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BUACC5932 CORPORATE ACCOUNTING

BUACC5932 CORPORATE ACCOUNTING

Major Assignment

Semester 1 2014

PART A

The following information is provided in respect of Fedyou Ltd for calculation of income tax as required by Accounting Standard AASB112 Income Taxes

Fedyou Ltd commenced operations on 1 July 2007 with an issued share capital of $700,000. On that date the company purchased a number of property plant and equipment (PPE) assets, details of which are provided below:

Land Plant Computers Vehicles

Cost $100,000 $200,000 $100,000 $50,000

Depreciation

Rate:

Accounting – 15% 25% 30%

Tax – 10% 50% 40%

Method Straight Straight Straight

Line Line Line

Carrying Amount

30 June 2008 150,000 170,000 75,000 35,000

The Statement of Profit and Loss for the year ended 30 June 2008 was as follows:

Sales $520,000

Interest Revenue 40,000

Government Grant (exempt from tax) 40,000

Total Revenue 600,000

Cost of Goods Sold 200,000

Salaries and Wages 60,000

Depreciation Plant 30,000

Depreciation Computers 25,000

Depreciation Vehicles 15,000

Rent 18,000

Doubtful Debts 30,000

Insurance 5,000

Long Service Leave 3,000

Other Expenses 9,000

Total Expenses 395,000

Profit before Tax 205,000

Additional Information:

– The current tax rate is 30%

– Insurance of $23,000 was paid during the year. Of this amount $18,000 was considered to be prepaid for the coming financial year

– Rent is paid in arrears. $10,000 is due at end of current year and $8000 has been paid in cash.

– Interest Revenue will be received in the coming financial year.

– No bad debts were written off during the current year

– No payments for long service leave were made during the current year.

At 30 June 2008 the Statement of Financial Position of Fedyou Ltd was as follows:

Assets $’000

Cash 805

Prepayments 18

Receivables 300

Less

Allowance for Doubtful Debts 30 270

Inventory 170

Property Plant and Equipment 500

Less:

Accumulated Depreciation 70 430

Interest Receivable 40

Total Assets 1733

Liabilities

Accounts Payable 280

Accrued Expenses 10

Loan 485

Long Service Leave Provision 3

Deferred Tax Liability 15

Total Liabilities 793

Equity

Share Capital 700

Retained Profits 205

Asset Revaluation Surplus 35

Total Equity 940

Total Liabilities and Equity 1733

Additional information:

– Land was revalued upward by $50,000 at 30 June 2008

– The written down values for tax purposes at 30 June 2008 for other PPE assets were Plant $180,000, Computers $50,000 and Vehicles $30,000.

Required:

– Calculate taxable income and current tax liability for Fedyou Ltd for year ended 30 June 2008 including journal entry to record these amounts (show all workings)

– Prepare a deferred tax worksheet to calculate the balances of any deferred tax assets and liabilities at 30 June 2008 and prepare required journal entry.

PART B

Refer to the attached extracts from the Wannon Water 2012/2013 Annual Report:

– Comprehensive Operating Statement

– Balance Sheet

– Note 5: Income Tax

Required:

What recognition criteria for deferred tax liabilities and assets must Wannon Water meet in order to recognise the net deferred tax liability of $36.879 million in its accounts?

PART C

At 30 June 2009 Fedyou Ltd undertook a comprehensive valuation of all of its PPE assets. The results of the revaluation exercise were as follows:

Asset Fair Value 30 June 2009

Land $140,000

Plant 120,000

Computers 45,000

Vehicles 25,000

Required:

Having regard to the requirements of Accounting Standard AASB116 Property Plant and Equipment and AASB136 Impairment of Assets prepare the journal entries required (including tax effects) if the assets were revalued to fair value at 30 June 2009

PART D

Under current accounting standards revaluation increments on PPE assets are credited to a revaluation surplus account in equity, whereas a revaluation decrement may be recognised as an expense under certain circumstances.

Required:

Explain and critically evaluate these requirements

Marks

PART A 6 + 6 = 12 marks

PART B = 3 marks

PART C = 3 marks

PART D = 2 marks

Total = 20 marks

Key assignment details and assessment criteria:

1. Group assignment with no more than three students in each group

2. Maximum length 300 words each (for PART B and PART D )

3. Submission due date: Week 9

Assessment Criteria

The criteria used to assess the submitted assignment will be:

· Ability to work collegially in a group environment for shared success.

· Evidence of relevant research and demonstrated understanding of research materials. As a minimum students should consult the references listed under additional resources in the Unit Description

· The structure, coherence and logic of arguments and analysis presented.

· Demonstrated understanding of the subject matter that is the focus of the assignment topic.

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