ACW1002 Tutorial Solutions – Topic 6
6.12 (p. 297)
Under law, individuals or ‘natural persons’ are liable for their actions. A corporation is a separate legal entity with a continuous life. That is, the life of the corporation continues until it is legally ‘wound up’ or dissolved. This can last for many years, and employ many different staff and management in its lifetime. Therefore, the activities of the corporation are subject to legal requirements, in a similar manner to a natural person. There is separate legislation for companies, and this can be found in Corporations Law. The corporation is a legal entity, and therefore it is held responsible for the results of its actions. If the corporation is liable for its actions, then any legal impositions or penalties may reduce its financial results, and in the longer term impact its reputation.

6.13 (p. 297)
The statement is incorrect. According to section 201(1) of the Corporations Law no dividend is to be payable to a shareholder except out of profits.

6.29* (p. 303)
July 1 Cash at bank
Equipment
Goodwill
Accounts payable
Liability to vendor
(Purchase of business)

5 000
18 000
52 000
7 000
68 000

Liability to vendor
Cash
Paid-up capital
(Payment of vendor)

68 000
8 000
60 000

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ACW1002 Tutorial Solutions – Topic 6
6.31 (p. 303)
July 1

July 2

July 4

July 4

Cash
Paid-up capital
(Issue of shares at par)

150 000
150 000

Formation costs
Cash
(Costs of formation)

8 000
8 000

Inventory
Machinery
Goodwill
Accounts payable
Liability to vendor
(Purchase of business)

15 000
27 000
6 500

Liability to vendor
Cash
(Payment to vendor)

30 500

18 000
30 500

30 500

6.41* (p. 307)
Dr. Retained earnings
Cr. General reserve

$5,000

Dr. Retained earnings
Cr. Dividend payable

$10,000

Dr. Tax expense
Cr. Tax payable

$52,500

$5,000

$10,000

$52,500

Balance of the Retained Earnings as at 30 June 20X1
= 50,000+175,000-52,500-5,000-12,500-10,000
= 145,000

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ACW1002 Tutorial Solutions – Topic 6
Additional Tute Question 1 (p. 313)
30 Sep
10 Oct
15 Feb
28 Feb
8 Mar
30 June

22 Jul
3 Oct

Dr Bank Trust Cr Application $1,375,000
Dr Application $1,375,000 Cr Share capital-ordinary $1,250,000 Cr Bank Trust
$125,000; Dr Bank Cr Bank Trust $1,250,000
Dr Interim Dividend Cr Interim Dividend Payable $250,000
Dr Interim Dividend Payable Cr Bank $250,000
Dr Land and buildings Cr Share capital-ordinary $2,000,000
Dr Tax Expense Cr Tax Payable $285,000 (assume taxable income=PBT)
Dr P&L Summary Cr Retained Earnings $665,000
Dr Retained Earnings Cr Final Dividend Payable $420,000
Dr Retained Earnings Cr Interim Dividend $250,000
Dr Retained Earnings Cr General Reserve $150,000
Dr Final Dividend Payable Cr Bank $420,000
Dr Tax Payable Cr Bank $285,000

Kapital Ltd
Statement of Changes in Equity for the year ended 30 June 2011

Share Capital
Balance at 1 July 2010
Issues of share capital
Balance at 30 June 2011
Reserves
Balance at 1 July 2010
Transfer from retained earnings
Balance at 30 June 2011
Retained Profits
Balance at 1 July 2010
Profit after tax
Transfer to reserves
Dividends paid/payable
Balance at 30 June 2011
Total Shareholder’s Equity 30 June 2011

4,000,000
3,250,000
7,250,000
600,000
150,000
750,000
1,270,000
665,000
(150,000)
(670,000)
1,115,000
9,115,000

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ACW1002 Tutorial Solutions – Topic 6
Additional Tute Question 2* (p. 314)
10 Jan
12 Jan
14 Jan
15 Jul

15 Aug
28 Dec
31 Dec

5 Feb
15 Feb

Dr Bank Trust Cr Application $7,000,000
Dr Application $7,000,000 Cr Share capital-ordinary $5,600,000 Cr Bank Trust
$1,400,000; Dr Bank Cr Bank Trust $5,600,000
Dr Bank Cr Share capital-preference $240,000
Dr Building Cr Share capital-preference $4,000,000
Dr Interim Dividend-preference Cr Interim Dividend Payable-preference
$212,000
Dr Interim Dividend-ordinary Cr Interim Dividend Payable-ordinary $200,000
Dr Interim Dividend-preference $212,000 Dr Interim Dividend-ordinary $200,000
Cr Bank $412,000
Dr Final Dividend-preference Cr Final Dividend Payable-preference $212,000
Dr Final Dividend-ordinary Cr Final Dividend Payable-ordinary $250,000
Dr Tax Expense Cr Tax Payable $300,000 (assume Taxable Profit=PBT)
Dr P&L Summary Cr Retained Earnings $700,000
Dr General Reserve Cr Retained Earnings $100,000
Dr Retained Earnings $874,000 Cr Interim Dividend-preference $212,000
Cr Interim Dividend-ordinary $200,000 Cr Final Dividend-preference $212,000
Cr Final Dividend –ordinary $250,000
Dr Final Dividend Payable-preference $212,000 Dr Final Dividend Payableordinary $250,000 Cr Bank $462,000
Dr Tax Payable Cr Bank $300,000

Balance Sheet Extract as at 31 December 2011
Shareholders Equity
Share Capital:
Authorised capital: 1 000 000 ordinary shares, 400,000 Preference Shares
Paid up Capital
212,000 10% preference shares fully paid at $20
4 240,000
1, 000,000 ordinary shares fully paid at $14
14,000,000
Total share capital
18,240,000
Other Reserves
Asset Revaluation Reserve
200,000
General Reserve
350,000
Retained earnings
178,000
Total Equity
18,968,000

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