COMPANY REPORTING IN ACCOUNTING

AFF2491 Assignment Tasks (15 Marks)                                                      Semester 1, 2012

 

 

 

Assignment – AFF2491 Company Reporting

Semester 1 2012

 

This assessment task is designed to test a student’s achievement of objectives 1, 2, 3 and 4 (refer to AFF2491 Unit Guide).  It is an individual assessment task.

 

This assignment must be handed in for successful completion of this unit. It will contribute 15% towards the final mark in this unit.

 

The assignment consists of:

Part A (4 Marks) Leasing (case study)

Part B (5 Marks) Accounting for income tax (practical questions)

Part C (6 Marks) Consolidation (practical questions)

 

This assignment is due on Friday 11 May 2012 by 5:00pm (Week 10).  Students are required to submit a hard copy in the assignment box located at Level 3, Building H, Caulfield Campus.  Electronic lodgement is NOT acceptable.

 

The assignment must be properly typed and presented.

Applications for an extension of time allocated to an assessment task must be made by completing the application form found at URL. http://www.buseco.monash.edu.au/student/exams/speccon.html.  The form must be submitted to the Chief Examiner for approval.

 

A maximum penalty of 10% of the total mark allocated to this assignment will be deducted for each day that the assignment is late.

 

Work submitted for assessment MUST be accompanied by a completed and signed assignment coversheet, available at URL: http://www.buseco.monash.edu.au/student/forms/assessment-coversheet.doc.

 

Marked assignments will be returned to students during tutorials in week 12.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Part A: Leasing (4 marks)

 

You are required to download the annual report of Qantas group (QAN) for the financial year ended 30 June 2011. Let’s assume you are the Chief Financial Officer of Qantas group and have been following the proposed change in the leasing accounting standard (AASB ED 202R), in particular to eliminate the distinction between operating leases and finance leases. You are concerned about the possible financial implications for the proposed change on the company’s financial statements.

 

Required:

Present a brief critical review of discussion in relation to the anticipated implications of the proposed change in ED 202R to the financial statements of Qantas group if such change does occur. Comment on whether such proposed change complies with the recommendations by the IASB (International Accounting Standards Board).

 

Guidance:

–      Download annual reports: Go to Library; click databases; type DatAnalysis; type QAN; and click annual reports

–      Download AASB ED 202R: Go to www.aasb.gov.au; go to Quick Links; click search for a specific document; Select one option from Pronouncements, Work in progress or Supporting information Pronouncements (e.g. tick exposure draft) and type ED 202R in the space provided at the bottom of the page.

–      You need to fully reference all ideas and sources of information in your report.

–      A reference list must be provided which comprises all sources cited in the report.

–      For more information on appropriate report writing, formatting and referencing, you should refer to the Q Manual at the following site:

http://www.buseco.monash.edu.au/publications/qmanual/

–      Warning: your report should not exceed 500 words (excluding references).

–      The report should comprise brief introduction, body and conclusion (note: executive summary is not required).

 

 

Part B: Accounting for income tax (5 marks)

For journal entries, narration is required.

 

The accounting profit before tax of Water Dragon Ltd for the year ended 31 December 2011 amounted to $100,000 after including the following information.

 

The financial year of the company was from 1 January 2011 to 31 December 2011.

 

Cash: Opening balance as at 1 January 2011 was $2,000 and ending balance as at 31 December 2011 was $1,000.

 

Insurance payable: Opening balance as at 1 January 2011 was $5,000; insurance paid during the financial year amounted to $6,000; and ending balance as at 31 December 2011 was $4,000

 

Rent received in advance: Opening balance as at 1 January 2011 was $9,000; rent income recognised for the financial year amounted to $5,000; and ending balance as at 31 December 2011 was $10,000.

Prepaid interest: Opening balance as at 1 January 2011 was $3,000; interest paid during the financial year amounted to $2,000; and ending balance as at 31 December 2011 was $4,000.

 

Accounts receivable-trade: Opening balance as at 1 January 2011 was $100,000; Sales on credit recognised during the financial year amounted to $200,000; Accounts receivable-trade received during the financial year amounted to $150,000. Bad debts amounted to $10,000 were written off during the financial year.

