Accounting for Share Capital & Income Tax

Posted by

Accounting for Share Capital and Income Tax

P-Share$1.5/share  
Ordinary Share$1.2/share$0.6/share at 50%$0.3/Share at 25%

 

DateParticularsDR CR
31/03/2014Cash1200000
 Application of Preference share1200000
 (Money received on application of preference shares :800000 x $1.50)
  
31/03/2014Cash A/C    DR1440000
 Application of ordinary share1440000
 (2400000 x $0.60 (Money received on application of ordinary shares )
  
31/03/2014Application of Preference share1200000
 Share Capital1200000
 (Allotment of 800000 preference shares.)
  
31/03/2014Application1200000
 Allotment600000
 Share Capital1800000
 (Allotment of 2000000 shares)  

 

31/03/2014Application240000 
 Cash trust 240000
 (transfer of excess money to account of cash trust )  
15/04/2014Cash trust  
 Cash600000 
 Allotment 600000
 (cash received on allotment 2000000 x $0.30)  
    
31/08/2014First and final call600000 
 Share Capital 600000
 (call of $0.30 on 2000000 ordinary shares)  
    
30/09/2014Cash599100 
 First and Final call 599100
 (Cash received on call : 1997000 x $0.30)  
    
15/10/2014Share Capital3600 
 Call 900
 Forfeited Share 2700
 (Forfeited 3000 shares )  
    
15/10/2014Cash2250 
 Forfeited Share1350 
 Share Capital 3600
 (re-issue of forfeited shares for $0.75 per share paid in full)  
    
15/10/2014Forfeited Shares800 
 Cash 800
 (Re-issue expenses paid off.)  
    
15/10/2014Forfeited  Shares550 
 Share Capital 550
 (Remaining forfeited amount transferred to share capital.)  

Accounting for Income Tax

Twinkle Ltd
Tax Account
30 June 2014
Profit before tax  $                  80,000.00
   
Add: Company Account Expenses  
Administration Expenses $                                          75,000.00 
Salaries $                                        150,000.00 
Warranty Expenses $                                          20,000.00 
Long service Leave $                                          15,000.00 
Insurance $                                          30,000.00 
Depreciation Expense-Plant $                                          80,000.00 $               370,000.00
Gross Profit  $               450,000.00
Less: Tax Account Expenses  
Administration Expenses $                                          75,000.00 
Salaries $                                        150,000.00 
Warranty Expenses $                                          10,000.00 
Insurance $                                          45,000.00 
Depreciation Expense-Plant $                                        100,000.00 
Royalty Revenue (Exempt income) $                                          30,000.00 $               410,000.00
Taxable Income  $                  40,000.00
Tax Expense  $                  12,000.00
Balances of Current Taxes
Current Tax Expense $                                          12,000.00
Current Tax Liability $                                          12,000.00

Depreciation of Plant
YearFinancial DepreciationTax DepreciationTemporary differences
1 $                                          80,000.00 $               100,000.00 $                          20,000.00
2 $                                          80,000.00 $               100,000.00 $                          20,000.00
3 $                                          80,000.00 $               100,000.00 $                          20,000.00
4 $                                          80,000.00 $               100,000.00 $                          20,000.00
5 $                                          80,000.00  $                        (80,000.00)
Balances of Deferred Taxes
Differed Tax Liability $                                             6,000.00
Deferred Tax Asset $                                        (24,000.00)

(II)

JOURNAL ENTRIES
30-Jun-14Debit $ Credit $
Current Tax Expense $                                          12,000.00  
 Current Tax Liability  $                          12,000.00
Tax incurred and due for the period
30-Jun-14Debit $ Credit $
P&L Account $                                             6,000.00  
 Deferred Tax Liability  $                             6,000.00
Deferred Liability due for depreciation difference
30-Jun-19Debit $ Credit $
Deferred Tax Asset24000  
 P&L Account 24000
Deferred Tax Asset account created to reverse the deferred liability

(III)

