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HI5020 Corporate Accounting
Questions:
Question 1 (10 marks)
Prepare general journal entries to record the following unrelated transactions of a limited company:
• Payment of an interim dividend of $400,000 (in cash).
• Declaration of a final dividend of $840,000.
• Transfer of $240,000 to the general reserve from retained earnings.
• Payment of 600,000 bonus shares, fully paid at $1 per share from a general reserve.
• Issued 500,000 shares for $30,000,000 by a private placement.
Question 2 (10 marks)
On 1 January 2019 Liam Ltd acquired 90% of the issued shares of Ian Ltd. During the year ended 31 December 2019 the following intra group transactions occurred:
• Sales of inventory:
Ian Ltd sold inventory to Liam Ltd $360,000. This inventory costed Ian Ltd $300,000. At 31 December 2019 Liam Ltd held 50% of the inventory acquired from Ian Ltd.
• Intragroup sale of equipment:
An item of equipment originally acquired by Liam Ltd on 1 January 2017 at a cost of $400,000 was sold to Ian Ltd on 1 January 2019 for $340,000. Liam Ltd had depreciated this asset at 10% per annum on a straight-line basis with no scrap value. There is no change in the asset expected life subsequent to the sale.
• During the year ended 31 December 2019 the following dividends were paid:
– Liam Ltd $100,000
– Ian Ltd $40,000
• On 30 June 2019 Liam Ltd lent Ian Ltd $100,000. Interest on this loan at 8% was paid up to 31 December 2019.
Required:
Prepare the consolidation journal entries required to eliminate the above intragroup transactions for the year ended 31 December 2019. Assume a tax rate of 30%.
Question 3 (10 marks)
KGB Security Ltd provides the following information at 30 June 2019 (the first year of operation of the company)
Statement of Financial Position (Balance Sheet)
As at 30 June 2019
Assets $000 Liabilities and owner’s equity $000
Prepayments 20 Provision for Annual Leave 90
Accounts Receivable 360 Loan 320
Allowance for Bad Debts (40) Share Capital 1,600
Inventory 600 Retained Earnings 330
Plant and Equipment 1,800
Accum Depreciation (400)
2,340 2,340
Other Information:
• For the year ended 30 June 2019 the company made a net profit before tax of $500,000. Dividends of $170,000 were paid.
• Temporary differences include:
– Annual Leave – no payments made during the year
– Depreciation of Plant and Equipment for tax purposes $360,000
– Bad Debts written off $10,000 (against Allowance for Bad Debts)
– Prepayments (Previously paid in cash)
• Included in expenses for the year is entertainment expenses of $6,000.
• Assuming a tax rate of 30%.
Required:
a) Calculate the current tax liability at 30 June 2019. (4 marks)
b) Calculate the amount of deferred tax assets/liabilities at 30 June 2019. (3 marks)
c) Journal entry to record income tax for the year. (3 marks)
Question 4 (10 marks)
Humorous Ltd had cash and cash equivalents at 1 July 2018 of $ 1,400,000. The transactions of Humorous Ltd for the year to 30 June 2019 are as follows:
• Borrowed $180,000 with a 6-month loan payable.
• Received $2,280,000 cash from accounts receivable.
• Sold for $240,000 cash a plant asset with a carrying amount of $160,000.
• Issued ordinary shares for $720,000 cash.
• Purchased a plant asset for $530,000; $162,000 in cash and $368,000 on loan.
• Exchanged 90,000 shares for land with a fair value of $900,000.
• Received a $200,000 dividend in cash.
• Received $40,000 interest from term deposit.
• Invested $600,000 cash on the short-term money market.
• Paid fixed-term loan principal of $480,000 and interest of $48,000.
• Cash payments for suppliers’ accounts $1,500,000.
• Dividend paid during the period $120,000.
• Insurance expense shown in the income statement is $84,000. At the end of the year the balance sheet shows prepaid insurance expense of $42,000. There was a prepaid insurance expense of $36,000 at the beginning of the year.
Required:
Prepare the statement of cash flows of Humorous Ltd for the year to 30 June 2019.
Question 5 (10 marks)
On January 1, 2019, Horizon Corporation, an UK based company acquired Spectacular Company as a subsidiary in Australia with an initial investment cost of 360,000 Australian dollars (AUD). Spectacular’s December 31, 2019, trial balance in AUD is as follows:
Debit (AUD) Credit(AUD)
Cash at bank 42,000
Accounts Receivable 120,000
Receivable from Horizon 30,000
Inventory 150,000
Machinery 600,000
Accumulated Depreciation 60,000
Accounts Payable 72,000
Debenture liability 300,000
Share Capital 360,000
Sales 900,000
Cost of goods sold 420,000
Depreciation Expense 60,000
Operating Expense 180,000
Dividend paid 90,000
Total 1,692,000 1,692,000
Other Information:
• The receivable from Horizon is denominated in AUD. Horizon’s books show a AUD 24,000 payable to Spectacular.
• Purchases of inventory goods are made evenly during the year. Items in the ending inventory were purchased November 1.
• The Machinery is depreciated by the straight-line method with a 10-year life and no residual value. A full year’s depreciation is taken in the year of acquisition. The equipment was acquired on March 1.
• The dividends were declared and paid on November 1.
• Exchange rates between AUD and Euro (€) were as follows:
January 1 AUD 1 = € 0.73
March 1 AUD 1 = € 0.74
November 1 AUD 1 = € 0.77
December 31 AUD 1 = € 0.80
2019 Average AUD 1 = € 0.75
• AUD is the functional currency.
Required:
a) Prepare a schedule translating the December 31, 2019, trial balance from AUD to €. (8 marks)
b) Why is the translation adjustment reported on Horizon’s other comprehensive income statement rather than on the Profit and Loss statement? (2 marks)
HI5020 Corporate Accounting
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