 

Allowance for doubtful/bad debts: Opening balance as at 1 January 2011 was $5,000; and ending balance as at 31 December 2011 was $15,000.

 

Plant: Opening balance at cost as at 1 January 2011 was $200,000. Ending balance as at 31 December 2011 was $200,000.

 

Depreciation expense of plant: Depreciation expense based on accounting for the financial year was $20,000. For tax purpose, depreciation expense for the financial year was $25,000.

 

Accumulated depreciation of plant: Opening balance based on accounting as at 1 January 2011 was $20,000.

 

Building: Opening balance as at 1 January 2011 was $500,000; No transactions are recorded for this account during the financial year.

 

Depreciation expense of building: Depreciation expense based on accounting for the financial year was $25,000. No depreciation expense is allowed for tax purpose.

 

Accumulated depreciation of building: Opening balance as at 1 January 2011 was $50,000.

 

Goodwill: Opening balance as at 1 January 2011 was $50,000; and goodwill impairment loss recognised for the financial year amounted to $10,000.

 

Other tax information: income tax rate was 30 per cent. Tax base of plant on 1 January 2011 was $175,000.

 

Required:

1. Determine taxable income and current tax liability for the financial year ended 31 December 2011. Prepare the journal entry to record the current tax liability.
2. Complete the tax worksheet to determine the balances of deferred tax asset (DTA) and deferred tax liability (DTL) as at 31 December 2010. Calculate the balance of DTA as at 1 January 2011 after offsetting with DTL.
3. Complete the tax worksheet to determine the balances of DTA and DTL as at 31 December 2011 and the movement/adjustment of DTA and DTL for the financial year ended 31 December 2011.
4. Prepare the journal entry to record the movement/adjustment of DTA and DTL for the financial year ended 31 December 2011 and to offset the DTA and DTL accounts.

 (Note: Provide your answers for questions 2 and 3 using “simplified tax worksheet” as provided on page 4. Please show all your workings e.g. T accounts)

 

(1.5 + 1.5 + 1.5 + 0.5  = 5 marks)

Simplified Tax Worksheet

 

Water Dragon Ltd

Tax worksheet for the year ended——————————–

 

Particulars	Carrying Amount (CA)	Tax Base (TB)	Taxable Temporary Differences (TTD)	Deductible Temporary Differences (DTD)

 

 

Part A: Leasing (4 marks)

 

You are required to download the annual report of Qantas group (QAN) for the financial year ended 30 June 2011. Let’s assume you are the Chief Financial Officer of Qantas group and have been following the proposed change in the leasing accounting standard (AASB ED 202R), in particular to eliminate the distinction between operating leases and finance leases. You are concerned about the possible financial implications for the proposed change on the company’s financial statements.

 

Required:

Present a brief critical review of discussion in relation to the anticipated implications of the proposed change in ED 202R to the financial statements of Qantas group if such change does occur. Comment on whether such proposed change complies with the recommendations by the IASB (International Accounting Standards Board).

 

Guidance:

–      Download annual reports: Go to Library; click databases; type DatAnalysis; type QAN; and click annual reports

–      Download AASB ED 202R: Go to www.aasb.gov.au; go to Quick Links; click search for a specific document; Select one option from Pronouncements, Work in progress or Supporting information Pronouncements (e.g. tick exposure draft) and type ED 202R in the space provided at the bottom of the page.

–      You need to fully reference all ideas and sources of information in your report.

–      A reference list must be provided which comprises all sources cited in the report.

–      For more information on appropriate report writing, formatting and referencing, you should refer to the Q Manual at the following site:

http://www.buseco.monash.edu.au/publications/qmanual/

–      Warning: your report should not exceed 500 words (excluding references).

–      The report should comprise brief introduction, body and conclusion (note: executive summary is not required).

 

Answer :

 

Exposure Draft (ED) 202R Leases

 

 

INTRODUCTION

The proposed changes contained within the ED will have big impact on annual report of Qantas group.

