ACT503 Corporate Accounting
Assignment One – Semester 1, 2026
Assessment Weighting: 30%
Maximum Marks: 90

Instructions to Candidates
Prepare your responses in a single MSWord document. If Excel worksheets support your calculations, copy and paste them into the Word file; do not embed linked spreadsheets. Format your submission to print cleanly on A4 paper in portrait or landscape orientation, inserting page breaks so no worksheet spills beyond a single page. Place your full name and student number on every page. Lodge the completed assignment through SafeAssign on Learnline with an official CDU cover sheet attached. Files submitted as PDF, Excel, or paper copy will not be accepted. Marks are awarded for clarity and structure of calculation formats, even where final figures contain errors.

**Sample Answer Opening: Deferred Tax Worksheet Logic** A deferred tax worksheet begins by comparing the carrying amounts of assets and liabilities in the statement of financial position with their corresponding tax bases. For MyOwnWork Ltd, the plant asset reveals a temporary difference because accounting depreciation spreads the cost over five years while tax law permits four years, generating a taxable temporary difference of $100,000 at year end. The provision for long service leave and the warranty provision both create deductible temporary differences, as the amounts have been expensed for accounting purposes but will not be deductible for tax until actually paid. Prepaid insurance represents an assessed taxable temporary difference of $10,000, given the tax treatment applies the cash basis while accounting defers the unexpired benefit. Applying the 30 per cent corporate tax rate to the net taxable temporary differences yields a deferred tax liability, while applying it to the net deductible temporary differences yields a deferred tax asset. The journal entry then debits income tax expense and credits the deferred tax liability, with a corresponding debit to the deferred tax asset where applicable, a process consistent with the balance sheet liability method mandated by AASB 112 (Chartered Accountants Australia and New Zealand, 2021, *AASB 112 Income Taxes: Implementation Guidance*, para. 22). **Temporary Differences Beyond the Plant Schedule** While the plant depreciation difference is the largest single item in the worksheet, the treatment of accrued expenses deserves equal analytical weight because it surfaces a common point of confusion for students. Warranty provisions and long service leave accruals represent obligations the entity has recognised as expenses but not yet settled in cash; the tax authority typically allows the deduction only when the cash outflow occurs. This timing mismatch creates a deductible temporary difference that gives rise to a deferred tax asset, provided recovery is probable. Research into reporting practice among ASX 200 firms shows warranty obligations are among the most frequently disclosed sources of deferred tax assets, second only to employee benefit provisions (Morris, 2019, *Deferred tax disclosures in Australian listed entities*, p. 47). The critical test is whether the entity expects sufficient future taxable profit to utilise the deductible amounts; where doubt exists, the asset must be written down. **Clarifying Tax Base Versus Accounting Base for Receivables** Students searching for guidance on accounts receivable commonly ask why no temporary difference arises when the carrying amount equals the receivable balance. The answer lies in understanding that the tax base of a revenue-generating receivable is generally its carrying amount, because the revenue has already been included in taxable income at the time of sale. The information set states that amounts received from sales, including credit sales, are taxed when the sale is made; this means the revenue recognition matches the tax recognition, eliminating any temporary difference. Where a difference would emerge is if a provision for doubtful debts existed, because the provision reduces the carrying amount below the tax base, producing a deductible temporary difference. This distinction between trade receivables (typically no difference) and receivables net of an allowance (a difference emerges) represents a practical nuance that practitioners in advisory firms such as BDO and Pitcher Partners routinely flag for graduate accountants during induction training. | | Carrying Amount | Tax Base | Taxable Temporary Difference | Deductible Temporary Difference | | :— | :— | :— | :— | :— | | Plant | $320,000 | $300,000 | $20,000 | | | Prepaid Insurance | $10,000 | $0 | $10,000 | | | Provision for LSL | $20,000 | $0 | | $20,000 | | Provision for Warranty | $20,000 | $0 | | $20,000 | | **Totals** | | | **$30,000** | **$40,000** | Journal entry: Dr Income Tax Expense $3,000 Dr Deferred Tax Asset $12,000 Cr Deferred Tax Liability $9,000 Cr Current Tax Liability $6,000

Question 1: Deferred Tax Worksheet and Journal Entries (15 marks)
MyOwnWork Ltd commences operations on 1 July 2025 and presents its first statement of profit or loss and other comprehensive income, and first statement of financial position, on 30 June 2026. The statements are prepared before considering taxation. The following information is available:

Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2026

  • Gross Profit: $730,000

  • Administration expenses: $80,000

  • Salaries: $200,000

  • Long-service leave: $20,000

  • Warranty expenses: $30,000

  • Depreciation expense – plant: $80,000

  • Insurance: $20,000

Statement of Financial Position as at 30 June 2026

  • Cash: $20,000

  • Inventory: $100,000

  • Accounts receivable: $100,000

  • Prepaid Insurance: $10,000

  • Plant – cost: 400,000;lessAccumulateddepreciation:80,000; Net plant: $320,000

  • Total assets: $550,000

  • Accounts payable: $80,000

  • Provision for warranty expenses: $20,000

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  • Loan payable: $200,000

  • Provision for long service leave: $20,000

  • Total liabilities: $320,000

  • Net assets: $230,000

Additional Information

  • Administration and salary expenses have been paid by year end.

  • No long service leave amounts have been paid.

  • Warranty expenses were accrued; actual payments total 10,000,leavinganaccruedbalanceof20,000.

  • Insurance was prepaid for 30,000;theunusedcomponentatyearendis10,000.

  • Sales revenue, including credit sales, is taxed at the point of sale.

  • The plant is depreciated over five years for accounting purposes but over four years for taxation purposes.

  • The corporate tax rate is 30 per cent.

Required
Prepare the deferred tax worksheet for MyOwnWork Ltd as at 30 June 2026 and provide the journal entries to account for tax in accordance with AASB 112 Income Taxes.

Question 2: Subsequent Expenditure on Non-Current Assets (10 marks)
MyNextProblem Ltd acquired a new building, Next In Line Building, for 2,000,000.Thecompanyincurredincidentalcostsof30,000 for legal fees, real estate agent commissions, and stamp duties during the acquisition. At the quarterly board meeting, management expressed the view that these costs should be expensed because they did not increase the building’s value and would not be recovered if the building were resold immediately. In management’s view, the building’s fair value remains $2,000,000.

Required
Discuss how the $30,000 of incidental costs should be accounted for in the books of MyNextProblem Ltd. Justify your position with reference to the Conceptual Framework and relevant accounting standards. Maximum 200 words.

Question 3: Recognition of Heritage and Cultural Assets (15 marks)
A recent annual report of the City of Darwin Council did not include library books on the statement of financial position, despite the council maintaining a substantial library collection. The council’s accounting policy expenses all library books at the time of acquisition. A note to the annual report explains the policy by referencing the following factors:

  • The fair value of a book immediately after purchase is minimal compared with its cost.

  • The acquisition cost of individual books falls below the council’s capitalisation threshold.

  • The useful life of a book is variable and indeterminable, making systematic depreciation difficult to calculate.

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Required
Critically evaluate the City of Darwin Council’s accounting policy for its library collection. Propose an alternative accounting treatment or supplementary disclosures the council could adopt, providing reasoning grounded in the Conceptual Framework and AASB 116 Property, Plant and Equipment. Maximum 400 words.

Question 4: Statement of Cash Flows (30 marks)
ChallengeMe Pty Ltd is a manufacturer of tennis equipment and fashion wear. The statement of financial position as at 30 June 2026 and details of revenues and expenses for the year then ended are provided below.

Statement of Financial Position as at 30 June 2026

2026 ($000) 2025 ($000)
Current Assets
Cash 135 274
Inventory 2,774 2,486
Prepayments 115 –
Accounts receivable 2,897 2,654
Allowance for doubtful debts (150) (120)
Total current assets 5,771 5,294
Non-Current Assets
Investment – associated company 1,050 –
Investments 1,216 948
Land 1,500 1,750
Buildings 800 800
Accumulated depreciation – buildings (200) (160)
Plant and equipment 1,025 768
Accumulated depreciation – plant/equip. (100) (548)
Deferred tax asset 312 302
Total non-current assets 5,603 3,860
Total Assets 11,374 9,154
Current Liabilities
Accounts payable 1,637 1,483
Accruals 1,575 1,110
Lease liability 5 –
Income tax payable 243 83
Provision for employee entitlements 205 298
Provision for deferred payment 50 –
Provision for warranty 314 –
Total current liabilities 4,029 2,974
Non-Current Liabilities
Lease liability 15 –
Deferred tax liability 240 75
Borrowings 3,500 3,800
Total non-current liabilities 3,755 3,875
Total Liabilities 7,784 6,849
Net Assets 3,590 2,305
Shareholders’ Equity
Share capital 2,750 2,000
Retained earnings 280 130
Revaluation surplus 560 175
Total shareholders’ equity 3,590 2,305

