(i) | Calculation of taxable income and tax for Jameson Ltd for the year ended 30 June, 2018 | ||||||
Particulars | Amount ($) | ||||||
Profit before tax | 3,20,000 | ||||||
Add: Items not allowed for tax deduction | |||||||
Depreciation expense | 40,000 | ||||||
Loss on sale of plant (30000-36667) | 6,667 | ||||||
Amortisation of development costs | 30,000 | ||||||
Insurance expense | 24,000 | ||||||
Entertainment expense | 14,220 | ||||||
Fines and penalties | 7,200 | ||||||
Legal fees | 4,200 | ||||||
Restructuring expenses | 25,000 | ||||||
Employee benefits expense | 54,000 | ||||||
Doubtful debts expense | 12,000 | 2,17,287 | |||||
Add: Items taxable on payment basis | |||||||
Rent received (5500+25000-3500) | 27,000 | 27,000 | |||||
Less: Items not taxable for tax deduction | |||||||
Royalty revenue | 3,500 | ||||||
Rent revenue | 25,000 | -28,500 | |||||
Less: Items allowed for tax deduction | |||||||
Depreciation as per Tax (266667*20%) | 53,333 | ||||||
Development expense (120000*125%) | 1,50,000 | ||||||
Insurance expense paid (30000+24000-25000) | 29,000 | ||||||
Restructuring expenses paid (25000-25000) | 0 | ||||||
Employee expenses paid (65000+54000-61000) | 58,000 | ||||||
Doubtful debts written off (22000+12000-26000) | 8,000 | -2,98,333 | |||||
Taxable income | 2,37,454 | ||||||
Net taxable income | 2,37,454 | ||||||
Tax @ 30% | 71,236 | ||||||
Total tax payable | 71,236 | ||||||
Less: taxes paid | |||||||
28 July 2017 (Final payment for 30 June 2017) | 10,700 | ||||||
28 October 2017 (1st payment for 30 June 2018) | 9,570 | ||||||
28 February 2018 (2nd payment for 30 June 2018) | 10,470 | ||||||
28 April 2018 (3rd payment for 30 June 2018) | 7,550 | 38,290 | |||||
Net tax payable | 32,946 | ||||||
Journal entries to record tax expenses | |||||||
Current tax expense | Dr. | 71,236 | |||||
To Current tax lability | -71,236 | ||||||
(To record current tax expense) | |||||||
Jameson Ltd. | |||||||
Deferred tax worksheet for the year ended 30 June, 2018 | |||||||
Particulars | Carrying amount | Tax base | Deductible temporary differences | Taxable temporary differences | |||
Allowance for doubtful debts | 26,000 | – | 26,000 | ||||
Prepad insurance | 30,000 | – | 30,000 | ||||
Rent receivable | 3,500 | – | 3,500 | ||||
Development costs | 90,000 | 1,50,000 | 60,000 | ||||
Property, plant and equipment | 1,10,000 | 76,667 | 33,333 | ||||
Provision for restructuring | 25,000 | – | 25,000 | ||||
Provision for employee benefits | 61,000 | – | 61,000 | ||||
Total temporary diff. | 1,12,000 | 1,26,833 | |||||
Deferred tax liability @ 30% | 38,050 | ||||||
Deferred tax asset @ 30% | 33,600 | ||||||
Opening balances | 26,100 | 17,150 | |||||
Increase for the year | 7,500 | 20,900 | |||||
Calculation of carrying amount of PPE as per tax base: | |||||||
Amount | |||||||
Plant Purchased | 2,66,667 | ||||||
Depreciation for – 30 June, 2016 | (53,333) | ||||||
Depreciation for – 30 June, 2017 | (53,333) | ||||||
Depreciation for – 30 June, 2018 | (53,333) | ||||||
Less: Proceeds from sale of plant | (30,000) | ||||||
Net carrying value | 76,667 | ||||||
Journal entries to record tax expenses | |||||||
Income tax expense | 13,400 | ||||||
Deferred tax asset | 7,500 | ||||||
To Deferred tax liability | 20,900 | ||||||
Part – A | |||||||
1 | Acquisition analysis as on 1 July, 2018 | ||||||
Calculation of Fair Value of net assets acquired as on 1 July, 2018 | |||||||
Particulars | Amount ($) | ||||||
Accounts receivable | 28,840 | ||||||
Inventory | 30,000 | ||||||
Buildings | 2,00,000 | ||||||
Fixtures | 75,000 | ||||||
Plant and equipment | 42,000 | ||||||
Guarantees | (32,000) | ||||||
Accounts payable | (32,600) | ||||||
Loans | (74,200) | ||||||
Accrued interest on loans | (4,300) | ||||||
Liquidation expenses | (5,000) | ||||||
Net fair value of assets and liabilities acquired | 2,27,740 | ||||||
Consideration paid | |||||||
– Shares (70,000*2/5*7) | ####### | ||||||
– Patent | 18,000 | 2,14,000 | |||||
Gain on bargain purchase | 13,740 | ||||||
2 | Journal entries to record the acquisition | ||||||
Particulars | Debit ($) | Credit ($) | |||||
Accounts receivable | 28,840 | ||||||
Inventory | 30,000 | ||||||
Buildings | 2,00,000 | ||||||
Fixtures | 75,000 | ||||||
Plant and equipment | 42,000 | ||||||
To Guarantees | 32,000 | ||||||
To Accounts payable | 32,600 | ||||||
To Loans | 74,200 | ||||||
To Accrued interest on loans | 4,300 | ||||||
To Liquidation expenses | 5,000 | ||||||
To Gain on bargain purchase | 13,740 | ||||||
To Share capital | 1,96,000 | ||||||
To Patent | 18,000 | ||||||
(To record purchase of business) | |||||||
Share capital | 4,000 | ||||||
To Cash | 4,000 | ||||||
(To record cost of issuing shares) | |||||||
3 | Acquisition analysis as on 1 July, 2018 | ||||||
Calculation of Fair Value of net assets acquired as on 1 July, 2018 | |||||||
Particulars | Amount ($) | ||||||
Accounts receivable | 28,840 | ||||||
Inventory | 30,000 | ||||||
Buildings | 2,00,000 | ||||||
Fixtures | 75,000 | ||||||
Plant and equipment | 42,000 | ||||||
Guarantees | (32,000) | ||||||
Accounts payable | (32,600) | ||||||
Loans | (74,200) | ||||||
Accrued interest on loans | (4,300) | ||||||
Liquidation expenses | (5,000) | ||||||
Net fair value of assets and liabilities acquired | 2,27,740 | ||||||
Consideration paid | |||||||
– Shares (70,000*2/5*10) | ####### | ||||||
– Patent | 18,000 | 2,98,000 | |||||
Goodwill | 70,260 | ||||||
PART-B | |||||||
Part – A | |||||||
1 | Acquisition analysis as on 1 January, 2018 | ||||||
Calculation of Fair Value of net assets acquired as on 1 January, 2018 | |||||||
Particulars | Amount ($) | ||||||
Share capital | 10,000 | ||||||
Retained earnings | 3,000 | ||||||
Add: Fair value | |||||||
– Inventory (400*(1-30%)) | 280 | ||||||
Net fair value of net assets acquired | 13,280 | ||||||
Consideration paid | 20,000 | ||||||
Less: Pre acquisition dividend | (3,000) | 17,000 | |||||
Goodwill | 3,720 | ||||||
2 | Consolidation Journal Entries as on 1 July, 2018 | ||||||
Particulars | Debit ($) | Credit ($) | |||||
(a) | Inventory | 400 | |||||
To Deferred tax liability | 120 | ||||||
To Business combination valuation reserve | 280 | ||||||
(To record fair valuation of inventory) | |||||||
(b) | Retained earnings (1/1/18) | 3,000 | |||||
Share captial | 10,000 | ||||||
Goodwill | 3,720 | ||||||
Business combination valuation reserve | 280 | ||||||
To Shares in Melon Ltd | 17,000 | ||||||
(To record acquisition of Melon Ltd) | |||||||
3 | Consolidation Journal Entries as on 31 December, 2018 | ||||||
(c) | Deferred tax liability | 108 | |||||
Transfer from business combination valuation reserve | 252 | ||||||
To Inventory | 360 | ||||||
(To record sale of fair valued inventory) | |||||||
(d) | Sales | 5,000 | |||||
To Cost of sales | 4,000 | ||||||
To Inventory | 1,000 | ||||||
(To record elimination of profit in ending inventory) | |||||||
(e) | Deferred tax asset | 300 | |||||
To Income tax expense | 300 | ||||||
(To record tax expense on above) | |||||||
(f) | Impairment loss of goodwill | 1,860 | |||||
To Goodwill | 1,860 | ||||||
(To record write off of goodwill) | |||||||
(g) | Management fee revenue | 700 | |||||
To Management fee expense | 700 | ||||||
(To record elimination of inter company transaction) | |||||||
(h) | Gain on sale of property, plant and equipment | 3,500 | |||||
To Machinery | 3,500 | ||||||
(To record elimination of profit in sale of machinery) | |||||||
(i) | Deferred tax asset | 1,050 | |||||
To Income tax expense | 1,050 | ||||||
(To record tax expense on above) | |||||||
