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Financial Accounting 250

Final Exam Revision Questions

Question 1 Leases

On 1 July 2010, Lessee Ltd leased a plastic-moulding machine from Lessor Ltd. The machine
cost Lessor Ltd $130,000 to manufacture and had a fair value of $154,109 on 1 July 2010.
The lease agreement contained the following provisions:

Lease term

4 years

Annual rental payment, in arrears on 30 June each year

$41,500

Residual value at end of the lease term

$22,660

Residual value guaranteed by lessee

$10,000

Interest rate implicit in lease

8%

The lease is cancellable only with the permission of lessor.

The expected life of the machine is 6 years. Lessee Ltd intends to return the machine to the
lessor at the end of the lease term.

Required
(a)
(b)
(c)
(d)

Prepare the lease schedules for the lessee (show all workings)
Prepare journal entries in the books of the lessee for the year ended 30 June 2011.
Prepare the lease schedules for the lessor (show all workings)
Prepare journal entries in the books of the lessor for the year ended 30 June 2011.

Question 2 Property, Plant and Equipment


ABC adjusted trial balance included the following as of 30 June 2010
Machines (at cost)
Accumulated Depreciation (Machines)
Land (at fair value)
Building (at fair value)
Asset Revaluation Reserve

125,700
(34,050)
226,000
113,000
4,025

Details of the machines owed by ABC Ltd at 30 June 2012 are as follows:
Machine
s
1
2
3

Date
Acquired
30/09/2008
30/11/2008
1/04/2009

Cost
$35,900
$41,300
$48,500

Acc Depn
$11,130
$11,590
$10,800

Estimated useful
Life
5
5
5

Estimated Residual
Value
4100
4700
5300

Additional Information

The land and building were purchased on the 1 april 2010 at a cost of $224,000 for the
land and $115,000 for the building. ABC decided to use the revaluation model on the
30 June 2010, the assets were both revalued to their fair values on that date.
All assets are depreciated using the straight line depreciation method, except for the
building which is depreciated at 20% using the reducing balance method.
Tax rate is 30%.

Transactions and events for the year ended 30 June 2011 were as follows:
01/11/10

Machine 1 was traded for a machine 4 which cost $61,800. A trade-in


allowance of $23,100 was given for machine 1 and the balance paid in cash.
Installation for machine 4 cost $2,620. Machine 4 useful life is 4 years and
residual value is $2,600.

31/03/11

Machine 2 was traded in for a truck that had a fair value of $24,500 on
exchange date. Machine 2s fair value was the same on exchange date. The
trucks useful life and residual value were 4 years and $2,600.

31/05/11

$3,140 was paid for servicing machine 3 and 4.

30/06/11

The buildings fair value was assessed to be $95,000 (without any impact of
the depreciation rate) and the lands fair value was assessed to be $222,000.

Prepare Journal Entries as of 30 June 2011.

Question 3 - Current Tax Worksheet


For the year ended 30 June 2011, Walker Commentary Ltd reported a profit before tax of $40
000. Included in that profit were the following items:
Rent revenue
20 000
Annual leave expense
10 000
Depreciation plant
30 000
Depreciation buildings
25 000
Government grant
7 000
Entertainment expenses
4 000
Interest revenue
6 000
Insurance expense
9 000
Bad debts expense
3 000
Below is an extract from the balance sheets of Walker Commentary Ltd, as at June 30 2010
and June 30 2011:
2010
2011
Cash at bank
10 000
17 000
Inventory
198 000
171 400
Rent Receivable
140 000
145 000
Accounts Receivable
200 000
204 500
Allowance for Doubtful Debts
(91 000)
(89 500)
Plant
300 000
300 000
Accumulated Depreciation plant (180 000)
(210 000)
Buildings
150 000
150 000
Accumulated Depreciation build. (75 000)
(100 000)
Interest Receivable
62 000
60 000
Prepaid Insurance
49 000
50 000
Accounts Payable
31 415
27 278
Loan Payable
106 790
102 300
Provision for Annual Leave
60 000
63 000
Additional Information:
a Government grants are not taxable
b Entertainment expenses are not deductible
c For tax purposes, the plant is depreciated over 15 years
d For tax purposes, the buildings are depreciated at 20%
Prepare a current tax worksheet for Walker Commentary Ltd. Calculate their current
tax payable. Show all workings. Prepare the journal entry to record the current tax
payable.

