Accounting Operation Expand

Question: Accounting for share issues and options Sunny Ltd is looking to expand its operations, and in order to do this, the company needs to increase equity. On 1 January 2016, Sunny Ltd offered 6,000,000 ordinary shares to the public at an issue price of $4.00 per share, with $3.00 payable on application, and $1.00 due within one month of allotment. The closing date for applications was 31 January 2016. Sunny Ltd offered an additional incentive to investors: shareholders who acquired more than 25,000 shares were allowed to purchase options at 50 cents each. These options allowed investors to acquire shares in Sunny Ltd at $4.20 each on or before 30 June 2016. By 31 January 2016, applications had been received for 6,300,000 shares and 60,000 options. On 12 February 2016, 6,000,000 shares were allotted on a pro-rata basis, and all 60,000 options applied for were allotted. Excess application money received was retained and used to go towards the allotment instalment due. All allotment money is received by 12 March 2016, except for holders of 20,000 shares who fail to meet the instalment. On 20 March 2016, the 20,000 shares were forfeited, and on 5 April 2016 they were auctioned as fully paid. An amount of $3.70 was received for each share sold. Share re-issue costs amounted to $3,600, and were paid. The constitution provided for any surplus on resale, after satisfaction of unpaid instalments and any costs, to be returned to shareholders whose shares were forfeited. By 30 June 2016, the price of each of Sunny Ltds shares was $4.80. Holders of 50,000 options exercised their options in June 2016, with the remaining options lapsing. Required: Prepare the journal entries to account for the above entries. Show all relevant dates, narrations and workings. Answer: 1: Date of the transaction Particulars Debit Credit 31-01-2016 Bank 189,30,000.00 To share application A/c 189,00,000.00 To share options A/C 30,000.00 (being money received on share application) 12-02-2016 Share application A/c 189,00,000.00 To share capital 180,00,000.00 To bank 9,00,000.00 (being refund of the excess money received) Share options A/c 30,000.00 To share options 30,000.00 (conversion of share options money received into share options capital) 12-03-2016 Bank 59,80,000.00 To share allotment A/c 59,80,000.00 (being allotment money received) Share capital 80,000.00 To shares forfeited 60,000.00 To unpaid calls 20,000.00 (being shares forfeited) 05-04-2016 Bank 74,000.00 Shares forfeited 60,000.00 To share capital 1,34,000.00 Share capital 56,400.00 To bank 56,400.00 (being the excess amount transferred to the investor) (Accounting simplified, 2016). 3: Computation of Taxable Income Remarks Revenue 7,50,000.00 Government Grant - Not Taxable Cost of Sales 3,25,000.00 Annual Leave 2,000.00 Allowed on Payment Basis Depreciation on equipment 60,000.00 As per Income Tax Rules Depreciation on motor vehicle 12,000.00 As per Income Tax Rules Doubtful Debt Expenses 2,000.00 Allowed on actual written off basis Entertainment expenses - Not allowable Insurance 13,000.00 Allowed on Payment basis Rent 20,000.00 Allowed on Payment basis Salaries 1,25,000.00 Warranty Expenses 600.00 Allowed on Payment basis Other Expenses 17,250.00 -5,76,850.00 Taxable Profit 1,73,150.00 Tax Rate 30% Current tax 51,945.00 Deferred Tax Work Sheet Book Value Tax Value Difference Deferred Tax Assets Asset/(Liability) Asset/(Liability) Cash 20,000.00 20,000.00 - - Inventory 85,900.00 85,900.00 - - Accounts Receivable 80,000.00 80,000.00 - - Less: Allowance for Doubtful Debts -4,000.00 76,000.00 - 80,000.00 4,000.00 1,200.00 Prepaid Insurance 3,000.00 - -3,000.00 -900.00 Equipment 4,00,000.00 4,00,000.00 - - Less: Accumulated Depreciation -40,000.00 3,60,000.00 -60,000.00 3,40,000.00 -20,000.00 -6,000.00 Motor Vehicle 60,000.00 60,000.00 - - Less: Accumulated Depreciation -15,000.00 45,000.00 -12,000.00 48,000.00 3,000.00 900.00 5,89,900.00 5,73,900.00 -16,000.00 -4,800.00 Liabilities Accounts Payable 50,250.00 50,250.00 - - Loans 25,000.00 25,000.00 - - Provision for Annual leave 11,000.00 - 11,000.00 3,300.00 Provision for Warranties 6,900.00 - 6,900.00 2,070.00 Rent Payable 6,000.00 - 6,000.00 1,800.00 99,150.00 75,250.00 23,900.00 7,170.00 Net Assets 4,90,750.00 4,98,650.00 7,900.00 2,370.00 Statement of Profit Loss Revenue 7,50,000.00 Government Grant 30,000.00 Cost of Sales 3,25,000.00 Annual Leave 13,000.00 Depreciation on equipment 40,000.00 Depreciation on motor vehicle 15,000.00 Doubtful Debt Expenses 6,000.00 Entertainment expenses 4,500.00 Insurance 10,000.00 Rent 26,000.00 Salaries 1,25,000.00 Warranty Expenses 7,500.00 Other Expenses 17,250.00 -5,89,250.00 Accounting Profit 1,90,750.00 Journal Entries Provision for Current Tax A/c Credit 51,945.00 Deferred Tax Asset A/c (Net) Debit 2,370.00 Tax Expense Debit 49,575.00 (CA club India, 2016). 