FACULTY OF BUSINESS AND LAW

ACFI2001 Company Accounting

Semester 1, 2015
Assignment
Weighting: 20 Marks (worth 20%)
Due Date:
Weighting:

17 May, 11:59pm 2015

20%

All assignments are to be submitted electronically on Blackboard via Turnitin and a hardcopy
submitted in the week 11 tutorial.
The assignment must be attempted and completed individually or if you prefer in groups of
two, provided the group of two have the same tutor. It is to be submitted by 11:59pm on the
due date on Blackboard as well as a hardcopy submitted in the week 11 tutorial . Turnitin
reports can be used as evidence by the lecturer in the event that plagiarism is suspected in an
assignment. Suspected acts of plagiarism will be forwarded to the Student Academic Conduct
Officer (SACO).
Any assignment submitted late without an approved extension will be penalised at a rate of
10% per day of the possible maximum mark for the assignment for each day or part day that
the assessment is late. Any assignment submitted more than five days after the due date will be
awarded zero marks.
Assignment Details
This assignment consists of a written component (completed in Microsoft Word) and
calculations (which must be done using an Excel spreadsheet embedded in Microsoft Word).
This will mean that you complete the assignment in one file and you will upload the one file to
Blackboard.

Page 1 of 5

Question 1 (10 marks)

A newly registered company, HUY Ltd, has issued a prospectus dated 1 January 2015 inviting
the public to apply for the following classes of shares. Both classes of shares have voting
rights:
-

432,000 ordinary shares at $6.00 per share. The terms of the share on issue are $2.50 on
application, $1.50 on allotment, $1.20 on the first call and $0.80 on the second call.
200,000 10% participating preference shares at $3.00 per share, $2.00 on application
and $1.00 on allotment.

If the issue is oversubscribed the directors will make a pro-rata issue of shares and the excess
application money will be applied to allotment and calls before any refunds will be given.
On 28 February 2015 applications closed and applications had been received for the following:

Applications were received for 480,000 ordinary shares in total, with applications for
100,000 shares paying $6.00, applications for 200,000 shares paying $4.00 and the
remainder paying only the application fee.
Applications were received for 250,000 preference shares, with all applications
received paying the full $3.00.

On the 28 March 2015 the shares were allotted, with all allotment money owed paid by the 15
April 2015. On 28 March 2015 share issue costs of $20,000 for the ordinary shares and
$15,000 for the preference shares were also paid. The share issue costs related to legal
expenses associated with the share issue and fees associated with the drafting and advertising
of the prospectus and share issue.
On 1 May 2015 the first call is made on the ordinary shares and on 1 June the call money was
received except for the call on 12,000 shares. The 12,000 shares were forfeited and cancelled
on 15 June 2015. On 20 June 2015 the $6.00 shares were reissued at $5.50. That is, the
shareholders received a fully paid $6 share for $5.50. Costs associated with reissuing the
forfeited shares totalled $10,000. The money has not yet been refunded to the shareholders that
had their shares cancelled.

Page 2 of 5

Required:
(You must show all workings)
(a) Prepare separate schedules, one for the ordinary share issue and one for the preference
share issue that shows the break-up of:
number of shares applied for;
number of shares allotted;
total cash received;
cash received that relates to application;
cash received that relates to allotment;
cash received that relates to calls (in advance); and
cash refunded.
(1.5 marks)
(b) Prepare journal entries for the above transactions. Note: as there is an ordinary share
issue and a preference share issue you will need to account for them separately, that is
you will need to have separate application, allotment and share capital accounts. i.e.
Application Preference, Application Ordinary, Allotment Preference, Allotment
Ordinary, Share Capital Preference, Share Capital Ordinary. Exclude journal
narrations.
(5.5 marks)
(c) Calculate the ending balances for Share Capital Ordinary, Share Capital Preference,
Calls in Advance then prepare the equity section of the balance sheet.
(1 mark)
(d) Tom, the senior accountant of HUY Ltd, has argued that the preference shares issued by
HUY Ltd should be treated as debt, as he has noticed that BHP has classified their
preference shares in the past as debt. Sarah, a junior accountant, is not sure and thinks
they are equity.
As the intermediate accountant at HUY Ltd, you have been asked to write to the senior
accountant to argue and justify how the preference shares should be treated.
(2 marks)

Page 3 of 5

Question 2 (10 marks)

Lone Wolf Ltd began operations on 1 July 2014 by purchasing an existing business for
$700,000. The fair values of the assets of the purchased business were as follows:
Asset

Fair value $
88,000
380,000
192,000

Vehicles
Equipment
Computers

The excess of the purchase consideration over the fair value of the assets acquired was
recorded as goodwill.
The depreciation regimes for the financial reports and the company income tax return
respectively are listed below. The company income tax rate is 30%.
Depreciation Regimes
Depreciation rate:
Accounting
Tax
Method:
Accounting
Tax
Residual:

Vehicles

Equipment

Computers

25%
40%

25%
30%

25%
50%

Straight-line
Reducing Balance
$8,000

Straight-line
Reducing Balance
$20,000

Straight-line
Reducing Balance
$12,000

During the first year of operations, the company recognised the following transactions which
are treated differently for tax and accounting purposes:

Insurance of $38,000 was paid for during the year. Of this amount, $26,400 is prepaid
for next year.
Rent is paid for in arrears. $26,000 is owing at the end of the current year and $9,200
has been paid in cash.
Employee Entitlements (Annual, Sick and Long Service Leave) totalling $16,000 were
provided for during the year. No payments were made.
Allowance for doubtful debts for Accounts Receivable was $4,000.

Other items in the income statement which were treated the same for accounting and tax
purposes were:

Sales $900,000

Cost of Goods Sold $456,000

Salaries and Wages $84,000

Other expenses $19,200

Page 4 of 5

Other items in the statement of financial position as at 30 June 2015 are:

$
312,000
86,000
35,000
42,000
38,000

Year end balances

Inventory on hand
Accounts receivable
Goodwill (net)
Accounts payable
Cash at Bank
Additional information:

No debts were written off as bad during the year.

For year ended 30 June 2015 the profit before income tax of Lone Wolf Ltd was
$114,000.

Required:
(You must show all workings)
a) Explain the meaning of the tax base for an asset, and distinguish the tax base from an
assets carrying amount. What is the significance of the difference?

(2 marks)

b) Prepare a schedule that shows the calculation of taxable income and current tax liability for
Lone Wolf Ltd for the year ending 30 June 2015.

(2 marks)

c) Prepare a worksheet (that includes all assets and liabilities) that shows the calculation of
deferred tax liabilities and deferred tax assets for Lone Wolf Ltd as at 30 June 2015.
(4.5 marks)
d) Provide journal entries to record the current tax liability, deferred tax assets (if any) and
deferred tax liabilities (if any). Apply the requirements of AASB 112 Income Taxes with
respect to offset. Exclude journal narrations.

Page 5 of 5

(1.5 marks)