ACF2100 Lecture Notes - Lecture 3: Deferred Tax

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orangetoad327

23 Oct 2018

School

Monash Caulfield

Department

Accounting

Course

ACF2100

Professor

Michelle (Chenlan) Song

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Document Summary

Ppe are tangible assets that are held for use, and are expected to be used during more than one period. Aasb 116 allows a choice of two possible measurement models: The choice of model is an accounting policy decision. That policy is not applied to individual asset but to an entire class of pp&e. A class of assets is a group of assets of a similar nature & use in an entity"s operations. Measurement basis is fair value. (market value) The reason to perform revaluation is to make sure that the ca of assets is not materially different from their fv. Fv new ca (depreciation should be updated on this basis) The first step is to write off the acc. dep"n, reducing the asset to its ca. The decrease shall be recognized in p/l. The tax effect is recorded in the deferred tax sheet only (not in the revaluation entry). Dr. loss on revaluation (p/l) (revaluation of asset)

Related Questions

hello, I got this topic for my presentation for company accounting, so someone can plz give me the solution how to present in my class.thanks

On the 1 July 2017, Pullman Ltd sold equipment to its wholly owned subsidiary, Wong Ltd, for $90 000. Pullman Ltd had originally paid $200 000 for this asset, and at the time of sale had charged depreciation of $140 000. Pullman Ltd used a 10% straight-line depreciation method, but Wong Ltd uses a 20% straight-line depreciation method for this asset. The tax rate is 30%. A junior accountant working for Pullman Ltd recorded the following consolidation adjustment for 30 June 2018:

Dr Proceeds on sale of equipment 90 000

Cr CA of equipment sold 60 000

Cr Equipment 30 000

Dr Deferred Tax Asset 9 000

Cr Income Tax Expense 9 000

Dr Accumulated depreciation 9 000 Cr

Depreciation expense 9 000 ($90 000 x 10%)

Dr Income tax expense 2 700

Cr Deferred tax asset 2 700

Discuss with the class whether the entries are correct, explaining on a line-by line basis the correct adjustment entries.

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1 Which of the following is an advantage of having a single set of accounting standards used worldwide?

A. Reduced accounting costs for multinational corporations

B. Increased power of the FASB

C. Reduced number of multinational corporations on the NYSE

D. Increased diversity of accounting methods used by multinational corporations

2 The accounting standards in code law countries tend to be:

A. very detailed.

B. formulated by organizations such as the FASB.

C. stated generally without much guidance on accounting procedures.

D. very conservative.

3 What is the likely result when accounting rules are left up to professional associations

rather than being legislated by governmental bodies?

A. Very general accounting rules are created, as in code law countries.

B. Very detailed rules for practice are created, as in common law countries.

C. Very general accounting rules are created, as in common law countries.

D. Very detailed rules for practice are created, as in code law countries.

4Historical cost is the primary basis for asset valuation under U.S. GAAP.

Why is historical cost NOT as important in the accounting systems of Latin America as in the U.S.?

A. Historical costs are too difficult to calculate in the currencies used in Central and South America.

B. The countries of Latin America have experienced very high rates of inflation,

which would make historical costs meaningless to readers of financial statements.

C. There is very little foreign direct investment in the countries of Latin America,

so few assets need to be accounted for.

D. In Latin America, asset prices are very stable, making historical costs ,

so it doesn't matter which valuation basis is used.

5Which of the following statements is true about accounting convergence?

A. Convergence is a synonym for harmonization.

B. Convergence is the opposite of standardization.

C. Convergence, unlike harmonization, takes place over a period of time.

D. Convergence means developing high-quality standards in partnership with national standards.

6 Which of the following statements is believed to be true about accounting convergence

by proponents of convergence?

A. Convergence would not affect the feelings of nationalism.

B. Convergence is desirable because there is very little difference among capital markets

in different countries.

C. Convergence would help to raise the quality of accounting practices internationally.

D. None of the above statements is true.

7Why does the IASB believe that a principles-based approach to standard setting

is superior to a rules-based approach?

A. Detailed guidance or rules encourage accountants to look for ways around the rules

rather than trying to provide useful information.

B. Principles-based standard setting is less costly to undertake than rules

-based standard formulation.

C. It is desirable to have all corporations in all countries using the same accounting practice.

D. A conceptual framework for standard setting has demonstrated to encourage

the greatest economic development.

8 If a company chooses the revaluation model permitted in IAS 16 for fixed asset measurement:

A. annual revaluations must be performed on each class of assets.

B. it must update the valuation so that the balance sheet represents fair value

on the balance sheet date.

C. appraisals must be performed by an official of the IASB.

D. the depreciated replacement cost must be used as the fair value of the fixed asset.

Emerald Ltd, a manufacturing company, commenced operations on 1 July 2016 by issuing 350 000 $5.00 shares, payable in full on application on a first-come, first-served basis. By 31 July 2016 the shares were fully subscribed and duly allotted. There were share issue costs of $10 000. No additional shares were issued during the year ending 30 June 2017.

For the year ending 30 June 2018, the company recorded the following aggregate transactions:

	$
Sales	5 120 000
Interest income	34 000
Sundry income	25 000
Cost of Sales	2 465 000
Employee benefit expenses	856 000
Depreciation expense	244 000
Amortisation - franchise	25 000
Rental expense	120 000
Advertising expense	147 000
Insurance expense	48 000
Freight out expense	110 000
Doubtful debts expense	16 000
Interest expense	36 000
Borrowing Costs	9 000
Other expenses	8 000
Income tax expense	320 000

The following additional information was noted during the preparation of financial statements for the year ended 30 June 2018:

75 000 fully paid ordinary shares have been issued on 1 October 2017 at the price of $4.00.

