Major Assignment
Semester 1 2014
PART A
The following
information is provided in respect of Fedyou Ltd for calculation of income tax
as required by Accounting Standard AASB112 Income Taxes
Fedyou Ltd
commenced operations on 1 July 2007 with an issued share capital of $700,000.
On that date the company purchased a number of property plant and equipment
(PPE) assets, details of which are provided below:
Land Plant Computers Vehicles
Cost $100,000 $200,000
$100,000 $50,000
Depreciation
Rate:
Accounting – 15% 25% 30%
Tax – 10% 50% 40%
Method
Straight Straight Straight
Line Line Line
Carrying Amount
30 June 2008 150,000 170,000 75,000 35,000
The Statement of
Profit and Loss for the year ended 30 June 2008 was as follows:
Sales
$520,000
Interest
Revenue
40,000
Government Grant
(exempt from tax) 40,000
Total Revenue
600,000
Cost of Goods
Sold
200,000
Salaries and
Wages
60,000
Depreciation
Plant
30,000
Depreciation
Computers
25,000
Depreciation
Vehicles
15,000
Rent
18,000
Doubtful
Debts
30,000
Insurance
5,000
Long Service
Leave 3,000
Other
Expenses
9,000
Total
Expenses
395,000
Profit before Tax
205,000
Additional
Information:
–
The
current tax rate is 30%
–
Insurance
of $23,000 was paid during the year. Of this amount $18,000 was considered to
be prepaid for the coming financial year
–
Rent
is paid in arrears. $10,000 is due at end of current year and $8000 has been
paid in cash.
–
Interest
Revenue will be received in the coming financial year.
–
No bad
debts were written off during the current year
–
No
payments for long service leave were made during the current year.
At 30 June 2008
the Statement of Financial Position of Fedyou Ltd was as follows:
Assets
$’000
Cash
805
Prepayments 18
Receivables 300
Less
Allowance for
Doubtful Debts 30 270
Inventory
170
Property Plant and
Equipment 500
Less:
Accumulated
Depreciation 70 430
Interest
Receivable
40
Total Assets 1733
Liabilities
Accounts
Payable 280
Accrued
Expenses
10
Loan 485
Long Service Leave
Provision 3
Deferred Tax
Liability
15
Total
Liabilities 793
Equity
Share Capital
700
Retained
Profits
205
Asset Revaluation
Surplus
35
Total Equity
940
Total Liabilities
and Equity 1733
Additional
information:
–
Land
was revalued upward by $50,000 at 30 June 2008
–
The
written down values for tax purposes at 30 June 2008 for other PPE assets were
Plant $180,000, Computers $50,000 and Vehicles $30,000.
Required:
–
Calculate taxable income and current tax
liability for Fedyou Ltd for year ended 30 June 2008 including journal entry to
record these amounts (show all workings)
–
Prepare
a deferred tax worksheet to calculate the balances of any deferred tax assets
and liabilities at 30 June 2008 and prepare required journal entry.
PART B
Refer to the
attached extracts from the Wannon Water 2012/2013 Annual Report:
–
Comprehensive
Operating Statement
–
Balance
Sheet
–
Note
5: Income Tax
Required:
What recognition
criteria for deferred tax liabilities and assets must Wannon Water meet in
order to recognise the net deferred tax liability of $36.879 million in its
accounts?
PART C
At 30 June 2009
Fedyou Ltd undertook a comprehensive valuation of all of its PPE assets. The
results of the revaluation exercise were as follows:
Asset
Fair Value 30 June 2009
Land
$140,000
Plant
120,000
Computers
45,000
Vehicles
25,000
Required:
Having regard to
the requirements of Accounting Standard AASB116 Property Plant and Equipment
and AASB136 Impairment of Assets prepare the journal entries required
(including tax effects) if the assets were revalued to fair value at 30 June
2009
PART D
Under current
accounting standards revaluation increments on PPE assets are credited to a
revaluation surplus account in equity, whereas a revaluation decrement may be
recognised as an expense under certain circumstances.
Required:
Explain and critically
evaluate these requirements
Marks
PART A 6 + 6 = 12 marks
PART B = 3 marks
PART C = 3 marks
PART D = 2 marks
Total = 20 marks
Key assignment details and assessment criteria:
1.
Group
assignment with no more than three students in each group
2.
Maximum
length 300 words each (for PART B and PART D )
3.
Submission
due date: Week 9
Assessment Criteria
The criteria used
to assess the submitted assignment will be:
·
Ability
to work collegially in a group environment for shared success.
·
Evidence
of relevant research and demonstrated understanding of research materials. As a
minimum students should consult the references listed under additional
resources in the Unit Description
·
The structure,
coherence and logic of arguments and analysis presented.
·
Demonstrated
understanding of the subject matter that is the focus of the assignment topic.
