Chapter 3 Accounting for debentures. The general ledger arising from these entries would appear as follows:

Transcription

1 Chapter 3 Accounting for debentures 41 The general ledger arising from these entries would appear as follows: General ledger of Grampians Ltd Date Particulars Debit Credit Balance Debenture interest expense 31 Dec 14 Bank general 5 5 Dr June 15 Bank general 5 Dr Profit and loss Nil Bank general 31 Dec 14 Debenture interest expense 5 5 Cr June 15 Debenture interest expense 5 Cr Profit and loss June 15 Debenture interest expense Dr Question 3.4 Robertson Ltd issued 8 debentures at on June 14, attracting 8% p.a. interest payable six-monthly with a maturity date of June. You are required to prepare the journal entries to record the interest transactions for the year ended June 15. Question 3.5 Taree Ltd issued 5 debentures on 21 December 14 which attracted interest at 1% p.a. paid quarterly and maturing on June 24. You are required to prepare the journal entries to record the interest transactions for the year ended June 15. Question 3.6 On 1 May 14 Borrow Ltd issued a prospectus inviting applicants for 6 debentures of each, attracting an interest rate of 12% p.a. payable monthly with the debenture maturing on June. By the closing date of 25 May, applications were received for 65 debentures. On June 14 the directors allotted the debentures and made refunds. You are required to: a prepare the journal entries to record: the transactions relating to the prospectus; the interest transactions for the year ended June 14; and b show the liabilities section of the statement of financial position at June debenture redemption When a debenture matures, the borrower is required to pay the debenture holder the amount borrowed. This is called debenture redemption. Most redemptions occur when the debenture matures; that is, the date specified in the prospectus. However, debentures can be redeemed before the maturity date, usually at a premium (an amount above the debenture s issue price), or at a discount (an amount below the issue price). CLA-RODGERS6E indd 41 3/9/13 5:27 PM

2 chapter 3 Accounting for debentures 43 Illustration Barton Ltd issued 5 debentures at each on 1 January 15, redeemable on 31 December. On 15 May 18 Barton Ltd redeemed debentures at 15 each. This redemption can be analysed as follows: Amount paid to redeem debentures 1 5 = 15 issue price of debentures 1 = 5 = 5 Premium (loss) on debenture redemption The journal entries to redeem the debenture at a premium would be as follows: General journal date details debit credit May debenture liability Loss (premium) on debenture redemption 5 5 bank general Payment to redeem 1 debentures at a premium of 5 each 15 Profit and loss 2 Loss (premium) on debenture redemption 2 Transferred expense account to profit and loss The debenture liability account would appear as follows: General ledger Barton Ltd debenture liability date 1 Jan 15 particulars debit credit balance Applications debentures 15 May 18 bank general 5 5 cr cr Question 3.9 in March 15 upper Ltd issued debentures at each with a maturity date of 1 April. on 1 May 19 upper Ltd accepted an offer from a debenture holder to redeem debentures at 15 each. You are required to record the journal entries associated with the redemption. Question 3.1 on 1 August 15 Limit Ltd allotted 5 debentures at each with a maturity date of 1 August. on 1 January 19 Limit Ltd paid 1 through the AsX to redeem debentures at a premium of per debenture. on 1 August the remaining debentures were redeemed at their face value. You are required to: a record the journal entries for each redemption; and b show the debenture account in the general ledger. CLA-RODGERS6E indd 43 3/9/13 5:28 PM

3 Chapter 6 Accounting for company income tax 111 Debtors: This asset had an existing deferred tax asset of 6. Comparison of the carrying amount and the tax base in the current year results in the deferred asset falling to 15 indicating a fall in the asset, that is, a reversal of the asset. Debtors Tax base valuation 8 Less carrying amount 75 Deferred tax asset (at end of year) 5 Cr % = 1 5 Cr Less deferred asset (from previous year) (6 ) Cr Change in deferred tax asset (4 5) Dr Leave liability: The following calculations reveal the liability s carrying amount to be greater than its tax base, resulting in a deferred asset. Consequently the deferred tax asset is 12, which is more than the assets 9 balance at the start of the year. Hence the deferred tax asset is increasing. Leave liability Carrying amount Tax base Deferred tax asset (at end of year) Dr % = Less deferred asset (from previous year) 12 Dr (9 ) Dr Change in deferred tax asset 3 Dr The following table shows the combined effects of the movements in the deferred taxes: Temporary differences Assets Liabilities Deferred tax liability Deferred tax asset Equipment (increase) 6 Cr Machinery (reversal) 15 Dr Debtors (reversal) 4 5 Cr Leave liability (increase) 3 Dr Change in deferred tax 9 Dr 1 5 Cr The taxation adjustment for the current year can be calculated as follows. Income tax payable on taxable income *Less PAYG income tax expensed Income tax payable adjustment Less deferred tax liability (reversal) 4 % = 126 Cr 1 Dr 6 Cr (9 ) Dr Add deferred tax asset (reversal) 1 5 Cr Equals income tax expense adjustment 1 5 Cr *Note: PAYG income tax expensed during the year was 1. CLA-RODGERS6E indd 111 3/9/13 5: PM

