ACCA · Question 31 · Financial Reporting

Section C

TerraFirma Utilities operates geothermal energy plants. You are preparing the financial statements for the year ended 30 September 20X9. The trial balance shows a draft profit before tax of $8,500,000.

The following adjustments have not yet been made:

1. Leases: On 1 October 20X8, TerraFirma entered into a 10-year lease for a new administrative building. Annual payments of $500,000 are payable in advance on 1 October each year. The interest rate implicit in the lease is 5%. (The PV of an annuity of $1 for 9 years at 5% is 7.108). No accounting entries have been made other than recording the first payment of $500,000 as an operating expense.

2. Revaluation: TerraFirma owns a tract of land carried at $4,000,000. On 30 September 20X9, an independent valuer assessed the fair value of the land at $5,200,000. TerraFirma wishes to incorporate this revaluation.

3. Taxation: The estimated current tax bill for the year ended 30 September 20X9 is $1,800,000. The deferred tax liability at 1 October 20X8 was $600,000. At 30 September 20X9, the required deferred tax liability is calculated to be $850,000 (excluding any deferred tax on the land revaluation). The tax rate is 20%.

Required:
(a) Calculate the revised Profit Before Tax for the year ended 30 September 20X9. (6 marks)
(b) Calculate the Income Tax Expense for the year ended 30 September 20X9. (4 marks)
(c) Prepare the Other Comprehensive Income section and calculate Total Comprehensive Income. (4 marks)
(d) Calculate the carrying amounts of the Right-of-Use Asset and the Lease Liability to be included in the Statement of Financial Position as at 30 September 20X9. (6 marks)