The ED 202R eliminates the difference between operating leases and financial leases. It has proposed to introduce a new model for recognition of an asset and liability for all leases which come under the scope of IASB (International Accounting Standards Board).

 

 

Exposure Draft (ED) 202R Leases Meaning

All arrangements of leases will come within the scope of standard and these all leases will come on balance sheet.

Lessee accounting
Initial recognition – Lessees have to recognize the right of use assets and a lease payment liability. The measurement of right of use asset is done at the amount of lease liability and any initial direct costs.

Dr: Right of use asset  ; Cr: Lease payment liability

Subsequent accounting – The right of use asset will be amortized over the lease term and the useful life asset, and interest paid on the liability or borrowing taken to make lease payments would be recognized. As the lease payment is done it reduces the liability.

Lessees would reassess the deal at the end of each reporting period to make any required adjustments in estimates and judgments of determining the lease payment liability.

Recognition of lease payment and interest expense for Year 1
Dr.: Lease payment liability
Dr: Interest expense
Cr: Cash
Recognition of asset amortisation for Year 1
Dr: Amortisation expense
Cr: Accumulated amortisation – right of use asset

Taxation considerations –In many cases, no tax deduction would be made for the financial costs related with the lease-particularly for operating leases.

The proposed (ED) 202R Leases will change the following figures of annual report of the year 2011 of Qantas group:-

 

Thus it would affect the financial statements, the future structure of lease contracts, debt covenants, accounting policies and information systems.

 

 

 

Part B: Accounting for income tax (5 marks)

For journal entries, narration is required.

 

The accounting profit before tax of Water Dragon Ltd for the year ended 31 December 2011 amounted to $100,000 after including the following information.

 

The financial year of the company was from 1 January 2011 to 31 December 2011.

 

Cash: Opening balance as at 1 January 2011 was $2,000 and ending balance as at 31 December 2011 was $1,000.

 

Insurance payable: Opening balance as at 1 January 2011 was $5,000; insurance paid during the financial year amounted to $6,000; and ending balance as at 31 December 2011 was $4,000

 

Rent received in advance: Opening balance as at 1 January 2011 was $9,000; rent income recognised for the financial year amounted to $5,000; and ending balance as at 31 December 2011 was $10,000.

Prepaid interest: Opening balance as at 1 January 2011 was $3,000; interest paid during the financial year amounted to $2,000; and ending balance as at 31 December 2011 was $4,000.

 

Accounts receivable-trade: Opening balance as at 1 January 2011 was $100,000; Sales on credit recognised during the financial year amounted to $200,000; Accounts receivable-trade received during the financial year amounted to $150,000. Bad debts amounted to $10,000 were written off during the financial year.

 

Allowance for doubtful/bad debts: Opening balance as at 1 January 2011 was $5,000; and ending balance as at 31 December 2011 was $15,000.

 

Plant: Opening balance at cost as at 1 January 2011 was $200,000. Ending balance as at 31 December 2011 was $200,000.

 

Depreciation expense of plant: Depreciation expense based on accounting for the financial year was $20,000. For tax purpose, depreciation expense for the financial year was $25,000.

 

Accumulated depreciation of plant: Opening balance based on accounting as at 1 January 2011 was $20,000.

 

Building: Opening balance as at 1 January 2011 was $500,000; No transactions are recorded for this account during the financial year.

 

Depreciation expense of building: Depreciation expense based on accounting for the financial year was $25,000. No depreciation expense is allowed for tax purpose.

 

Accumulated depreciation of building: Opening balance as at 1 January 2011 was $50,000.

 

Goodwill: Opening balance as at 1 January 2011 was $50,000; and goodwill impairment loss recognised for the financial year amounted to $10,000.

 

Other tax information: income tax rate was 30 per cent. Tax base of plant on 1 January 2011 was $175,000.

 

Required:

1. Determine taxable income and current tax liability for the financial year ended 31 December 2011. Prepare the journal entry to record the current tax liability.

