Maddox Smith Staff asked 5 years ago

Company Accounting

Q

  This assessment task consists of four parts, each comprising questions relating to the case study of Mightier Limited which was incorporated on 1 July 2011. The relevant financial statements for Mightier Limited and related parties are provided in a separate excel file located in within the relevant assessment folder in Blackboard.   Assessment details   Your work will generally be assessed according to the following marking guide:   •      1-2 errors = full marks allocated •      3-4 errors = 75% of marks allocated •      5-6 errors = 50% of marks allocated            7+ errors = 25% of marks allocated   The following questions relate to the case of Mightier Limited which was incorporated on 1 July 2011. The relevant financial statements for Mightier Limited and related parties are provided in the form of a separate Excel file.     PART A: Accounting for share issues 4%   A major retailing company, Mightier Ltd issued a prospectus on 1 August 2011 calling for subscriptions for 8 million shares for a new class of share – Ordinary B issued at $4.50 on the following terms:   •           first payment of $1.00 is to be made on application •           $1.50 is to be paid on allotment •           remaining amount is to be paid in one call within 3 months of allotment.     Additionally, according to the company’s constitution any surplus monies after a forfeiture of shares are returned to the original shareholders.   Applications closed on 31st October 2011.   By the end of October, when applications closed, applications for 9.5 million shares were received.   The shares are allotted on 15 November 2011 on a pro rata basis with the excess application money to be applied against the amount due on allotment and any calls and any further amounts remaining to be refunded to the applicants.   All allotment monies as due are received on 1 December 2011.   The first and only call on the shares is made on 15 January 2012. Call monies are received on 15 February 2012 from all shareholders except from the holders of 50,000 shares who did not pay the final call.   The Directors decide that these shares are forfeited and are to be reissued. On 1 March 2012, the 50,000 shares are forfeited. One week later the shares are reissued as fully paid to a new shareholder for a receipt of $4 per share. Costs of reissue amount to $100 and any balance in the forfeited shares account is refunded to the original shareholder as per the company’s constitution.   Prepare journal entries to record the above events. Narrations are required.     PART B: Tax Effect Accounting 4%   The following information is extracted from the accounts of Mightier Ltd (Also see the separate spreadsheet)   General administration expenses for the year ended 30 June 2012 include the following, among other items:                       Donations                                                                                                            $125,500                     Entertainment expenses                                                                                       $43,000                    Research and development costs                                                                   $1,270,000   Operating expenses for the year ended 30 June 2012 include the following, among other items:   Long Service leave Expense       $391,111 Doubtful Debts Expense       $374,450 Service fees       $602,321     Additional information:    Depreciation on PPE for tax purposes for 2012       $2,212,890  Accumulated depreciation on PPE for tax at 30/06/2012       $9,433,448  Tax base of Trademarks and Patents is       $12,058,293  The amortisation expense for trademarks and patents during the year was $1,650,421. However, the amortisation for tax purposes for the year was $1,250,368  Only $8,200 of the donations made during the year are deductible for tax purposes    The company spent $1,270,000 on research and development.  Research and development costs are deductible for tax purposes at the rate of 150%.  Entertainment expenses are not deductible for tax purposes.  Rent paid during the year is $1,250,000.  For all other items of expenses the amount incurred is equal to the amount paid.  The assessable sales is equal to the income earned on sales.  Tax rate 30%                                          Your tasks:   a)    Show the reconciliation of Accounting profit to Taxable Income   b)    Show the Tax Effect Accounting work worksheet   c)