July 2015. 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 2018, the
plant was impaired by $250,000 (this is not reflected in the amounts presented in the trial
balance).
3. On 30 June 2018, 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 2017 was $3,500,000 and on 30
June 2018 was $3,250,000.
4. The research and development expenditure qualifies for the additional 25% taxation
deduction.
5. The tax rate at 30 June 2017 was 30%. On 15 June 2018, legislation was enacted decreasing
the tax rate to 25% effective 1 July 2018.

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 2018. 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 2018.
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 2018, the net assets of Viti Ltd were as follows:

Dairy Yoghurt Chocolate Head Office Research

Division Division Division Centre
Land $ 440,000 $ 280,000 $ 160,000 $ 110,000 $ 67,000
Plant and equipment 840,000 620,000 540,000 80,000 45,000
Accumulated depreciation (240,000) (200,000) (160,000) (10,000) (12,000)
Inventories 240,000 180,000 140,000 0 0
Accounts receivable 120,000 100,000 60,000 0 0
1,400,000 980,000 740,000 180,000 100,000
Liabilities 120,000 100,000 100,000 0 0
Net Assets 1,280,000 880,000 640,000 180,000 100,000

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 2018, 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 2018.

Required:

Provide journal entries to account for the impairment of Viti Ltd as at 30 June 2018. Show all
relevant working where required.