 

Answer : Taxable Income (PBT ):  $100,000

Current tax liability : $ 100,000*30% = $30,000

 

 

 

 

2. Complete the tax worksheet to determine the balances of deferred tax asset (DTA) and deferred tax liability (DTL) as at 31 December 2010. Calculate the balance of DTA as at 1 January 2011 after offsetting with DTL.

 

Answer :

 

 

Answer :

 

Equation for Asset :- Carrying amount – Taxable amount +Deductible amount = Tax Base

 

Equation for Liability : Carrying amount – Deductable amount +Taxable amounts = Tax Base

 

DTL ($)

 

Rent received in advance :- 9000*30% = $2700

Plant :-                                20000*30 = 6000

Building :-                       50000*30% = 15000

 

Total DTL = 23700

 

DTA ($)

 

Insurance payable  = 5000*30% = 1500

Prepaid interest = 3000*30% = 900

Allowance of bad debt = 5000*30 = 1500

 

 

Total DTA = 3900

 

 

 

                  Water Dragon Ltd

 

31 December 2010

Tax worksheet for the year ended——————————–

Particulars	Carrying Amount	Tax Base	Taxable Temporary Differences (TTD) $	Deductible Temporary Differences (DTD) $
	(CA) $	(TB) $
Cash	2000	2000	Nil	Nil
Insurance Payable	5000	Nil	Nil	5000
Rent received in advance	9000	Nil	9000	Nil
Prepaid Interest	3000	Nil	Nil	3000
Accounts Receivable-trade	100,000	100,000	Nil	Nil
Allowance for doubtful debt/bad debt	Nil	5000	Nil	5000
Plant	180000	160000	20000	Nil
Building	500000	450000	50000	Nil
Goodwill	50000	50000	Nil	Nil

 

 

 

 

 

 

3. Complete the tax worksheet to determine the balances of DTA and DTL as at 31 December 2011 and the movement/adjustment of DTA and DTL for the financial year ended 31 December 2011.

 

Answer :

 

Equation for Asset :- Carrying amount – Taxable amount +Deductible amount = Tax Base

 

Equation for Liability : Carrying amount – Deductable amount +Taxable amounts = Tax Base

 

DTL ($)

 

Insurance payable  :- 6000*30% = 1800

 

Rent received in advance :- 5000*30% = $1500

Accounts receivables-trade :- 150000*30% = 45000

Plant :- 20000*30 = 6000

 

Total DTL = 54300

 

DTA ($)

 

Insurance payable  = 4000*30% = 1200

Prepaid interest = 2000*30% = 600

Allowance of bad debt = 10000*30 = 3000

Plant = 175000*30% = 52500

 

Total DTA = 57300

Particulars	Carrying Amount	Tax Base	Taxable Temporary Differences (TTD) $	Deductible Temporary Differences (DTD) $
	(CA) $	(TB) $
Cash	1000	1000	Nil	Nil
Insurance Payable	4000	6000	6000	4000
Rent received in advance	10000	5000	5000	Nil
Prepaid Interest	4000	6000	Nil	2000
Accounts Receivable-trade	200,000	60,000	150,000	10,000
Allowance for doubtful debt/bad debt	15000	Nil	Nil	15000
Plant	200000	175000	20000	175000
Building	500000	450000	Nil	Nil
Goodwill	50000	40000	Nil	Nil

 

 

 

 

4. Prepare the journal entry to record the movement/adjustment of DTA and DTL for the financial year ended 31 December 2011 and to offset the DTA and DTL accounts.

 

Answer : Journal entry for DTA

 

Deferred Tax Asset(DTA) a/c Dr.             $57300

To P&L A/c                                                     $ 57300

(Being DTA created for F.Y ended 31 December 2011)

 

Journal entry for DTL

P& L a/c Dr.                                $54300

To Deferred tax liability(DTL) a/c                              $54300

(Being provision for deferred tax liability for financial yearended 31 December 2011)

 

 

 

(1.5 + 1.5 + 1.5 + 0.5  = 5 marks)

 

“The presented piece of writing is a good example how the academic paper should be written. However, the text can’t be used as a part of your own and submitted to your professor – it will be considered as plagiarism.

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