The following data are taken from the trial balance of Bula Island Limited on 30 June 2018 with selected
comparative information provided for 30 June 2017.
2018 2017 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
1. All depreciable assets were acquired on 1 July 2015. 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 2018, the plant was impaired by $250,000 (this is not reflected in the amounts presented in the trial balance). 3. On 30 June 2018, 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 2017 was $3,500,000 and on 30 June 2018 was $3,250,000. 4. The research and development expenditure qualifies for the additional 25% taxation deduction. 5. The tax rate at 30 June 2017 was 30%. On 15 June 2018, legislation was enacted decreasing the tax rate to 25% effective 1 July 2018.
1. Calculate the amount of current tax expense. Use an appropriately labelled table for this task. 2. Prepare deferred tax worksheet to calculate the amounts for deferred tax assets and deferred tax liabilities for the reporting period 30 June 2018. 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 2018.
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 2018, the net assets of Viti Ltd were as follows:
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 2018, 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 2018.
Provide journal entries to account for the impairment of Viti Ltd as at 30 June 2018. Show all relevant working where required.
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