Twinkle Ltd
Income Statement
30 June 2014
Gross Profit  $               360,000.00
Royalty Revenue (Exempt income)  $                  90,000.00
Less: Expenses  
Administration Expenses $                                          75,000.00 
Salaries $                                        150,000.00 
Warranty Expenses $                                          20,000.00 
Long service Leave $                                          15,000.00 
Insurance $                                          30,000.00 
Depreciation Expense-Plant $                                          80,000.00 $               370,000.00
Profit Before tax  $                  80,000.00

Property, Plant and Equipment

JOURNAL ENTRIES
30-Jun-14Debit $ Credit $
Residential Land $                                        100,000.00  
 Revaluation Surplus  $                        100,000.00
Increase in residential land’s fair value than carrying value in revaluation

 

30-Jun-14Debit $ Credit $
Income tax expense $                                          30,000.00  
 Deferred tax liability  $                          30,000.00
30% tax charged on surplus revaluation
30-Jun-14Debit $ Credit $
Revaluation Surplus100000  
 Share Capital Account  $                          70,000.00
 Income tax expense 30000
Transferred the revaluation surplus amount to the capital account
30-Jun-14Debit $ Credit $
Loss on revaluation of land200000  
 Factory Land 200000
Decrease in fair value of factory land than carrying value
30-Jun-14Debit $ Credit $
Deferred tax liability60000  
 Income tax expense 60000
Written off tax incurred on revaluation loss of factory land
30-Jun-14Debit $ Credit $
Building200000  
 Revaluation Surplus 200000
Increase in building fair value than carrying value in revaluation
30-Jun-14Debit $ Credit $
Income Tax expense60000  
 Deferred Tax liability 60000
Tax incurred on revaluation surplus
30-Jun-14Debit $ Credit $
Revaluation Surplus200000  
 Share Capital Account 140000
 Income tax expense 60000
Transferred the revaluation surplus amount to the capital account

(2) Response to Director

According to the AASB 116 (2009, Paragraph 31), the revaluation should be carried at sufficient regularity, so that materiality of that asset should not be lost with that carrying value. There are certain assets which are revaluated on a frequent basis, due to their volatility in fair values. Therefore, when fair value of a revaluated asset differs in terms of materiality from carrying value then further revaluation is required. Hence the Directors of Petersen Ltd, should not worry about the Fair value of factory land, as the development project of multi-million dollar is about to be approved, and according to AASB 116 (2009, Paragraph 34) another revaluation can be carried at that time too. It can be estimated that the fair value might increase.

share capital income tax

Bibliography

  • AASB 110, (2010). Events after the Reporting Period. Retrieved from:
    • http://www.aasb.gov.au/admin/file/content105/c9/AASB110_07-04_COMPdec09_0111.pdf
  • AASB 116, (2009). Property, Plant and Equipment. Retrieved from:
    • http://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04_COMPjun09_0709.pdf

Assignment Charles Sturt University

Formula View

Question No. 02

DateParticularsDR CR
41729Cash1200000 
 Application of Preference share 1200000
 (Money received on application of preference shares :800000 x $1.50)  
    
41729Cash A/C    DR1440000 
 Application of ordinary share 1440000
 (2400000 x $0.60 (Money received on application of ordinary shares )  
    
41729Application of Preference share1200000 
 Share Capital 1200000
 (Allotment of 800000 preference shares.)  
    
41729Application1200000 
 Allotment600000 
 Share Capital 1800000
 (Allotment of 2000000 shares)  

 

41729Application240000 
 Cash trust 240000
 (transfer of excess money to to cash trust a/c)  
41744Cash trust  
 Cash600000 
 Allotment 600000
 (cash received on allotment 2000000 x $0.30)  
    
41882First and final call600000 
 Share Capital 600000
 (call of $0.30 on 2000000 ordinary shares)  
    
41912Cash599100 
 First and Final call 599100

 

 

41927Share Capital3600 
 Call 900
 Forfeited Share 2700
 (Forfeited 3000 shares )  
    
41927Cash2250 
 Forfeited Share1350 
 Share Capital 3600
 (re-issue of forfeited shares for $0.75 per share paid in full)  
    
41927Forfeited Shares800 
 Cash 800
 (Re-issue expenses paid off.)  
    
