Assignment 2
Value: 20%
Due Date:4-Sep-2018
Return Date: 04-Oct-2018
Length:
Submission method options: Alternative submission method
Task
You are required to complete all three questions below. A total of 60 marks are allocated to these questions, which will be converted to a final mark out of 20%.
All workings, when appropriate, must be shown to substantiate your answers.
Question 1 [43 marks]
Topic 3: Consolidation: Non-controlling interests
Pepsi Ltd acquired 80% of the shares of Soda Ltd on 1 July 2015 for $115 000. At this date the equity of Soda Ltd consisted of:
$
Share capital (100,000 shares)
80,000
Retained earnings
29,600
General reserve
2,400
All the identifiable assets and liabilities of Soda Ltd were recorded at amounts equal to their fair values except for:
Ca
ying amount
Fair value
$
$
Inventories
25,000
28,000
Plant (cost $65,000)
52,000
56,000
Land
40,000
45,000
The plant was expected to have a further useful life of 10 years. The land was sold on 1 January 2018. The inventory was all sold by 30 June 2016. Pepsi Ltd uses the full goodwill method. The fair value of the non-controlling interest at 1 July 2015 was $28,000. At 1 July 2015, Soda Ltd had unrecorded (internally generated) customer lists that had a fair value of $18,000. These customer lists had an indefinite life.
Financial information provided by the two companies at 30 June 2018 was:
Pepsi Ltd
Soda Ltd
$
$
Sales
252,800
176,000
Debenture interest
4,000
-
Management and consultation fees
4,000
-
Dividends
9,600
-
Total revenue
270,400
176,000
Cost of sales
104,000
68,000
Manufacturing expenses
82,000
53,000
Depreciation on plant
12,000
12,000
Administrative expenses
12,000
6,400
Financial expenses
8,800
4,000
Other expenses
11,200
9,600
Total expenses
230,000
153,000
Profit from trading
40,400
23,000
Gains on sale of non-cu
ent assets
10,000
5,000
Profit before income tax
50,400
28,000
Income tax expense
20,000
13,600
Profit for the yea
30,400
14,400
Retained earnings 1 July 2017
40,000
36,000
70,400
50,400
Dividend paid
8,000
8,000
Dividend declared
8,000
4,000
16,000
12,000
Retained earnings 30 June 2018
54,400
38,400
Share capital
240,000
80,000
General reserve
37,600
8,000
Other components of equity
10,400
8,000
Debentures
160,000
80,000
Cu
ent tax liability
20,000
13,600
Dividend payable
8,000
4,000
Defe
ed tax liabilities
12,000
5,600
Other cu
ent liabilities
60,000
9,600
Total equity and liabilities
602,400
247,200
Shares in Soda Ltd
115,000
-
Debentures in Soda Ltd
80,000
-
Plant
96,000
81,600
Accumulated depreciation - plant
(52,000)
(44,000)
Intangibles
60,800
44,000
Accumulated amortisation - intangibles
(32,000)
(20,000)
Defe
ed tax assets
58,600
24,000
Financial assets
40,000
48,000
Land
120,000
45,600
Inventories
72,000
44,000
Receivables
44,000
24,000
Total assets
602,400
247,200
Additional information
1. Soda Ltd had inventory on hand at 30 June 2017 that included inventory at cost of $8,000 that had been sold to Soda Ltd by Pepsi Ltd. This inventory had cost Pepsi Ltd $6,000. It was all sold by Soda Ltd by 30 June 2018.
2. During the 2017–18 year, Soda Ltd sold inventory to Pepsi Ltd for $48,000. At 30 June 2018, Pepsi Ltd still had some of this inventory on hand. This inventory had been sold to Pepsi Ltd by Soda Ltd at a profit of $4,000.
3. On 1 January 2017, Soda Ltd sold plant to Pepsi Ltd for $16,000. This had a ca
ying amount in Soda Ltd at time of sale of $12,000. Plant of this class is depreciated at 20% p.a.
4. Management and consultation fees derived by Pepsi Ltd are all from Soda Ltd and represent charges for administration of $1,760 and charges for technical services for the manufacturing section of $2,240.
5. All debentures issued by Soda Ltd are held by Pepsi Ltd and interests are accounted for appropriately by both companies.
6. Other components of equity relate to movements in the fair values of financial assets held by the entities. Gains and losses on these financial assets are recognised in other comprehensive income. The balance of the other components of equity account at 1 July 2017 was $8,000 (Pepsi Ltd) and $6,400 (Soda Ltd).
Required:
1. Prepare an acquisition analysis.
2. Prepare the consolidation worksheet entries for the year ended 30 June 2018.
Note: you are not required to prepare the consolidation worksheet and the consolidated financial statements.
Question 1
Max. marks allocated
Acquisition analysis
4
Consolidation worksheet entries
39
Total
43
Question 2 [9 marks]
Topic 4: Investment in associates
Ingram Ltd acquired 35% of ordinary shares issued in A Ltd for $300,000 on 1 July 2017. The equity of A Ltd at that date was as follows.
$
Ordinary share capital
560,000
Retained earnings
54,000
All assets were recorded at fair value at acquisition date, except for plant and equipment which had a fair value of $20,000 above its ca
ying amount. This plant and equipment was estimated to have a remaining useful life of 5 years.