(j) | Accumulated Depreciation (3500/5/2) | 350 | |||||
To Depreciation expense | 350 | ||||||
(To record reversal of excess depreciation charged) | |||||||
(k) | Income tax expense | 105 | |||||
To Deferred tax asset | 105 | ||||||
(To record tax expense on above) | |||||||
Account | Water Ltd | Melon Ltd | Adjustments | Group | |||
Dr | Cr | ||||||
Sales revenue | 25,000 | 23,600 | d | 5,000 | 43,600 | ||
Dividend revenue | 1,000 | – | l | 1,000 | – | ||
Gain on sale of property, plant and equipment | 1,000 | 3,500 | h | 3,500 | 1,000 | ||
Other income | 1,000 | 2,000 | g | 700 | 2,300 | ||
Total income | 28,000 | 29,100 | 46,900 | ||||
Cost of sales | 21,000 | 18,000 | 4,000 | d | 35,000 | ||
Other expenses | 3,000 | 1,000 | f | 1,860 | 1,050 | g, j | 4,810 |
Total expenses | 24,000 | 19,000 | 39,810 | ||||
Profit before income tax | 4,000 | 10,100 | 7,090 | ||||
Income tax expense | 1,350 | 1,950 | k | 105 | 1,350 | e, i | 2,055 |
Profit for the period | 2,650 | 8,150 | 5,035 | ||||
Retained earnings (01/01/2018) | 6,000 | 3,000 | b | 3,000 | 6,000 | ||
8,650 | 11,150 | 11,035 | |||||
Interim dividend paid | (2,500) | (1,000) | 1,000 | l | (2,500) | ||
Retained earnings (31/12/2018) | 6,150 | 10,150 | 8,535 | ||||
Water Ltd | |||||||
STATEMENT OF PROFIT & LOSS AND OTHER COMPREHENSIVE INCOME | |||||||
For the year ended on 31 December, 2018 | |||||||
Particulars | For the year ended 31 Dec, 2018 |
||||||
Revenue: | |||||||
Sales | 43,600 | ||||||
Dividend revenue | – | ||||||
Gain on sale of property, plant and equipment | 1,000 | ||||||
Other income | 2,300 | ||||||
Total Revenue | 46,900 | ||||||
Expenses | |||||||
Cost of sales | 35,000 | ||||||
Other expenses | 4,810 | ||||||
Total expenses | 39,810 | ||||||
Profit before tax (I-II) | 7,090 | ||||||
Less: Income tax expense | 2,055 | ||||||
Profit for the period | 5,035 | ||||||
Other comprehensive income (OCI) | |||||||
Items that will not be reclassified subsequently to profit or loss | |||||||
Gain from revaluation of property, plant and equipment | 1,650 | ||||||
Income tax relating to above | (495) | 1,155 | |||||
Total comprehensive income | 6,190 | ||||||
1 | Acquisition analysis as on 1 July, 2015 using partial goodwill method | ||||||
Calculation of Fair Value of net assets acquired as on 1 July, 2015 | |||||||
Share Capital | 2,00,000 | ||||||
Retained Earnings | 55,000 | ||||||
Asset revaluation surplus | 50,000 | ||||||
Fair value: | |||||||
– Inventories ((67000-60000)*(1-30%)) | 4,900 | ||||||
– Plant & Machinery ((90000-75000)*(1-30%)) | 10,500 | ||||||
Less: Goodwill | (20,000) | ||||||
Net fair value of assets acquired | 3,00,400 | ||||||
% of shareholding | 80% | ||||||
Equivalent fair value of assets acquired – (a) | 2,40,320 | ||||||
Consideration paid – (b) (330000-20000) | 3,10,000 | ||||||
Goodwill (b-a) | 69,680 | ||||||
2 | Acquisition analysis as on 1 July, 2015 using full goodwill method | ||||||
Calculation of Fair Value of net assets acquired as on 1 July, 2015 | |||||||
Share Capital | 2,00,000 | ||||||
Retained Earnings | 55,000 | ||||||
Asset revaluation surplus | 50,000 | ||||||
Fair value: | |||||||
– Inventories ((67000-60000)*(1-30%)) | 4,900 | ||||||
– Plant & Machinery ((90000-75000)*(1-30%)) | 10,500 | ||||||
Less: Goodwill | (20,000) | ||||||
Net fair value of assets acquired | 3,00,400 | ||||||
Consideration paid (330000-20000) – (a) | 3,10,000 | ||||||
Non controlling interest – (b) | 68,000 | ||||||
Aggregate of (a) and (b) | 3,78,000 | ||||||
Goodwill (378000-300400) | 77,600 | ||||||
Goodwill of Scotch Ltd | |||||||
Fair value (68000/20%) | 3,40,000 | ||||||
Net fair value of identifiable assets and liabilities of Scotch Ltd | 3,00,400 | ||||||
Goodwill of Scotch Ltd | 39,600 | ||||||
Recorded goodwill | 20,000 | ||||||