Statement of Profit or Loss and Other Comprehensive Income for year ended 30 June 2026

2026 ($000)
Sales 31,394
Dividends income 51
Expenses
Bad debts (90)
Cost of sales (28,205)
Doubtful debts (35)
Inventory write-off (50)
Warranty expense (314)
Depreciation – buildings (40)
Depreciation – plant and equipment (100)
Interest (315)
Rent (600)
Salaries and wages (1,324)
Finance charges (7)
Profit before tax 365
Income tax expense (215)
Profit after tax 150
Other Comprehensive Income
Reduction in revaluation surplus – land (175)
Increase in revaluation surplus – plant/equip. 560

Statement of Changes in Equity for year ended 30 June 2026

Share Capital ($000) Retained Earnings ($000) Revaluation Surplus ($000) Total ($000)
Opening balance 1 July 2025 2,000 130 175 2,305
Profit and OCI for the year – 150 385 535
Issue of shares for associate 750 – – 750
Balance 30 June 2026 2,750 280 560 3,590

Additional Information

  • An additional investment of 80,000wasacquiredinexchangefortennisequipmentcosting80,000.

  • Land was devalued against a previous revaluation increment, fully reversing that prior increment.

  • Plant and equipment with a cost of 700,000andaccumulateddepreciationof500,000 were revalued to $1,000,000 during the year.

  • Plant and equipment with a fair value of $25,000 were acquired under a finance lease, with the residual guaranteed by the lessee.

  • Plant and equipment were sold for 20,000cash.Thecostwas68,000 and no profit or loss arose on the sale.

  • One line of wooden tennis racquets was scrapped at a loss of $50,000 due to low demand.

  • An investment was made in an associated company, Squash Pty Ltd. Consideration totalled 1,000,000,fundedby250,000 cash and the issue of 500,000 shares at 1.50each.ThepurchaseagreementprovidesforadditionalpaymentsifSquashPtyLtd’sfirst−yearprofitsexceed110,000; using the formula, an extra $50,000 has been provided.

  • Provision for warranty is based on 1 per cent of sales.

  • Rent expense of $600,000 is accrued within ‘Accruals’.

  • Interest expense is paid during the year, and dividends are received.

  • Salaries and wages expense includes employee entitlements.

  • The tax rate is 30 per cent.

Required
Prepare the statement of cash flows for ChallengeMe Pty Ltd for the year ending 30 June 2026 in accordance with AASB 107 Statement of Cash Flows. Comparatives are not required. Show all workings clearly.

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Question 5: Consolidated Financial Statements (20 marks)
FinalHeadache Ltd acquired all the shares in Solutions Ltd on 30 June 2025. The financial statements of both companies at 30 June 2026, one year after acquisition, are shown below.

Reconciliation of Opening and Closing Retained Earnings

FinalHeadache Ltd ($000) Solutions Ltd ($000)
Sales revenue 2,000 610
Cost of goods sold (800) (240)
Other expenses (300) (70)
Profit for the year 900 300
Retained earnings opening balance 1,100 500
Retained earnings at 30 June 2026 2,000 800

Statements of Financial Position as at 30 June 2026

FinalHeadache Ltd ($000) Solutions Ltd ($000)
Current Assets
Cash 150 200
Accounts receivable 450 250
Non-Current Assets
Land 1,200 750
Plant 2,600 1,000
Accumulated depreciation – plant (600) (200)
Investment in Solutions Ltd 1,100 –
Total Assets 4,900 2,000
Shareholders’ Equity
Retained earnings 2,000 800
Share capital 1,100 350
Current Liabilities
Accounts payable 700 150
Non-Current Liabilities
Loans 1,100 700
Total Liabilities and Equity 4,900 2,000

Additional Information

  • FinalHeadache Ltd acquired Solutions Ltd on 30 June 2025 for $1,100,000 cash.

  • The directors of FinalHeadache Ltd assessed that goodwill was impaired by $20,000 during the year to 30 June 2026.

  • There are no intragroup transactions.

  • Solutions Ltd did not issue any shares during 2026.

  • The tax rate is 30 per cent.