Question 4 Deferred Tax Worksheet


Alley Ltd commenced operations on 1 July 2006. The following financial information is
available for the years ended 30 June 2007 and 2008:
2007
Taxable income

2008

120,000

150,000

Assets and liabilities as disclosed in the balance sheet


ASSETS
Cash
Inventory
Accounts receivable
less allow. for doubt. debts (10,000)
Prepaid insurance
Plant cost
less accum depreciation
(30,000)
Total assets

30,000
35,000
120,000
110,000
14,000
150,000
120,000
309,000

LIABILITIES
Accounts payable
Unearned revenue
Provision for annual leave
Total liabilities
Net assets

45,000
5,000
4,000
54,000
255,000

6,000
(60,000)

45,000
65,000
135,000
129,000
13,000
150,000
90,000
342,000
66,000
3,000
6,000
75,000
267,000

Other information
i)

The plant is depreciated over 5 years for accounting purposes, but over 3 years for
taxation purposes.

ii)

Revenue received in advance by the company is assessable for tax purposes in the
year in which it is received.

iii)

The tax rate is 30 per cent.

Required
a)

Determine the deferred taxes, and prepare the journal entries to account for the
income tax for the year ended 30 June 2007. Use a tax worksheet.

b)

Determine the deferred taxes, and prepared the journal entries to account for the
income tax for the year ended 30 June 2008. Use a tax worksheet.

Question 5 - Cash Flow Statement


The following financial statement information was obtained for ABC Ltd:
ABC Ltd
Income Statement
for the year ended 30 June 2012
$
920,000
11,000
5,000
936,000

Sales
Interest revenue
Dividends revenue
Less expenses:
Cost of goods sold
Other expenses (including depreciation of 89,000)
Bad Debt Expense
Interest expense
Loss on sale of plant and equipment
Profit before income tax
Income tax expense
Profit for the period

320,000
366,000
10,000
14,000
10,000

720,000
216,000
(74,000)
142,000

ABC Ltd
Balance Sheet
as at 30 June 2012
CURRENT ASSETS
Cash
Accounts Receivable
Allowance for Doubtful Debt
Interest receivable
Inventory
TOTAL CURRENT ASSETS

2011
$
137,000
220,000
(10,000)
20,000
285,000
646,000

2012
$
277,000
259,000
(15,000)
15,000
335,000
871,000

NON-CURRENT ASSETS
Shares is XYZ Ltd
Plant and equipment
Accumulated depreciation plant & equipment
TOTAL NON-CURRENT ASSETS

50,000
1,760,000
(230,000)
1,580,000

50,000
2,115,000
(295,000)
1,870,000

TOTAL ASSETS

2,226,000

2,741,000

90,000
20,000
45,000
50,000

99,000
30,000
65,000
45,000

CURRENT LIABILITIES
Accounts Payable
Accrued expenses
Current tax liability
Bank overdraft

Final dividend payable


TOTAL CURRENT LIABILITIES

30,000
235,000

35,000
274,000

NON-CURRENT LIABILITIES
Bank Loan
Deferred tax liability
TOTAL NON-CURRENT LIABILITIES

300,000
16,000
316,000

10,000
10,000

TOTAL LIABILITIES

551,000

284,000

NET ASSETS

1,675,000

2,457,000

EQUITY
Share capital
Retained earnings
TOTAL EQUITY

1,550,000
125,000
1,675,000

2,250,000
207,000
2,457,000

Other information:
i)
ii)
iii)
iv)
v)

During the reporting period ABC Ltd made a major share issue.
A bank loan was repaid during the year ended 30 June 2012.
During the year ended 30 June 2012 plant and equipment costing $60,000 and with
a carrying amount of $30,000 was sold.
An interim dividend was declared and paid during the year.
The opening and closing balances of the accrued expenses were attributable to
wages and salaries, and interest payable as follows:
Opening
Closing

v)

Wages and salaries


5,000
10,000

Interest
15,000
20,000

The bank overdraft is used as part of the companys short-term cash management
activities.

Required
Prepare the cash flows from the Operating Activities section ONLY of ABC Ltds cash
flow statement for the year ended 30 June 2012 in accordance with IAS 7 Cash Flow
Statements and using the direct method of presentation. Show all workings.