Corporate Accounting Virtual Finance Accounting

Question: Discuss about the Corporate Accounting for Virtual Finance Accounting. Answer: 1. Harbour Cruises Limited Calculation showing Taxable income Particulars Amount Amount Accounting PBT $ 375,000.00 Add: Long service leave $ 25,000.00 Accrued Warranty expenses $ 25,000.00 Depreciation $ 100,000.00 Total $ 150,000.00 Less: Prepaid insurance paid $ (12,500.00) Depreciation $ (125,000.00) Total $ (137,500.00) Taxable Income $ 387,500.00 Harbour Cruises Limited Calculation of deferred Tax work sheet Particulars Carrying Amount Tax Base Temporary Difference Assets Cash $ 25,000.00 $ 25,000.00 $ - Inventory $ 125,000.00 $ 125,000.00 $ - Account receivable $ 125,000.00 $ 125,000.00 $ - Prepaid Insurance $ 12,500.00 $ - $ 12,500.00 Plant (net Depreciation) $ 400,000.00 $ 375,000.00 $ 25,000.00 Total Assets $ 687,500.00 $ 650,000.00 $ 37,500.00 Liability Accounts Payable $ 100,000.00 $ 100,000.00 $ - Provision for warranty expenses $ 25,000.00 $ - $ 25,000.00 Loan Payable $ 250,000.00 $ 250,000.00 $ - Provision for Long service leave $ 25,000.00 $ - $ 25,000.00 Total Liability $ 400,000.00 $ 350,000.00 $ 50,000.00 Net Assets $ 287,500.00 $ 300,000.00 Temporary Difference $ (12,500.00) Deferred tax Liability $ 11,250.00 Deferred Tax Assets $ (15,000.00) Net Deferred Tax Assets $ (3,750.00) Harbour Cruises Limited Calculation showing Deferred tax Particulars Amount Tax on accounting profit $ 112,500.00 Current tax Liability $ 116,250.00 Net deferred tax Asset $ (3,750.00) 3. Luke Limited Journal Entries for the year ended 30-06-2016 Date Particular Debit Credit Investment Acquisition 01-07-07 Investment in John Ltd $ 712,000.00 Bank $ 712,000.00 30-06-16 Share Capital $ 400,000.00 Retained Earning $ 494,000.00 Goodwill $ 28,400.00 Investment in John Limited $ 712,000.00 non controlling interest $ 210,400.00 Income of Dividend 30-06-16 Dividend Revenue from John $ 148,800.00 Dividend paid $ 148,800.00 Intergroup Transaction 30-06-16 Sales $ 234,000.00 Purchase $ 234,000.00 Elimination of unrealized profit on opening Inventory 30-06-16 Retained Earning $ 14,000.00 Opening stock $ 14,000.00 Income tax on opening Inventory 30-06-16 Income Tax Expenses $ 4,200.00 Opening Retained Earning $ 4,200.00 Elimination of unrealized profit on closing Inventory 30-06-16 Cost of Goods Sold $ 16,000.00 Closing stock $ 16,000.00 Income Tax on closing Inventory 30-06-16 Deferred Tax $ 4,800.00 Income Tax Expenses $ 4,800.00 Amortization of Goodwill 30-06-16 Amortization of Goodwill $ 6,000.00 Retained Earning $ 6,000.00 Effect of Income tax on Amortization 30-06-16 Income Tax Expenses $ 1,800.00 Deferred Tax $ 1,800.00 Sale of Plant 30-06-16 Gain on Sale of Plant $ 25,000.00 Plant $ 182,000.00 Accumulated Depreciation $ 207,000.00 Tax Impact on sale of Plant 30-06-16 Deferred Tax Asset $ 7,500.00 Income Tax Expenses $ 7,500.00 Statement showing calculation of Goodwill Particulars Amount Purchasing cost of Investment $ 712,000.00 Less: Capital Profit $ (272,000.00) Book Value of shares held $ (320,000.00) Goodwill $ 120,000.00 Statement showing Calculation of Non Controlling Interest Particulars Amount Capital Profit $ 68,000.00 Post acquisition profit $ 62,400.00 Share Capital $ 80,000.00 Total Non controlling interest $ 210,400.00 Luke Limited Statement showing calculation of Profit or loss on sale of Plant Particulars Amount Sale of Plant $ 232,000.00 Less Carrying value $ (162,000.00) Depreciation $ (45,000.00) Profit on sale of Plant $ 25,000.00 4. a) The accounting treatments for investments in associates are provided in the AASB 128 Investment in Associates and Joint Venture. This standard applies to the investor companies that are not the majority shareholders but enjoy significant influence over the investee as stated in Para 2 of the standard (Bazley et al. 2013). The significant influence means that the investor company has the power to participate in the financial and operating policy decisions of the investee company but does not have the control over their operations as per Para 3 of the standard. The Para 5 of the standard states that it is presumed that an investor company has significant influence if it holds 20% or more shares of the investee company (Evans et al. 2013). The equity method of accounting is required to be followed by the investor company that has significant influence over the investee company unless there is specific exemption in Para 13 of the standard. The first step is to