ACCT3011 Lecture 3 - ACCT3011 Financial Accounting B Yang...

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ACCT3011 Financial Accounting B Yang Xu (307198650) WEEK 3 SUMMARY – FAIR VALUE ADJUSTMENTS AND INCOME TAX EFFECTS (WEEK 4 TUTORIAL) Framework for this week: • Consolidation Adjustments for Land • Consolidation Adjustments for Depreciable Assets • Consolidation Adjustment for Elimination of Parent’s Investment in Subsidiary • Consolidation Adjustment for Elimination of Inter-Company Loans • Consolidation Adjustment for Elimination of Inter-Company Dividends • Consolidation Adjustment for Recognising Goodwill Impairment Note the order of the consolidation adjustments. For example, it is not logically to do journal b) above, before we have done journal a). Why not? In the solution to Ex3.10 below, we will do consolidation journal a) first. Then we have the information we need to do an acquisition analysis (remember from last week) which we will do next and then we will do all other appropriate consolidation eliminations and adjustments. Having done that, we can then complete the consolidation worksheet and then go on to do the group Balance Sheet and Profit and Loss. Question 3.6 – Tax Effect Accounting and Consolidation Treatment of Deferred Tax Balances: Tax consolidation is not mandatory. Since July 2002, groups may also elect to be treated as a single taxable entity. Deferred Tax Liability / Taxable Temporary Difference Deferred Tax Asset / Deductible Temporary Difference Asset Carrying Value > Tax Base Carrying Value < Tax Base Liability Carrying Value < Tax Base Carrying Value > Tax Base Explain the following propositions: (a) The balance of current tax payable for the group equals the sum of the current tax payables recorded by the parent entity and each of its subsidiaries. A company’s current tax expense and current tax liability is measured as its taxable income multiplied by the company income tax rate. (AASB 112.5). The recording entry is; Debit Credit Dr Current Tax Expense XXX Cr Current Taxes Payable To Record Income Tax owed to the Australian Tax Office (pg 118) The liability for current taxes payable is an obligation due to the Australian Tax Office. The tax office is not a member of the group and is an external party. When each group entity is a separate taxable entity, the sum of the separate liabilities owed by each entity is equal to the total owing amount for the group. This amount cannot be changed by a consolidation adjustment. (b) The deferred tax liability for the group may differ from the sum of the deferred tax liabilities recorded by the parent entity and each of its subsidiaries. A taxable temporary difference (DTL) for the group will arise as a result of a business combination if the carrying amount of an asset is increased to fair value without an accompanying change in the asset’s Tax Base (AASB 112/18(a)) (pg 119) The deferred tax liability for the group is not calculated as the mere sum of all DTLs cross all entities. The total group’s DTL is calculated as follows; Group DTL = Income Tax Rate x Increase In the Taxable Temporary Difference for the Group = Income Tax Rate x [Group’s Taxable Temporary Difference – Subsidiary’s Taxable Temporary
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This note was uploaded on 08/11/2009 for the course ACCT 3011 taught by Professor Whelan during the Three '09 term at University of Sydney.

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ACCT3011 Lecture 3 - ACCT3011 Financial Accounting B Yang...

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