2103AFE Company Accounting

Group Assignment

This assignment requires students to prepare consolidated financial statements in accordance with appropriate Australian Accounting Standards and Corporate Legislation.

TOTAL WEIGHTING: 20%

This is calculated as follow:

Part A (by GROUP):10% - Group mark multiplied by SPA factor*

Part B (by INDIVIDUAL): 10%- Individual mark

*A group mark will be allocated for technical content OUT OF 10%. This will be adjusted for each student using the SPA factor generated by SPARK. An adjusted mark will be calculated for each individual student; therefore, each member of the group may receive a different final assessment percentage.

SPARK ratings will be included in relation to the individual mark awarded for Group Assignment only.

REQUIREMENTS:

  1. Students are required to complete Group Assignment in a group.
  2. All answers must use proper English expression and grammar.
  3. The assignment is to be submitted on-line by the due date.

SUBMISSION:

  1. Detailed instructions on how to submit the assignment is available in the Course Home Tab/Assignment Submission on Learning@Griffith.
  2. The assignment must be word-processed using Microsoft Word or Excel, Times New Roman, 12-point font, double-spaced.
  3. Part A is to be submitted by the group (only one member submits the assignment on behalf of the group). Part B is to be submitted by the individual.
  4. Each group member must complete the electronic assignment cover sheet in “assignment “on L@G.
  5. Marks may be deducted if any of the requirements (1-4) or submission instructions (1‑3) are not completed.

Part A (by group): Consolidation Case Study: Perth Ltd and Summer Ltd

Perth Ltd acquired 80% of the share capital of Summer Ltd on 1 July 2011. The following equity balances appeared in the records of Summer Ltd at the date of acquisition:

Share capital (210,000 shares)

$210,000

General reserve

6,100

Retained earnings

75,000

Financial information at 30 June 2016 of Perth Ltd and its subsidiary company, Summer Ltd, is shown below.

Perth Ltd

Summer Ltd

$

$

Sales revenue

708,000

492,000

Cost of sales

(273,000)

(178,500)

Gross Profit

435,000

313,500

Other revenue:

Debenture interest

10,500

Management fees

10,500

Dividend from Summer Ltd

16,800

462,300

324,000

Administrative expenses

(31,500)

(16,800)

Distribution expenses

(189,000)

(126,000)

Depreciation on machinery

(31,500)

(31,500)

Finance expenses

(27,600)

(12,000)

Other expenses

(29,400)

(25,200)

Total operating expenses

(309,000)

(211,500)

Profit before tax

153,300

112,500

Income tax expense

(52,500)

(34,500)

Profit after tax

100,800

78,000

Retained earnings (1/7/2015)

105,000

94,500

205,800

172,500

Transfer to general reserve

(6,300)

Interim dividend paid

(31,500)

(21,000)

Final dividend declared

(37,800)

(42,000)

(75,600)

(63,000)

Retained earnings (30/6/2016)

130,200

109,500

General reserve

105,000

36,000

Other components of equity (1/7/2015)

27,300

21,000

Share capital

630,000

210,000

Liabilities:

Debentures

255,000

60,000

Deferred tax liability

14,700

Current tax liability

52,500

35,700

Dividend payable

37,800

42,000

Other current liabilities

189,000

25,200

1,426,800

554,100

Cash and cash equivalents

107,100

6,000

Trade receivables

68,250

40,200

Inventory

189,000

58,500

Debentures in Perth Ltd

105,000

Shares in Summer Ltd

270,000

Machinery (cost)

252,000

214,200

Accumulated depreciation – machinery

(136,500)

(115,500)

Other depreciable assets

159,600

115,500

Accumulated depreciation

(84,000)

(52,500)

Deferred tax asset

179,250

63,000

Land

422,100

119,700

1,426,800

554,100

Additional information

  1. At 1 July 2011, all the identifiable assets and liabilities of Summer Ltd were recorded at fair value except for the following assets:

Carrying amount

Fair value

Land

$62,000

$80,000

Machinery (cost 135,000)

105,000

120,000

Receivable

42,000

36,000

The machinery has an expected life of 10 years, with benefits being received evenly over that period. Differences between carrying amounts and fair values are adjusted on consolidation. The land on hand at 1 July 2011 was sold on 1 March 2013 for $84,000. Any valuation reserve in relation to the land is transferred on consolidation to retained earnings. By 30 June 2012, receivables had all been collected.

