Company Accounting

Company Accounting

PART A: LEASING

According to Carmicheal, (2007), leasing is defined as an agreement that allows using the property, plant, equipment or vehicle for a limited time period. The advantages of a financing lease includes: leasing give full authority; save cash and working capital of a firm, it can be done for a longer time period, initial acquisition costs can be financed, leasing is a convenient method and the risk of obsolescence can be minimized with the risk in purchasing the equipment. The disadvantages of lease financing are: compared to a bank loan interest charged is higher, there can be a loss of residual rights if the agreement is cancelled; tax benefits of depreciation and interest rate are not enjoyed by the lessee. Therefore as a CFO Manager my advice would be to go for the lease finance options as the control of the business will not be lost.

According to Lowe, (2012), leasing is a type of financial arrangement that has similar advantages and disadvantages to operational lease. The advantages of operational lease are: the lessee use the vehicle as he owns it, he can employ all the staff and drivers according to his needs, vehicles can be replaced and it spreads the capital cost. The disadvantages of this type of leasing are numerous as the lessee will have the full responsibility of the documentation and other legal matters of the vehicle, all the maintenance has to be done by the lessee, the operational staff is to hired to run the vehicle and the lessee has to design the policy for using the vehicle. As a CFO Manager my advice would be to do not accept the proposal because this type of lease has many disadvantages.

PART B: ACCOUNTING FOR INCOME TAX

Part-A

The Deferred Tax Asset as on 31st December, 2010 is $ 1500.

According to Nikolai, (2009) the tax liability entry are:

Debit Credit

Income Tax Expense $3000

Deferred Tax Asset $1500

Income Tax Payable $4500

Workings:

Income Taxable

(10000*0.30) =3000

Deferred Tax Asset

1500

Income Tax Expense

1500

Simplified Worksheet

Robin Hood Ltd.

Tax Worksheet for the financial year ended 31st December 2011

Particulars

Carrying Amount (CA)

Tax Base (TB)

Taxable Temporary Differences (TTD)

Deductible Temporary Differences (DTD)

Cost of Asset

75000

65000

10000

10000

Tax Rate

0.30

Ending Deferred Tax Liability

3000

Beginning Deferred Tax Liability

0

Change in increase in Deferred Tax Liability

3000

Debit Credit

Income Tax Expense $3000

Deferred Tax Liability $1500

Income Tax Payable $1500

Part-B- Rent received in advance

Taxable rent = 10000

Tax rate =0.30

Income Tax Payable = 3000

Deferred Tax Asset= 2400

Debit Credit

Income Tax Expense $600

Deferred Tax Asset $2400

Income Tax Payable $3000

The assessable rent income is $15000.

iv)The non-assessable rent income is $3000.

Prepaid Interest

The prepaid or interest paid in advance has nil tax base.

There are no journal entries for interest received in advance, as no tax is deductible from interest revenue.

There is zero tax base for the interest and there is no tax deductible from the interest.

The amount of interest non-deductible is $300 because whatever remains after the deductions is not taxable.

PART-C- CONSOLIDATION

Acquisition Analysis

Fair value of net assets identified= $600,000 Share Capital

= $170,000 General Reserve

= $ 80,000 Retained Earning

= ...