ACCT6005 Assignment 2 Sample

ACCT6005 Assignment 2

Assessment 2 Question:

Lilly Ltd is a public reporting entity and is required to prepare consolidated financial statements for the group. The company accountant has made the following adjusting entries in the worksheet for the year ended 30 June 2021 and each entry is independent. Corporate tax rate is 30%.

Required:

Discuss the purpose of each entry and the reason why each account has been increased or decreased.

Solution

Entry 1

$200000 is the recorded amount of inventory in the company's accounts that is subsidiary rather than the parent company. As per the Australian Accounting Standard Board 10, the parent firm must prepare the financial statement to consider the transactions that occur in both the parent and the subsidiary firms. As per the MBA Assignment Expert,  $380000 has been credited for the carrying amount of the plant sold. Therefore, the value of the plant in the company's balance sheet will reduce. On the other hand, the inventory account has been debited with $200000. Therefore, the inventory value in the current account section of the balance sheet will increase. The sale of a plant that amounts to $180000 decreases the income has been adjusted in the parent firm's financial statement.  

Entry 2

The parent company must adjust the impact of depreciation before the firm's financial statements have been prepared. As a result, $50000 has been credited as the part of depreciation expense. However, the accumulated amortisation of the company is $75000. Therefore, the decline in the provision of accumulated depreciation is being credited at $25000 as retained earnings. Thus, the profit of the company will increase. As per the Australian Accounting Standard Board 10, the company must change the income from the gain that the firm has made while the firm has been preparing the financial statements (Aasb.gov.au, 2022). As a result, the depreciation expense has declined because the entries have been adjusted in the parent firm.

Since the company has incurred some depreciation expenses, the tax expense has also been affected. In the case of the given situation, $15000 has been debited as the income tax expense. $22500 is the amount that has been credited as a deferred tax asset. As a result, $7500 has been debited from the company's retained earnings. The deferred tax asset will assist the firm to reduce its taxable income in the future. The addition of retained earnings amounting to $7500 allows the firm to increase the benefit that the company might receive from the increase in deferred tax assets. Such kind of a transaction that subdues the depreciation might not be passed as an entry that is very distinct from the perspective of accounting standards.

Entry 3

In the given case, $120000 has been credited to the cost of the sales account of the parent company. This is because of the elimination of the sales by the intragroup for the income that is being generated from the sales has been adjusted with $84000 being debited from the retained earnings account. On the same occasion, $36000 is being debited to the income tax expense account as well in order to keep the sanctity of the adjustment. As per the Australian Accounting Standard Board 3, the retained earnings of the firm must be recognized while the financial statements of the firm are being prepared by the parent firm (Aasb.gov.au, 2022). As a result of such standards, $84000 and $36000 has been debited from the retained earnings and income tax expenditure account, respectively.

References

Aasb.gov.au. (2022). Retrieved 23 March 2022, from https://www.aasb.gov.au/admin/file/content105/c9/AASB10_08-11.pdf. 

Aasb.gov.au. (2022). Retrieved 23 March 2022, from https://www.aasb.gov.au/admin/file/content105/c9/AASB3_08-15.pdf.