41927Forfeited  Shares550 
 Share Capital 550
 (Remaining forfeited amount transferred to share capital.)  

 

Question No. 03

Depreciation of Plant
YearFinancial DepreciationTax DepreciationTemporary differences
1=SUM(400000/5)=SUM(400000/4)=SUM(C106-B106)
2=SUM(400000/5)=SUM(400000/4)=SUM(C107-B107)
3=SUM(400000/5)=SUM(400000/4)=SUM(C108-B108)
4=SUM(400000/5)=SUM(400000/4)=SUM(C109-B109)
5=SUM(400000/5) =SUM(C110-B110)
Balances of Deferred Taxes
Deferred Tax Liability=SUM(D106*0.3)
Deferred Tax Asset=SUM(D110*0.3)

 

(ii)
JOURNAL ENTRIES
41820Debit $ Credit $
Current Tax Expense12000  
 Current Tax Liability 12000
Tax incurred and due for the period
41820Debit $ Credit $
P&L Account6000  
 Deferred Tax Liability 6000
Deferred Liability due for depreciation difference
43646Debit $ Credit $
Deferred Tax Asset24000  
 P&L Account 24000
Deferred Tax Asset account created to reverse the deferred liability

 

Twinkle Ltd
Income Statement
30 June 2014
Gross Profit 360000
Royalty Revenue (Exempt income) 90000
Less: Expenses  
Administration Expenses75000 
Salaries150000 
Warranty Expenses20000 
Long service Leave15000 
Insurance30000 
Depreciation Expense-Plant80000=SUM(B136:B141)
Profit Before tax =SUM(C133+C134)-(C141)

 

41882Debit $ Credit $
Ordinary share Call Acc=SUM(2400000*(1.2*0.25))  
 Ordinary share Capital =SUM(2400000*(1.2*0.25))
Directors made the call on 2400000 ordinary shares @ $0.3 per share
41912Debit $ Credit $
Cash=SUM(1997000*0.3)  
 Ordinary share Call Acc =SUM(1997000*0.3)
Received the amount of 1997000 shares @ $0.3 per share
41927Debit $ Credit $
Ordinary Share Capital=SUM(403000*1.2)  
 Forfeited Ordinary Share Acc =SUM(403000*0.9)
 Ordinary share Call Acc =SUM(403000*0.3)
Call money of 403000 ordinary shares were not received and forfeited
41927Debit $ Credit $
Forfeited Ordinary Share Acc=SUM(403000*0.45)  
Cash=SUM(403000*0.75)  
 Ordinary Share Capital =SUM(403000*1.2)
Sold the forfeited shares of 403000 in full @ $0.75 per share
 

 

 

41927Debit $ Credit $
Forfeit ordinary Share Acc=SUM(D61-B66)  
 Capital Reserve Acc =SUM(D61-B66)
Remaining Forfeit has been transferred to Capital Reserve Acc, to create liability
    
41927Debit $ Credit $
Forfeiture and Reissue Expense800  
 Cash 800
Expense incurred during forfeiture and reissue of shares

 

Question No. 04 Formula:

Twinkle Ltd
Tax Account
30 June 2014
Profit before tax 80000
   
Add: Company Account Expenses  
Administration Expenses75000 
Salaries150000 
Warranty Expenses20000 
Long service Leave15000 
Insurance30000 
Depreciation Expense-Plant80000=SUM(B84:B89)
Gross Profit =SUM(C89,C81)
Less: Tax Account Expenses  
Administration Expenses75000 
Salaries150000 
Warranty Expenses10000 
Insurance45000 
Depreciation Expense-Plant100000 
Royalty Revenue (Exempt income)30000=SUM(B92:B97)
Taxable Income =SUM(C90-C97)
Tax Expense =SUM(C98*0.3)
Balances of Current Taxes
Current Tax Expense12000
Current Tax Liability12000

Leave a Reply

Your email address will not be published. Required fields are marked *

*

Time limit is exhausted. Please reload CAPTCHA.