  • At the acquisition date, the carrying amounts and fair values of Solutions Ltd’s assets were:

Carrying Amount ($000) Fair Value ($000)
Cash 150 150
Accounts receivable 200 200
Land 750 800
Plant (cost 1,000,000,accumulateddepreciation200,000) 800 900
Total 1,900 2,050

  • No revaluations were recorded in Solutions Ltd’s own accounts before consolidation.

  • At the acquisition date, Solutions Ltd’s liabilities totalled $1,050,000, and no contingent liabilities existed.

  • The plant held by Solutions Ltd at acquisition has a remaining useful life of 10 years from 30 June 2025, with no residual value.

Required
Provide the following for the FinalHeadache Ltd group for the year ending 30 June 2026:
(a) Goodwill computation.
(b) Consolidation journal entries to:
(i) Revalue the assets of Solutions Ltd so that goodwill can be determined.
(ii) Eliminate the investment in Solutions Ltd against the pre-acquisition equity of Solutions Ltd.
(iii) Recognise impairment of goodwill.
(iv) Record additional depreciation and the corresponding reduction in deferred tax liability.
(c) A consolidation worksheet showing the columns for FinalHeadache Ltd, Solutions Ltd, Eliminations and Adjustments, and Consolidated Amounts.
(d) The consolidated statement of financial position of the FinalHeadache group as at 30 June 2026.

**Grading Rubric – ACT503 Assignment One**

| Criterion | High Distinction (80–100%) | Distinction (70–79%) | Credit (60–69%) | Pass (50–59%) | Fail (0–49%) | | :— | :— | :— | :— | :— | :— | | **Technical Accuracy – Calculations** | All calculations accurate; workings fully labelled and cross-referenced. | Minor calculation error(s) with otherwise clear methodology. | Several errors but logical approach demonstrated. | Fundamental errors that affect outcomes; method partially evident. | Pervasive errors; no coherent methodology. | | **Standard Application and Journal Entries** | Journals correctly classified, with narrations referencing specific AASB paragraphs. | Journals accurate with minor omissions in narrations. | Journals broadly correct but misclassification of one item. | Journals contain errors in debit/credit logic or tax effect. | Journals missing or fundamentally incorrect. | | **Critical Analysis and Evaluation** | Insightful critique that synthesises Conceptual Framework principles with practical constraints; well-supported alternative proposed. | Clear critique with sound use of standards; alternative is plausible. | Adequate discussion; alternative identified but not fully developed. | Basic critique present; alternative mentioned but unconvincing. | Descriptive only; no evaluation or alternative. | | **Communication and Presentation** | Flawless grammar, professional formatting, within word limit, seamless structure. | Minor grammatical issues; formatting consistent. | Some grammatical errors; structure acceptable. | Noticeable errors affecting clarity; formatting incomplete. | Poorly written; disregard for formatting and word limit. |

References
Chartered Accountants Australia and New Zealand. (2021). AASB 112 Income Taxes: Implementation Guidance. https://www.charteredaccountantsanz.com
Morris, R. D. (2019). Deferred tax disclosures in Australian listed entities. Australian Accounting Review, 29(1), 42–55. https://doi.org/10.1111/auar.12260
Australian Accounting Standards Board. (2015). AASB 112 Income Taxes. https://www.aasb.gov.au
Australian Accounting Standards Board. (2015). AASB 107 Statement of Cash Flows. https://www.aasb.gov.au
Australian Accounting Standards Board. (2019). Conceptual Framework for Financial Reporting. https://www.aasb.gov.au

Prepare a deferred tax worksheet, evaluate accounting policy for library books, and draft consolidated financial statements in this 3,000-word corporate accounting assignment. Complete a five-page assignment covering AASB 112 deferred tax, non-current asset recognition, public sector heritage assets, cash flow statements, and group consolidation. This ACT503 assignment requires students to apply AASB 112, AASB 107, and AASB 10 to practical scenarios involving tax effect accounting, cash flow preparation, and consolidation. Assignment – ACT503 Assignment Two (Week 8, Semester 1, 2026)
This assessment requires students to examine a business combination involving a partial acquisition. You will receive financial statements for a parent entity that holds an 80% interest in a subsidiary, with the non-controlling interest measured at fair value at acquisition. The task involves preparing a full set of consolidated financial statements, including the statement of profit or loss and other comprehensive income, statement of changes in equity, and statement of financial position. You must account for intragroup transactions including inventory transfers, an intragroup loan, and the sale of a non-current asset between the entities, calculating the associated tax effects under AASB 112.