$135 000 dividends (31.76 cents per share) were declared and paid during the 2018 financial year. A final dividend for 2018 of $51 850 was proposed but not recognised in the financial statements.

There was a gain of $20 000 from the cash flow hedge arrangement during the 2018 financial year. Any gain or loss associated with the cash flow hedge is directly recognised in equity. There was no previously recognised cash flow hedge reserve before the 2018 financial year.

$25 000 of bank loans is repayable within 1 year.

$90 000 of other loans is repayable within 1 year.

The employee benefits of $32 000 are expected to be settled wholly within 12 months.

Emerald Ltd measures inventory at the lower of cost and net realizable value and property, plant and equipment using a cost model.

The summarised balances are provided below:

Year-end balances, 30 June 2018	$
Cash on hand	960 000
Cash on deposit, at call	82 000
Accounts Receivables	665 000
Allowance for doubtful debts/ Impairments	24 000
Other debtors	27 000
Finished goods inventories, 30 June 2018	600 000
Work in Progress inventories 30 June 2018	105 000
Land	94 000
Buildings	230 000
Accumulated depreciation â buildings	60 000
Plant and equipment	1 385 000
Accumulated depreciation â plant and equipment	330 000
Franchises	140 000
Accumulated amortisation of franchise	50 000
Goodwill	620 000
Bank loans	92 000
Other loans	440 000
Accounts payable	696 000
Provision for employee benefits	116 000
Income tax payable	35 000
Deferred tax liability	140 000
Retained earnings, 30 June 2017	225 000
Dividends paid	135 000
Cash flow hedge reserve (equity)	20 000

Required:

For the year ending 30 June, 2018,

a) Using the pro forma table supplied in appendix B, prepare a preliminary trial balance for Emerald Ltd; (5 Marks)

b) Prepare a statement of profit or loss and comprehensive income for Emerald Ltd in accordance with the requirements of AASB 101. Emerald Ltd uses the single statement format for the statement of comprehensive income and classifies expenses by function within the statement; (18 marks)

c) Prepare a statement of changes in equity for Emerald Ltd in accordance with the requirements of AASB 101; (15 marks)

d) Prepare a statement of financial position for Emerald Ltd in accordance with AASB 101. Use the current/non-current presentation format; (17 marks)

e) Prepare appropriate notes to the accounts. (You do not need to prepare notes related to income taxes. Include the following note as note 1. You may optionally add accounting policies to this note): (25 marks).

â1. Summary of significant accounting policies

Basis of accounting

The financial report is a general purpose financial report which has been prepared on the historical cost basis, except where stated otherwise.

Statement of Compliance

The financial statements have been prepared in accordance with the requirements of the Corporations Act, Australian Accounting Standards which include Australian equivalents to International Financial Reporting Standards (AIFRSs) and AASB Interpretations. Compliance with AIFRSs ensures the financial statements and notes comply with International Financial Reporting Standardsâ

APPENDIX A: PRESENTATION REQUIREMENTS (Departures attract a penalty)

The hard copy of the assignment must be handed in to the lecturer in class. It is also required to be submitted through Turnitin by the due date;

It is worth 20% of the final grade but will be marked out of 100;

The assignment will be marked on the basis of a requirement of "suitable for publication", that is, the relevant statements/notes comprise an external report and each statement is to be presented on one page;

The assignment must be performed individually.

You are to employ an aggregated format whenever appropriate and consistent with provision of minimum line items prescribed in AASB101;

The financial statements and the notes are to be typed in 12 point font;

You are not to use specialized accounting software packages, such as are employed by professional accounting firms, to produce your financial reports;

You are to apply the âcost of salesâ method to the classification of expenses in the income statement (see AASB101 paras 97-105);

You are directed to use the current/non-current format for the statement of financial position (balance sheet) and supply a ânet assetsâ line item;

The notes are to be simplified equivalences to published reports; that means a list of constituent components of a given line item with their respective dollar amounts, not footnotes

Your hard copy assignment is to be collated in the following order:

Coversheet (optional for electronic version but mandatory, signed with ticked module and Turnitin ID, for hard copy), Part A followed by Part B (trial balance, statement of profit or loss comprehensive income, statement of changes in equity, statement of financial position, and notes to the accounts.

APPENDIX B

Emerald Ltd - Trial Balance as at 30 June 2018	DR	CR
Sales	$â000	$â000
Interest income
Sundry income
Cost of sales
Employee benefit expenses
Depreciation expense
Amortisation - franchise
Rental expense
Advertising expense (selling)
Insurance expense
Freight out expense
Doubtful debts expense
Interest expense
Borrowing costs
Other expenses
Income tax expense
Cash on hand
Cash on deposit, at call
Accounts Receivables
Allowance for doubtful debts/ Impairments
Other debtors
Finished goods inventories, 30 June 2018
Work in Progress inventories 30 June 2018
Land
Buildings
Accumulated depreciation â buildings
Plant and equipment
Accumulated depreciation â plant and equipment
Franchise
Accumulated amortisation of franchise
Goodwill
Bank loans
Other loans
Accounts payable
Provision for employee benefits
Income tax payable
Deferred tax liability
Retained earnings, 30 June 2017
Dividends paid
Cash flow hedge reserve
Share capital
Totals

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ACF2100 Lecture Notes - Lecture 3: Deferred Tax

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