Accounting for Share Capital & Income Tax

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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%

 

Date Particulars DR CR
31/03/2014 Cash 1200000
  Application of Preference share 1200000
  (Money received on application of preference shares :800000 x $1.50)
   
31/03/2014 Cash A/C    DR 1440000
  Application of ordinary share 1440000
  (2400000 x $0.60 (Money received on application of ordinary shares )
   
31/03/2014 Application of Preference share 1200000
  Share Capital 1200000
  (Allotment of 800000 preference shares.)
   
31/03/2014 Application 1200000
  Allotment 600000
  Share Capital 1800000
  (Allotment of 2000000 shares)    

 

31/03/2014 Application 240000  
  Cash trust   240000
  (transfer of excess money to account of cash trust )    
15/04/2014 Cash trust    
  Cash 600000  
  Allotment   600000
  (cash received on allotment 2000000 x $0.30)    
       
31/08/2014 First and final call 600000  
  Share Capital   600000
  (call of $0.30 on 2000000 ordinary shares)    
       
30/09/2014 Cash 599100  
  First and Final call   599100
  (Cash received on call : 1997000 x $0.30)    
       
15/10/2014 Share Capital 3600  
  Call   900
  Forfeited Share   2700
  (Forfeited 3000 shares )    
       
15/10/2014 Cash 2250  
  Forfeited Share 1350  
  Share Capital   3600
  (re-issue of forfeited shares for $0.75 per share paid in full)    
       
15/10/2014 Forfeited Shares 800  
  Cash   800
  (Re-issue expenses paid off.)    
       
15/10/2014 Forfeited  Shares 550  
  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
Year Financial Depreciation Tax Depreciation Temporary 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-14 Debit $   Credit $
Current Tax Expense  $                                          12,000.00    
  Current Tax Liability    $                          12,000.00
Tax incurred and due for the period
30-Jun-14 Debit $   Credit $
P&L Account  $                                             6,000.00    
  Deferred Tax Liability    $                             6,000.00
Deferred Liability due for depreciation difference
30-Jun-19 Debit $   Credit $
Deferred Tax Asset 24000    
  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-14 Debit $   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-14 Debit $   Credit $
Income tax expense  $                                          30,000.00    
  Deferred tax liability    $                          30,000.00
30% tax charged on surplus revaluation
30-Jun-14 Debit $   Credit $
Revaluation Surplus 100000    
  Share Capital Account    $                          70,000.00
  Income tax expense   30000
Transferred the revaluation surplus amount to the capital account
30-Jun-14 Debit $   Credit $
Loss on revaluation of land 200000    
  Factory Land   200000
Decrease in fair value of factory land than carrying value
30-Jun-14 Debit $   Credit $
Deferred tax liability 60000    
  Income tax expense   60000
Written off tax incurred on revaluation loss of factory land
30-Jun-14 Debit $   Credit $
Building 200000    
  Revaluation Surplus   200000
Increase in building fair value than carrying value in revaluation
30-Jun-14 Debit $   Credit $
Income Tax expense 60000    
  Deferred Tax liability   60000
Tax incurred on revaluation surplus
30-Jun-14 Debit $   Credit $
Revaluation Surplus 200000    
  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

Date Particulars DR CR
41729 Cash 1200000  
  Application of Preference share   1200000
  (Money received on application of preference shares :800000 x $1.50)    
       
41729 Cash A/C    DR 1440000  
  Application of ordinary share   1440000
  (2400000 x $0.60 (Money received on application of ordinary shares )    
       
41729 Application of Preference share 1200000  
  Share Capital   1200000
  (Allotment of 800000 preference shares.)    
       
41729 Application 1200000  
  Allotment 600000  
  Share Capital   1800000
  (Allotment of 2000000 shares)    

 

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

 

 

41927 Share Capital 3600  
  Call   900
  Forfeited Share   2700
  (Forfeited 3000 shares )    
       
41927 Cash 2250  
  Forfeited Share 1350  
  Share Capital   3600
  (re-issue of forfeited shares for $0.75 per share paid in full)    
       
41927 Forfeited Shares 800  
  Cash   800
  (Re-issue expenses paid off.)    
       
41927 Forfeited  Shares 550  
  Share Capital   550
  (Remaining forfeited amount transferred to share capital.)    

 

Question No. 03

Depreciation of Plant
Year Financial Depreciation Tax Depreciation Temporary 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
41820 Debit $   Credit $
Current Tax Expense 12000    
  Current Tax Liability   12000
Tax incurred and due for the period
41820 Debit $   Credit $
P&L Account 6000    
  Deferred Tax Liability   6000
Deferred Liability due for depreciation difference
43646 Debit $   Credit $
Deferred Tax Asset 24000    
  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 Expenses 75000  
Salaries 150000  
Warranty Expenses 20000  
Long service Leave 15000  
Insurance 30000  
Depreciation Expense-Plant 80000 =SUM(B136:B141)
Profit Before tax   =SUM(C133+C134)-(C141)

 

41882 Debit $   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
41912 Debit $   Credit $
Cash =SUM(1997000*0.3)    
  Ordinary share Call Acc   =SUM(1997000*0.3)
Received the amount of 1997000 shares @ $0.3 per share
41927 Debit $   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
41927 Debit $   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
 

 

 

41927 Debit $   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
       
41927 Debit $   Credit $
Forfeiture and Reissue Expense 800    
  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 Expenses 75000  
Salaries 150000  
Warranty Expenses 20000  
Long service Leave 15000  
Insurance 30000  
Depreciation Expense-Plant 80000 =SUM(B84:B89)
Gross Profit   =SUM(C89,C81)
Less: Tax Account Expenses    
Administration Expenses 75000  
Salaries 150000  
Warranty Expenses 10000  
Insurance 45000  
Depreciation Expense-Plant 100000  
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 Expense 12000
Current Tax Liability 12000

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