determine the nature of the entity in order to ascertain the treatment of the equity method that is required to be followed. If the investor company is a parent entity then the investment in the investee company is recorded at cost in the separate financial statement of the investor company (Henderson et al. 2015). In the consolidated financial statement, the investment is recorded following the equity method. If the investment company is not the parent entity then in the separate financial report the investment in the investee company is recorded by following the equity method. The investment that is made by the investor company should be initially recorded at cost as per Para 10 of the standard. In the subsequent years, adjustments are made in the carrying value of the investment amount for the share of profit or loss in the investee company (Xu and Verhoeven 2015). The investor company has share on the profit or loss of the investee company this has an effect on the profit or loss of the investment company . In this case, the forty percent share of Creek limited is held by Rapid limited and other companies hold the remaining sixty percent of shares. The shareholders of the Creek limited has one right to vote for one share held. It can be concluded base on the above analysis that Rapid Limited has significant influence on the Creek Limited. Therefore the initial investment made by the rapid limited should be recorded in cost and the equity method of accounting should be followed for recognizing the investment. The investment made in the associates should be included in the non-current asset and should be accounted using equity method of accounting. The investor company is also required to provide separate disclosure for the profit or loss made in the associates, the share of the investor company on any operation that has been discounted and the carrying value of the investment. b) In the books of Rapid Limited Journal Entries Date Particulars Debit Credit investors share of earnings 30-06-16 Investment in Creek Limited $ 192,000.00 Share of Profit/loss $ 192,000.00 distribution of dividend 30-06-16 Dividend revenue $ 156,000.00 Investment in Creek Limited $ 156,000.00 investors share of earnings 30-06-17 Investment in Creek Limited $ 216,000.00 Share of Profit/loss $ 216,000.00 distribution of dividend 30-06-17 Dividend revenue $ 192,000.00 Investment in Creek Limited $ 192,000.00 Increase in revaluation reserve 30-06-17 Investment in Creek Limited $ 120,000.00 Revaluation Reserve $ 120,000.00 c) In the books of Rapid Limited Journal Entries Date Particulars Debit Credit preliminary Acquisition 01-07-15 Investment in Creek Limited 3250000 Bank 3250000 Earning for Reacquisition 14-07-15 Bank 96000 Investment in Creek Limited 96000 recording investors share of earnings 30-06-16 Investment in Creek Limited $ 192,000.00 Share of Profit/loss $ 192,000.00 recording share of dividend 30-06-16 Dividend receivable $ 156,000.00 Investment in Creek Limited $ 156,000.00 Previous years dividend paid 30-06-17 Bank $ 156,000.00 Dividend receivable $ 156,000.00 recording investors share of Profit 30-06-17 Investment in Creek Limited $ 216,000.00 Share of Profit/loss $ 216,000.00 recording share of dividend 30-06-17 Dividend receivable $ 192,000.00 Investment in Creek Limited $ 192,000.00 Increase in revaluation reserve 30-06-17 Investment in Creek Limited $ 120,000.00 Revaluation Reserve $ 120,000.00 d) In the books of Rapid Limited Journal Entries Date Particulars Debit Credit Initial purchase 30-06-16 Investment in Creek Limited 3250000 Retained Earning 3250000 recording shareholder share of Profit 30-06-17 Investment in Creek Limited $ 216,000.00 Share of Profit/loss $ 216,000.00 recording distribution of dividend 30-06-17 Dividend revenue $ 192,000.00 Investment in Creek Limited $ 192,000.00 Increase in revaluation reserve 30-06-17 Investment in Creek Limited $ 120,000.00 Revaluation Reserve $ 120,000.00 Reference Bazley, M., Hancock, P., Fisher, C., Lovell, A., Berk, J., DeMarzo, P., Berk, J. and DeMarzo, P., 2013.Financial Accounting: An Integrated. Thomson Pty Ltd, South Melbourne. Evans, E.E., Burritt, R. and Guthrie, J., 2013. The Virtual University: Impact on Australian Accounting and Business Education. Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015.Issues in financial accounting. Pearson Higher Education AU. Xu, S., How, J. and Verhoeven, P., 2015. Corporate governance and private placement issuance in Australia.Accounting Finance.