  1. Perth Ltd uses the full goodwill method. The fair value of the non-controlling interest at 1 July 2011 was $66,000.
  • Opening inventory of Summer Ltd includes unrealised profit of $5,000 on inventory sold by Perth Ltd. It was all sold by Summer Ltd during the year.
  1. During the year, intragroup sales by Summer Ltd to Perth Ltd were $80,000. The mark-up on cost of all sales was 25%. At 30 June 2016, Perth Ltd’s inventory included $35,000 of items acquired from Summer Ltd.
  2. On 1 January 2016, Summer Ltd sold an item of inventory to Perth Ltd for $18,000 at a profit before tax of $3000. Perth Ltd had treated this item as an addition to its machinery and depreciated at 10% p.a. straight-line.
  3. On 1 April 2016, Perth Ltd sold $15,000 worth of inventory to Summer Ltd. The cost of this inventory was $9000. By 30 June 2016, Summer Ltd had sold 60% of the inventory to outside entities.
  • Some of the items manufactured by Summer Ltd are used as machinery by Perth Ltd. One of the machinery items held by Perth Ltd at 30 June 2016 was purchased from Summer Ltd on 1 January 2015. It had cost Summer Ltd $17,500 to manufacture this item and was sold to Perth Ltd for $25,000. Perth Ltd depreciates such items at 10% p.a. on cost.
  • Management fees derived by Perth Ltd were all from Summer Ltd and represented charges made for administration.
  1. The tax rate is 30%.

Required:

  1. Prepare the acquisition analysis at 1 July 2011
  2. Prepare i) the consolidation journal entries; ii) consolidation worksheet (Show all workings) for the year ended at 30 June 2016.

Note: Consolidation worksheet and all calculation should be presented in the same format as used in Leo, Hoggett and Sweeting, 10ed textbook.

Required A)

The fair value of the identifiable net assets of Summer Ltd

= Share Capital $210,000 + General reserve $6,100 + Retained earnings $75,000 + Land $5,400 ($18,000 x 30%) + Machinery $4,500 ($15,000 x 30%) + Receivable $-1,800 ($-6000 x 30%)

= $299,200

Consideration transferred = $270,000

Non-controlling interest = $66,000

Agreegate of Consideration transferred and NCI = $336,000

Total Goodwill = $336,000 – $299,200 = $36,800

Goodwill of Summer LTD

Fair value of Summer LTD = $66,000/20% = $330,000

The fair value of the identifiable net assets of Summer Ltd = $299,200

Goodwill of Summer LTD = $330,000 - $299,200= 30,800

Goodwill of Perth LTD

Total Goodwill acquired = $36,800

Goodwill of Summer Ltd = $30,800

Goodwill of Perth LTD - Control premium = $6,000

Required B)

  1. i) The consolidation journal entries at 30 June 2016

(a) Unrealised profit in opening

Unrealised profit in opening inventory : Summer Ltd to Perth LtdOpening inventory of Summer Ltd includes unrealised profit of $5,000 on inventory sold by Perth Ltd.

Part B (by individual): Theory Questions

Q1. a) Discuss four prescriptions contained in AASB 10 Consolidated Financial Statements when applying to the consolidation process.

  1. b) Discuss four issues that may challenge existing policies and procedures of the consolidation process when applying AAASB 10 Consolidated Financial Statements.

Q2. Why is it necessary to make adjustments for intragroup transactions? When does an intragroup transaction consolidation adjustment require us to perform a consolidation adjustment to tax expense?