Question

purchased by the 2ctive Problems nting mard's too le to s are ives ssets Su Lamp Ltd, an electrical goods manufacturer, entered into the following transactions during the year 2009. Show how they should have been recorded by Su Lamp Ltd under Australian accounting regulations that year, and comment whether there are any differences in that reporting from what would be recorded if the company reported solely on the basis of Framework requirements. 1. Su Lamp Ltd experienced strong profit growth during the early 2000s. However, an industrial dispute in the transport industry affected the supply of electrical parts and the company sustained a $400 000 loss during 2009. The management of Su Lamp Ltd believed that it would be advantageous to carry the loss forward to 2010 for income tax purposes and was confident that there would be sufficient profit in 2010 to absorb the loss carry-forward. The 2009 income tax rate was 30 per cent. 2. At the start of 2009, Su Lamp Ltd entered into a contract with Pollett Ltd. Pollett Ltd was to build a new factory for Su Lamp Ltd, with building to start in January 2010. The contract price was $1 000 000 and the project was estimated to take two years to complete. Su Lamp Ltd was to pay Pollett Ltd $300000 when the project was 10 per cent completed, $300 000 when it was 50 per cent completed and $400 000 when it was 1 00 per cent completed. 3. Kin Ltd fileda lawsuit against Su Lamp Ltd for $1 000 000 for patent infringement in April 2009. The companies expected that it would take approximately 18 months REM 7.1 can S. before the lawsuit was settled. 4. An employee suffered eye damage when a piece of glass exploded as she worked on the production line. She sued the company for damages and was awarded 5400 000. Su Lamp Ltd planned to appeal. 5. Su Lamp Ltd contracted with the local city council to provide high-powered lighting for all function areas at the City Hall. The cost was estimated to be $1 000 000. The 6. At year-end, the executives decided to pay a bonus of $15 000 to their Danish sales manager, Rasmus Winters, for his performance during the year. However, due to cash constraints, the bonus was not to be paid until February 2010. contract specifies a payment to Su Lamp Ltd of 15 per cent above cost. Zanad 72

Answer 1

1) Deffered tax asset

When there is a loss it can be carried forward to next year and claim deduction from the future profit then we have to creat deffered tax asset

In case of continuous losses in order to creat deffered tax there must be virtual certainty that future profits are available and claim deduction against the income

Deffered tax asset to be created=400,000*30%=120,000

Jornal entry

Deffered tax asset a/c. Dr $120000

To tax expense a/c $120000

Contract 2) when contract is entered between two parties. There is No Transactions are occured it is just an event so No Journal entry is recorded, signing a con for future transaction does not mean the company is increasing (or) decreasing an asset (or) liability, it cash (on some other asset exchanged at the time of signing then it will have to be recorded 3) contingent liability & Present obligation arising out past event and settlement of which depends on uncertain event Not In The control of The organisation The settlement of $ 1000000 depends on Results of lawsuit so it is not recorded In books. it is Repored In Notes to financial statements at of

4) when penality is paid Staff welfare alc then. – Dr 400000 Абороо To Bank contingent asset it is a possible asset arising out of past event The Receipt of which depends on one or more uncertain future event, it is not recorded in The Books of account it is disclosed Board of directors report filling and appeal is contingent asset i lighting cost al _Dr $1000000 19,09000 To Bank for recording reventue Local city council alc-Dr $ 1150000 1150000 o contract Revenue al 6) entry for Bonus To - Dr $15000 Bonus payable expense ak Bonus payable $15OOD ale