Power And Politics In Organizations: Exploring Relevant Theories And Best Practices

(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 (70,0002/57)	#######
	– 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 (70,0002/510)	#######
	– 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)

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