4: Date Particulars Debit Credit 01-07-2013 Equipment 8,00,000.00 To bank 8,00,000.00 Value of the equipment 8,00,000.00 (being purchase of equipment) 30-06-2014 Depreciation 1,52,000.00 To accumulated depreciation-equipment 1,52,000.00 Value of the equipment 6,48,000.00 (being the depreciation on equipment) 01-07-2014 Equipment 82,000.00 To revaluation profit 82,000.00 Value of the equipment 7,30,000.00 (being revaluation profit on equipment) 30-06-2015 Depreciation 1,15,000.00 To accumulated depreciation-equipment 1,15,000.00 Value of the equipment 6,15,000.00 (being the depreciation on equipment) 30-06-2016 Depreciation 1,15,000.00 To accumulated depreciation-equipment 1,15,000.00 Value of the equipment 5,00,000.00 (being the depreciation on equipment) 01-07-2016 Revaluation loss 1,00,000.00 To equipment 1,00,000.00 Value of the equipment 4,00,000.00 (being revaluation loss on equipment) 30-09-2016 Depreciation 18,000.00 To accumulated depreciation-equipment 18,000.00 Value of the equipment 3,82,000.00 (being the depreciation on equipment) 30-09-2016 Bank 3,90,000.00 To equipment 3,82,000.00 To profit on sales of equipment 8,000.00 (being sale of equipment) (IAS plus, 2016). 5: Carrying values Recoverable value Assets Cinema DVD sales Cinema DVD sales Cash 5,000.00 12,000.00 Inventory 4,000.00 85,000.00 Furniture and fixtures, net of depreciation 2,05,000.00 25,000.00 Electrical equipment, net of depreciation 1,10,000.00 10,000.00 Land and buildings, net of depreciation 6,25,000.00 1,79,000.00 License 25,000.00 - Goodwill 45,000.00 15,000.00 Total 10,19,000.00 3,26,000.00 9,00,000.00 3,18,000.00 Value in use 9,00,000.00 2,90,000.00 Recoverable amount is higher of fair value less selling costs and value in use So, higher of 900000,290000 and 780000,318000 Assets Cinema Impairment Recoverable value Cash 5,000.00 - 5,000.00 No change Inventory 4,000.00 - 4,000.00 No change Furniture and fixtures, net of depreciation 2,05,000.00 1,301.59 2,06,301.59 Impairment profit Electrical equipment, net of depreciation 1,10,000.00 698.41 1,10,698.41 Impairment profit Land and buildings, net of depreciation 6,25,000.00 75,000.00 5,50,000.00 Impairment loss License 25,000.00 1,000.00 24,000.00 Impairment loss Goodwill 45,000.00 45,000.00 - Impairment loss Total 10,19,000.00 1,19,000.00 9,00,000.00 Value to be reduced 3,17,000.00 0.65 2,05,000.00 2,06,301.59 0.35 1,10,000.00 1,10,698.41 3,15,000.00 3,17,000.00 Assets DVD Sales Impairment Recoverable value Cash 12,000.00 - 12,000.00 No change Inventory 85,000.00 - 85,000.00 No change Furniture and fixtures, net of depreciation 25,000.00 - 25,000.00 No change Electrical equipment, net of depreciation 10,000.00 - 10,000.00 No change Land and buildings, net of depreciation 1,79,000.00 4,000.00 1,75,000.00 Impairment loss License - - - No change Goodwill 15,000.00 4,000.00 11,000.00 Impairment loss Total 3,26,000.00 8,000.00 3,18,000.00 Journal entry: Impairment loss 1,29,000.00 Land and buildings 79,000.00 License 1,000.00 Goodwill 49,000.00 Furniture and fixtures 1,301.59 Electrical equipment 698.41 Impairment loss 2,000.00 (IAS plus, 2016). References: Accounting-simplified.com. (2016).Accounting for Issue of Ordinary Shares. [online] Available at: https://accounting-simplified.com/financial/share-capital/ordinary-issue.html [Accessed 18 Sep. 2016]. Iasplus.com. (2016).IAS 16 Property, Plant and Equipment. [online] Available at: https://www.iasplus.com/en/standards/ias/ias16 [Accessed 18 Sep. 2016]. Iasplus.com. (2016).IAS 36 Impairment of Assets. [online] Available at: https://www.iasplus.com/en/standards/ias/ias36 [Accessed 18 Sep. 2016]. Profile, (2010).Calculation of Deferred Tax Asset - Others - Accounts. [online] CAclubindia. Available at: https://www.caclubindia.com/forum/calculation-of-deferred-tax-asset-99743.asp [Accessed 18 Sep. 2016].