4 chapter 7 DISTRIBuTING ShARehOLDeRS wealth 131 The procedure for declaring and issuing a bonus share is as follows: 1 Dividend declaration date: When the directors declare a bonus share dividend a liability is created payable to the company s shareholders as follows: Bonus share dividend Dr Dividends payable (or provision for dividend) Cr 2 Transfer date: As the bonus share dividend has been sourced from the asset revaluation reserve it must be transferred to the reserve account as follows: Asset revaluation reserve Dr Bonus share dividend Cr 3 Dividend payment date: When the shares are issued the liability is reduced and share capital increases as follows: Dividends payable (or provision for dividend) Dr Share capital ordinary shares Cr Illustration Solo Ltd s statement of financial position extract is shown below: Solo Ltd Statement of financial position at June (extract) shareholders equity share capital Ordinary shares (5 1. each) 5 reserves General reserve 25 Dividend reserve Retained profits 65 Asset revaluation reserve 41 total shareholders equity 91 The accounts reveal an asset revaluation reserve of and 5 ordinary shares at 1. each. On June the directors decided to issue one bonus share for every two shares held; that is, a one-for-two bonus share issue. The dividend will be presented to the AGM on September for shareholder ratification. To calculate the bonus share amount the following formula can be applied: Bonus share dividend = No. of existing shares No. of shares held Share price Therefore: Bonus share dividend = 5 shares 2 shares held 1. Bonus share dividend = 125 CLA-RODGERS6E indd 131 3/9/13 2:19 PM

5 Chapter 9 The statement of cash flows 181 Investing activities Source of information: investing activities relate to movements in non-current assets on the statement of financial position. This includes: Purchase of property, plant and equipment ( ) Proceeds from the sale of property, plant and equipment (+) Purchase of investments ( ) Proceeds from sale of investments (+) Loans given to others ( ) Loans repaid by others (+) Financing activities Source of information: financing activities relate to movements in non-current liabilities and shareholders equity on the statement of financial position. This includes: Borrowings acquired (+) Borrowing repaid ( ) Proceeds from share issues (+) Dividends paid to shareholders ( ) The relationship between the three cash flow activities and the financial statements is illustrated in Figure 9.1. Figure 9.1 Sources of cash flows and the financial statements Statement of financial position Income statement ASSETS LIABILITIES EQUITY REVENUES EXPENSES Case flows from Investing Activities Case flows from Financing Activities Case flows from Operating Activities Question 9.1 Complete the table in the Workbook by classifying each transaction as either an operating, investing or financing activity and indicating if cash has been received (+) or spent ( ). CLA-RODGERS6E indd 181 3/9/13 5:21 PM

6 chapter 9 The STaTemenT Of CaSh flows 221 Comprehensive assessment activity The information presented below relates to Grand Ltd. You are required to prepare a statement cash flow for the year ended June in accordance with the Australian Accounting Standards, using both the direct and indirect methods of reporting cash flows from operating activities. Income statement for year ended June Statement of financial position 1 July June Cash sales 172 Credit sales Current assets 572 Cash at bank (157 8) less cost of goods sold (312 ) Debtors control 9 21 Gross profit 26 Stock control Discount received 9 Prepaid interest expense 25 5 Dividends received 4 non-current assets 273 land and buildings Discount expense (5 ) Vehicles Bad debts (6 ) less accumulated depreciation (68 5) (17 5) Interest expense (12 ) Goodwill 1 Wages (145 ) Investments in shares 3 7 leave expense (36 ) Depreciation of vehicle (5 ) Current liabilities loss on sale of vehicle (4 ) Creditors control 6 54 Impairment loss goodwill (1 ) leave payable. 35 Profit (before tax) 5 GST payable 1 13 less income tax expense 4 5 Income tax payable 6 8 Profit (after tax) 5 Dividend payable 1 non-current liabilities Term loan 45 retained profits for year ended June Retained profits (1 July) 52 shareholders equity loss (after tax) 5 Ordinary shares Transfer from general reserve 5 less calls in arrears (5 ) 57 7 Retained profits Interim dividends (15 ) General reserve 35 final dividends ( ) asset revaluation reserve Retained profits ( June) additional information GST information: a GST received in cash 17 5 b GST paid in cash (63 35). CLA-RODGERS6E indd 221 3/9/13 5:22 PM

7 Chapter 1 Consolidated financial statements 229 An evaluation of the account balances of the subsidiary Over Ltd from the date of acquisition (1 July 1) to the date of reporting ( June 15) indicates an increase in wealth over the five-year period of 3 as shown in the following table: Over Ltd account balance comparison 1 July 1 June 15 Change in value s s s Shareholders equity Ordinary shares Retained profits Reserves Total equity Assets Bank Debtors Stock Equipment Buildings Liabilities Loans Net assets () (1) This increase in wealth of Over Ltd as reflected in its asset and liability amounts would be reported in the group accounts on June 15 by: 1 including the account balances of each entity; 2 recording the elimination of the investment; and 3 aggregating the accounts to derive the group accounts. The group accounts can be prepared in a consolidated worksheet as follows: Consolidated worksheet at June Accounts Take Ltd Eliminations Over Ltd Debit s s s Group accounts Credit Ref s Ref s Shareholders equity Ordinary shares Retained profits Reserves Assets 26 Bank Debtors 6 Stock 5 8 Equipment 6 Investment in Over Ltd Buildings Goodwill on consolidation Liabilities Loans Net assets CLA-RODGERS6E indd /9/13 4:23 PM