On 1 July 2017, land was recorded in the books of A Ltd at $100,000. The fair value of this asset has since risen by $40,000, with $28,000 ($40,000 less 30% tax) being credited to a revaluation surplus account by A Ltd on 30 June 2018.
On 1 January 2018, A Ltd sold a motor vehicle to Ingram Ltd for $34,000. The vehicle had originally cost A Ltd $68,000, and had a ca
ying amount of $20,000 at 1 January 2018. The motor vehicle had a remaining useful life of 4 years.
At 30 June 2018, Ingram Ltd had inventory costing $40,000 on hand which had been purchased from A Ltd during the financial year. A profit before tax of $10,000 had been made on the sale.
As at 30 June 2018, the following relates to A Ltd:
$
Operating profit before income tax
180,000
Income tax expense
54,000
Dividends paid
30,000
The tax rate is 30%.
Required:
1. Prepare an acquisition analysis in relation to the acquisition made by Ingram Ltd.
2. Assume Ingram Ltd does prepare consolidated financial statements. Prepare the consolidated worksheet entries for the year ended 30 June 2018 for inclusion of the equity-accounted results of A Ltd.
Question 2
Max. marks allocated
Acquisition analysis
2
Workings
3
Consolidation entries
4
Total
9
Question 3 [8 marks]
Topic 5: Accounting for foreign cu
ency transactions
Behappy Ltd is an Australian company with a reporting period ends on 30 June. The company has entered into two independent transactions denominated in foreign cu
ency as follows.
1. Behappy Ltd sells some goods on credit on 13 June 2018 to a Singaporean company, Mother Kwan. The contract, denominated in Singapore dollars, amounts to $125,000. Mother Kwan settles the contract on 10 July 2018.
The relevant exchange rates are as follows:
13 June 2018
A$1.00 = S$1.2536
30 June 2018
A$1.00 = S$1.2875
10 July 2018
A$1.00 = S$1.3103
2. On 15 June 2018, Behappy Ltd acquires plant and equipment on credit from SenangBhd, a Malaysian company. The contract is denominated in Malaysian Ringgit and the acquisition amounts to MYR300,000. Behappy Ltd settles the contract on 20 July 2018.
The relevant exchange rates are as follows:
15 June 2018
A$1.00 = MYR2.8079
30 June 2018
A$1.00 = MYR2.9946
20 July 2018
A$1.00 = MYR2.7152
Required:
In accordance with AASB 121, prepare all relevant journal entries of Behappy Ltd to account for the above transactions.
Question 3
Max. marks allocated
Journal entries for transaction (1)
4
Journal entries for transaction (2)
4
Total
8
Rationale
ack to top
This assessment task will assess the following learning outcome/s:
· be able to explain the relationships that exist between a parent company and its subsidiary(ies), an investor and its investee, a company and its overseas subsidiaries.
· be able to prepare accounts for each of the above-mentioned business combinations in accordance with relevant professional and statutory reporting requirements.
· be able to discuss the relevant accounting standards and statutory reporting requirements for foreign cu
ency dealings, segment reporting, and leases.
Marking criteria and standards
ack to top
The marking guide for this task is provided below. The detailed allocation of marks for each question has been provided above for your information.
Criteria
High distinction
Distinction
Credit
Pass
Question 1
Prepare accurate acquisition analysis and consolidation journal entries necessary for the preparation of consolidated financial statements for group structures with a non-controlling interest, in accordance with relevant professional and statutory reporting requirements.
Acquisition analysis and determination of goodwill or gain on bargain purchase is computed accurately.
At least 85% of the consolidation journal entries are prepared accurately in accordance with relevant statutory reporting requirements.
Acquisition analysis and determination of goodwill or gain on bargain purchase is computed with very few minor e
ors.
At least 75% of the consolidation journal entries are prepared accurately in accordance with relevant statutory reporting requirements.
Acquisition analysis and determination of goodwill or gain on bargain purchase is computed co
ectly with some minor e
ors.
At least 65% of the consolidation journal entries are prepared accurately in accordance with relevant statutory reporting requirements.
Acquisition analysis and determination of goodwill or gain on bargain purchase is computed with a limited number of e
ors.
At least half of the consolidation journal entries are prepared accurately in accordance with relevant statutory reporting requirements.
Question 2:
Prepare accurate acquisition analysis and journal entries to account for investments in associates, in accordance with relevant professional and statutory reporting requirements.
Acquisition analysis and determination of goodwill or excess is computed accurately.
At least 85% of the journal entries are prepared accurately in accordance with relevant statutory reporting requirements.
Appropriate workings are shown and accurate.
Acquisition analysis and determination of goodwill or excess is computed with very few minor e
ors.
At least 75% of the journal entries are prepared accurately in accordance with relevant statutory reporting requirements.
Appropriate workings are shown with very few minor e
ors.
Acquisition analysis and determination of goodwill or excess is computed co
ectly with some minor e
ors.
At least 65% of the journal entries are prepared accurately in accordance with relevant statutory reporting requirements.
Appropriate workings are shown, with some minor e
ors.
Acquisition analysis and determination of goodwill or excess is computed with a limited number of e
ors.
At least half of the journal entries are prepared accurately in accordance with relevant statutory reporting requirements.
Some appropriate workings are shown and/or workings contain a limited number of e
ors.
Question 3: