ACT305 - Corporate Accounting The Accountant for Katherine Enterprises Ltd - Accounting Assignment Help

Assignment Task :

Task:

ASSIGNMENT INFORMATION
This Assignment is worth 20% of the total assessment for this unit. This assignment will be marked out of 100, and scaled down to being out of 20. The assignment has 5 questions.
Q1. The accountant for Katherine Enterprises Ltd has the task of preparing the deferred tax entries in the year-end financial statements at 30th June 2021.

a. The accounts receivable account had a balance at 30th June 2020 of $84,630 with a balance at 30th June 2021 of $81,900. Despite active monitoring by the credit department of the accounts receivables it proved impossible to collect $13,650 and this was written off during the year. The allowance for doubtful debts account had a balance at 30th June 2020 of $6,830 and $10,920 at 30th June 2021.

b. On 1st July 2020 Katherine Enterprises Ltd bought an articulated dump truck for $485,000. The company has adopted an accounting straight-line depreciation rate of 10% each year for ten years. The Tax depreciation rate applicable on a straight line basis for this class of asset is 25%.

c. On the 1st April 2021 the company invested $850,000 in a term deposit which accrued interest at 5.6% per annum. Interest is paid half-yearly on 30th September and 31st March. At the start of the financial year the company held no other interest bearing investments.

d. Katherine Enterprises Ltd employs 20 staff, some of whom have worked for the company for 8 years.
They are entitled, as part of their salary package, to long service leave when they have worked for the company for 10 years of continual employment. One of their managers, who has worked for 11 years, took long service leave during the year and was paid $27,500. The company provides for long service leave each year and the balance at 1st July 2020 was $201,000 with a closing balance at 30th June 2021 of $192,000.

e. Part of the assistance that you have provided to the company was an impairment test undertaken at the start of the year as the value of the assets had not been reviewed for some time. Equipment which originally had a carrying amount of $635,000 was revalued upwards to $785,000. The equipment had an annual accounting depreciation rate of 15% and a tax depreciation rate of 8%.

f. The company has been expensing research in a new product for a number of years. The directors are now of the opinion that the product will have a viable market and that further expenditure can be capitalised as a development asset. With this in view $160,000 was expended on 1st July 2020. It is believed that this expenditure will be recovered over a five year period and is to be amortised on a straight line basis at 20% per annum. The project does not qualify for any accelerated tax deductions over and above the full cost incurred.
 

Required
As the accountant has only recently been recruited you have been asked to complete the preparation of the journal entry adjustments for any temporary tax differences and to explain in each of the situations given above the reasons for the adjustments, why the accounts have been chosen and the timing of the differences and any future reversals. (total 15 marks)

Q2. You have been auditing the consolidated financial statements of Reynolds Ltd and its wholly owned subsidiary Fisher Ltd. You discover that Reynolds Ltd had bought inventory during the year for $33,750 which it subsequently sold to Fisher Ltd for $40,500. Later in the year one third of the inventory was sold by Fisher Ltd to a non-group company for $16,500.

The accountant’s consolidation worksheet had recorded the following adjusting journal entries:
Sales Dr 40,500
Cost of Sales Cr 38,000
Inventories Cr 2,500
Deferred Tax Asset Dr 750
Income Tax Expense Cr 750
Required

a. Discuss whether the entries suggested by the chief accountant are correct, explaining on a line- by-line basis the adjustment entries.

b. Determine the consolidation worksheet entries in the following year, assuming the inventories are on-sold, and explain the adjustments on a line-by-line basis.

Q3 Billy Ltd has a 100% interest in Goat Ltd. During the financial year to 30th June 2022 the following exchanges of plant and machinery occurred between the group members:
(a) Billy Ltd sold a machine to Goat Ltd for $29,000 on 1st February 2022. It had originally cost $116,000 with an accumulated depreciation of $92,800. Goat Ltd traded in secondhand machinery and held the machine as unsold inventory when it reported its results at 30th June 2022.

(b) On 1 July 2021, Goat Ltd bought a motor car for $18,300 from Billy Ltd. When the car was sold it stood at a carrying amount of $53,500 in Billy Ltd’s Statement of Financial Position with a cost of $65,000 and accumulated depreciation of $11,500. The common straight-line depreciation policy adopted by the companies was 10% p.a. on cost.

(c) On 1 April 2019 Billy Ltd purchased a concrete pumping truck from Goat Ltd for $72,000. At that time it appeared in Goat Ltd’s asset register at a cost of $59,000 with accumulated depreciation of $9,800. Billy Ltd depreciated heavy machinery on a straight-line basis at 10% p.a. on cost. Goat Ltd had employed a diminishing balance depreciation method at a rate of 12.5% per year.

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