Unrecorded goodwill | 19,600 | ||||||
Goodwill of Butter Ltd | |||||||
Goodwill acquired | 77,600 | ||||||
Goodwill of Scotch Ltd | 39,600 | ||||||
Goodwill of Butter Ltd – Control premium | 38,000 | ||||||
3 | Consolidation Worksheet Entries as at 1 July, 2015 | ||||||
1. Business Combination Valuation Entries | |||||||
Accumulated Depreciation | 1,25,000 | ||||||
To Plant | 1,10,000 | ||||||
To Deferred tax liability | 4,500 | ||||||
To Business Combination Valuation Reserve | 10,500 | ||||||
(To record fair valuation of Plant) | |||||||
Inventories | 7,000 | ||||||
To Deferred tax liability | 2,100 | ||||||
To Business Combination Valuation Reserve | 4,900 | ||||||
(To record fair valuation of Inventory) | |||||||
2. Pre Acquisition entry as on 1 July, 2015 | |||||||
Share Capital | 1,60,000 | ||||||
Retained Earnings | 44,000 | ||||||
Asset revaluation surplus | 40,000 | ||||||
Goodwill | 38,000 | ||||||
Business combination valuation reserve * | 28,000 | ||||||
To Investment in Scotch Ltd. | 3,10,000 | ||||||
(To record acquisition of subsidiary) | |||||||
(BCVR = 4900+10500+19600 = 35000*80%) | |||||||
3. NCI in equity entry as on 1 July, 2015 | |||||||
Share Capital | 40,000 | ||||||
Retained Earnings | 11,000 | ||||||
Asset revaluation surplus | 10,000 | ||||||
Business combination valuation reserve | 7,000 | ||||||
To NCI | 68,000 | ||||||
(To reocord NCI share) | |||||||
(BCVR = 4900+10500+19600 = 35000*20%) | |||||||
4 | Consolidation Worksheet Entries as at 30 June, 2018 | ||||||
Accumulated depreciation | 11,250 | ||||||
To Depreciation expense | 3,750 | ||||||
To Retained earnings (1/7/17) | 7,500 | ||||||
(To record depreciation) | |||||||
Income tax expense | 1,125 | ||||||
Retained earnings (1/7/17) | 2,250 | ||||||
To Deferred tax asset | 3,375 | ||||||
(To record income tax on depreciation) | |||||||
Profit on sale of machinery | 6,000 | ||||||
To Machinery | 6,000 | ||||||
(To record elimination of profit in sale of machinery) | |||||||
Deferred tax asset | 1,800 | ||||||
To Income tax expense | 1,800 | ||||||
(To record tax expense on above) | |||||||
Accumulated Depreciation | 750 | ||||||
To Depreciation expense | 750 | ||||||
(To record reversal of excess depreciation charged) | |||||||
Income tax expense | 225 | ||||||
To Deferred tax asset | 225 | ||||||
(To record tax expense on above) | |||||||
Asset revaluation surplus | 10,000 | ||||||
To Retained earnings | 10,000 | ||||||
(To record transafer of amount) | |||||||
Retained earnings | 20,000 | ||||||
To General reserve | 20,000 | ||||||
(To record transafer of amount) | |||||||
Dividend revenue | 11,200 | ||||||
To Dividend paid and declared | 11,200 | ||||||
(To eliminate inter company dividend transaction) | |||||||
Retained earnings (1/7/17) | 1,750 | ||||||
Income tax expense | 750 | ||||||
To Cost of sales | 2,500 | ||||||
(To record elimination of profit from opening inventory) | |||||||
Sales | 7,500 | ||||||
To Cost of sales | 6,250 | ||||||
To Inventory | 1,250 | ||||||
(To record elimination of profit from closing inventory) | |||||||
Deferred tax asset | 375 | ||||||
To Income tax expense | 375 | ||||||
(To record tax expense on above) | |||||||
Retained earnings (1/7/17) | 5,000 | ||||||
To Vehicle | 5,000 | ||||||
(To record elimination of profit in sale of vehicle) | |||||||
Deferred tax asset | 1,500 | ||||||
To Income tax expense | 1,500 | ||||||
(To record tax expense on above) | |||||||
Accumulated Depreciation | 1,000 | ||||||
To Depreciation expense | 500 | ||||||
To Retained earnings (1/7/17) | 500 | ||||||
(To record reversal of excess depreciation charged) | |||||||
Income tax expense | 150 | ||||||
Retained earnings (1/7/17) | 150 | ||||||
To Deferred tax asset | 300 | ||||||
(To record tax expense on above) | |||||||