Question 1
The following data are taken from the trial balance of Bula Island Limited on 30 June 2015 with selected comparative information provided for 30 June 2014.
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|
2015
|
2014
|
|
Sales revenue
|
9,245,000
|
|
|
Interest revenue
|
850,000
|
|
|
Royalties revenue
|
1,450,000
|
|
|
Dividend revenue
|
150,000
|
|
|
Depreciation-building
|
147,500
|
|
|
Depreciation-plant
|
262,500
|
|
|
Depreciation-equipment
|
75,000
|
|
|
Research and development expenditure
|
1,650,000
|
|
|
Cost of goods sold
|
4,005,000
|
|
|
Warranty expense
|
195,000
|
|
|
Wages and salaries expense
|
3,475,000
|
|
|
Long service leave expense
|
235,000
|
|
|
Interest expense
|
305,000
|
|
|
Rates and taxes on property
|
145,500
|
|
|
Doubtful debts expense
|
142,500
|
|
|
Accounts receivable
|
675,000
|
375,000
|
|
Estimated uncollectible debts
|
182,000
|
95,000
|
|
Interest receivable
|
300,000
|
275,000
|
|
Royalties receivable
|
920,000
|
745,000
|
|
Land (at cost)
|
2,500,000
|
2,500,000
|
|
Buildings
|
3,200,000
|
3,200,000
|
|
Accumulated depreciation-buildings
|
442,500
|
295,000
|
|
Plant
|
2,100,000
|
2,100,000
|
|
Accumulated depreciation-Plant
|
787,500
|
525,000
|
|
Equipment
|
750,000
|
750,000
|
|
Accumulated depreciation-equipment
|
225,000
|
150,000
|
|
Wages and salaries payable
|
345,000
|
265,000
|
|
Provision for long service leave
|
355,000
|
245,000
|
|
Provision for warranty claims
|
130,000
|
115,000
|
|
Interest payable
|
100,000
|
100,000
|
Additional Information
1. All depreciable assets were acquired on 1 July 2012. For financial reporting purposes, depreciation is recognised on a straight line basis, over 20 years for buildings (estimated residual value $250,000), eight years for plant and 10 years for equipment. For tax purposes, straight line depreciation is applied over 40, 10 and eight years respectively.
2. After reviewing all relevant information, the directors determined that, at 30 June 2015, the plant was impaired by $250,000 (this is not reflected in the amounts presented in the trial balance).
3. On 30 June 2015, after careful consideration, the directors of Bula Island Ltd decided to adopt the fair value model for land; the fair value of land on 1 July 2014 was $3,500,000 and on 30 June 2015 was $3,250,000.
4. The research and development expenditure qualifies for the additional 25% taxation deduction.
5. The tax rate at 30 June 2014 was 30%. On 15 June 2015, legislation was enacted decreasing the tax rate to 25% effective 1 July 2015.
Required:
1. Calculate the amount of current tax expense. Use an appropriately labelled table for this task.
2. Prepare a deferred tax worksheet to calculate the amounts for deferred tax assets and deferred tax liabilities for the reporting period 30 June 2015. Use an appropriately labelled table for this task.
3. Prepare journal entries for the income tax expense related items for the reporting period 30 June 2015.
Question 2
Viti Ltd has three divisions, Dairy, Yoghurt and Chocolate, which operate independently of each other to produce milk products. The company has a headquarters and a research centre located in Nausori, with the divisions located throughout Fiji. The research centre interacts with all the divisions to assist in the improvement of the manufacturing process and the quality of the products manufactured by the entity.
There is not as yet any basis on which to determine how the work of the research centre will be allocated to each of the three divisions, as this will depend on priorities of the company overall and issues that arise in each division. The company headquarters provides approximately equal services to each of the divisions, but an immaterial amount to the research centre.
Neither the headquarters nor the research centre generates cash inflows.
On 30 June 2015, the net assets of Viti Ltd were as follows:
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|
Dairy Division
|
Yoghurt Division
|
Chocolate Division
|
Head Office
|
Research Centre
|
|
Land
|
$ 440,000
|
$ 280,000
|
$ 160,000
|
$ 110,000
|
$ 67,000
|
|
Plant and equipment
|
840,000
|
620,000
|
540,000
|
80,000
|
45,000
|
|
Accumulated depreciation
|
(240,000)
|
(200,000)
|
(160,000)
|
(10,000)
|
(12,000)
|
|
Inventories
|
240,000
|
180,000
|
140,000
|
0
|
0
|
|
Accounts receivable
|
120,000
|
100,000
|
60,000
|
0
|
0
|
|
|
1,400,000
|
980,000
|
740,000
|
180,000
|
100,000
|
|
Liabilities
|
120,000
|
100,000
|
100,000
|
0
|
0
|
|
Net Assets
|
1,280,000
|
880,000
|
640,000
|
180,000
|
100,000
|
Management of Viti Ltd believes there are economic indicators to suggest that the company's assets may be impaired. Accordingly, they have had recoverable amount assessed for each of the divisions:
Dairy Division $ 1,550,000
Yoghurt Division 1,000,000
Chocolate Division 750,000
The land held by Dairy division was measured at fair value using the revaluation model because of the specialised nature of the land. At 30 June 2015, the fair value was $440,000. The land held by Yoghurt division was measured at cost, and had a fair value less cost to sell of $270,264 at 30 June 2015.
Required:
Provide journal entries to account for the impairment of Viti Ltd as at 30 June 2015. Show all relevant working where required.