Question 1
Fresh Limited, a manufacturer of toothpaste, was taken to court over alleged defamation charges when the company accused a rival toothpaste manufacturer of fraud. Before year end (31 December 2018), the lawyer of Fresh Limited advised that, although losing the case was unlikely, legal fees and settlement costs could amount to R900 000 in the event that the court case was lost. On 04 February 2019, the judge presiding over the case ruled that Fresh should pay R1 000 000 to the plaintiff as well as pay all of the plaintiff’s legal fees, which amounted to R180 000. The financial statements had not yet been authorized for issue at the time of the court ruling. Accounting Assignment Help Required
Discuss how this information should be treated in the financial statements of Fresh Limited for the year ended 31 December 2018.
QUESTION TWO
The newly qualified accountant of Parmesan Limited is busy finalizing the financial statements of the company for the year ended 28 February 2019. Unfortunately, the accountant only remembers a few statements stated by his university lecturer as the venue in which the lecture took place was newly painted and he felt that watching the paint dry was likely to be more exciting than listening to an accounting lecture. He only remembered the following three statements:
1. The objective of IAS 12 is to account for current and future tax consequences of the recovery of assets and liabilities in the Statement of Financial Position.
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2. The tax base of an asset is:
• the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an entity when it recovers the carrying amount of the asset.
• if those economic benefits will not be taxable, the tax base of the asset is equal to its carrying amount. Accounting Assignment Help
3. The tax base of a liability is:
• its carrying amount, less any amount that will be deductible for tax purposes in respect of that liability in future periods.
• in the case of revenue received in advance, the tax base of the resulting liability is the carrying amount, less any amount of revenue that will not be taxable in future periods.
The accountant believes that he has a good grasp of the current tax consequences but does not understand what IAS 12 means by accounting for future tax consequences. He has the following information available to him: 2019- 2018 Property, plant and equipment =120 000 145 000 Rent received in advance= (5 000) (2 000) Interest income receivable 20 000 0
The previous accountant also left behind the following information:
• Profit before tax is R250 000.
• Dividend income was R6 000.
• Tax base of property, plant and equipment at 28 February 2018 was R115 000.
• Wear and tear is R30 000 per annum.
• Rent received in advance is taxable in the year it is received.
• Interest income receivable is taxed in the year the interest is earned
• The income tax rate is 30% Required:
2.1. Discuss how the current taxation and taxation will be recorded in the financial statements.
2.2. Prepare the journals necessary to account for current tax and deferred tax in the financial statements of Parmesan Limited.
2.3. Disclose the above in the Taxation note found in the notes to the financial statement Accounting Assignment Help