ACT305 Corporate Accounting Assignment

ACT305 Corporate Accounting

Q1 A) Journal Entries when small ltd does not prepare the consolidated financial statement

Year

Particulars

Debit (Amount $)

Credit (Amount $)

2017

Bank A/c Dr

To Joint venture A/c

(Being the interest purchase in the Fry Ltd)

45000

45000

2018

Joint venture A/c Dr

To Profit and Loss A/c

(Being the Profit is earned on Joint Venture)

80000

80000

2018

Joint venture A/c Dr

To bank A/c

(Being the Income Tax is paid)

30000

30000

2018

Joint venture A/c Dr

To bank A/c

(Being the dividend is paid)

80000

80000

2019

Joint venture A/c Dr

To Profit and Loss A/c

(Being the Profit is earned on Joint Venture)

70000

70000

2019

Joint venture A/c Dr

To bank A/c

(Being the Income Tax is paid)

25000

25000

2019

Joint venture A/c Dr

To bank A/c

(Being the dividend is paid)

15000

15000

2020

Joint venture A/c Dr

To Profit and Loss A/c

(Being the Profit is earned on Joint Venture)

60000

60000

2020

Joint venture A/c Dr

To bank A/c

(Being the Income Tax is paid)

20000

20000

2020

Joint venture A/c Dr

To bank A/c

(Being the dividend is paid)

10000

10000

Q1 B) Journal Entries when small ltd does prepare the consolidated financial statement

Year

Particulars

Debit

(Amount $)

Credit (Amount $)

2017

Joint Bank A/c Dr

To Fry Ltd A/c

(Being the amount is invested in the joint Venture)

45000

45000

2018

Joint venture A/c Dr

To Fry Ltd A/c

(Being the Profit is earned on Joint Venture)

80000

80000

2018

Joint venture A/c Dr

To Joint Bank A/c

(Being the Income Tax is paid)

30000

30000

2018

Joint venture A/c Dr

To Joint Bank A/c

(Being the Dividend is paid)

80000

30000

2018

Joint venture A/c Dr

To Fry Ltd A/c

(Being the Profit is earned on Joint Venture)

70000

70000

2018

Joint venture A/c Dr

To Joint Bank A/c

(Being the Income Tax is paid)

25000

25000

2018

Joint venture A/c Dr

To Joint Bank A/c

(Being the Dividend is paid)

15000

15000

2018

Joint venture A/c Dr

To Fry Ltd A/c

(Being the Profit is earned on Joint Venture)

60000

60000

2018

Joint venture A/c Dr

To Joint Bank A/c

(Being the Income Tax is paid)

20000

20000

2018

Joint venture A/c Dr

To Joint Bank A/c

(Being the Dividend is paid)

10000

10000

Q2.

Ranking of the creditors for the Insolvency process of the Rock Bottom Pty Ltd

Particulars

Amount ($)

Amount realised from the sale Secured land and building

7500000

Amount realised from the sale of the other assets

6750000

Total amount realised from the sale of the assets

14250000

Expenses while realising the secured asset

150000

Payment to secured creditors

7350000

Liquidation Expenses

600000

Executive Directors Wages Payable

450000

Tax Payable

1050000

Local Government rates

300000

Staff wages payable

900000

Executive Directors leave entitlement

150000

Staff Leave entitlement

150000

Unsecured Bank Overdraft

750000

Unsecured trade payable

2400000

Dividend Payment

450000

Payment to secured creditors (Balance)

150000

Q3

Reconciliation of opening and closing

retained earnings

Sales revenue 593,400 498,800

Cost of goods sold (399,040) (204,680)

Gross profit 194,360 294,120

Dividends revenue from Seven Ltd 63,984 ---

Management fee revenue 22,790 ---

Profit on sale of plant 30,100 ---

Expenses

Administrative expenses (26,488) (33,282)

Depreciation (21,070) (48,848)

Management fee expense --- (22,790)

Other expenses (86,946) (66,220)

Profit before tax 176,730 122,980

Tax expense (52,890) (36,292)

Profit for the year 123,840 86,688

Retained earnings-30 June 2018 274,684 205,712

398,524 292,400

Dividends paid (118,164) (79,980)

Retained earnings-30 June 2019 280,360 212,420

Statements of financial position

Shareholders' equity

Retained earnings 280,360 212,420

Share capital 301,000 172,000

Current liabilities

Accounts payable 47,042 39,818

Tax payable 35,518 21,500

Non-current liabilities

Loans 149,210 99,760

813,130 545,498

Current assets

Accounts receivable 51,084 53,578

Inventory 79,120 24,940

Non-current assets

Land and buildings 192,640 280,360

Plant -at cost 257,871 305,988

Accumulated depreciation (73,745) (119,368)

Q4. Kindly read the below report submitted to the Bill regarding the Investments NAGIL has and whether NAGIL is required to consolidate the financial statements or not as per AASB10

  1. Although NAGIL has 70% holding in SL but NAGIL has no control over the decisions made by the SL. As per para 6 of AASB10 NAGIL may not required to consolidate the financial statements with the SL as para 6 states that NAGIL has no control on the decisions which may affect the financial performance.
  2. As VBCL has given the power to NAGIL regarding all the finance decisions so as per para 7c of AASB10, NAGIL is required to prepare the consolidated financial statements along with the results of VBCL. Para 7c of AASB10 states that firm is required to prepare the consolidated accounts if its investor has ability to use the power over the investee to affect the amount of the investor’s return and it has been clearly mentioned in the case that NAGIL deputy chief finance officer would control all payments made by VBCL and no payment would be made without his prior approval.
  3. In this situation NAGIL has 50% of the voting rights in the MSCL. Although SPL is providing the managerial and entrepreneurial expertise to the MSCL and in consideration of that they are charging the Management Fees and for the loan interest is paid to the NAGIL. It has been further provided that in case of no profit interest payments would be made but management fees will not be paid out i.e. SPL will not be paid the management fees if the MSCL earns the losses so this shows that power is shared by both the companies but there are activities which significantly affect the SPL management fees. As per para 10 of AASB10 the results are required to consolidate if investor has existing rights that gives it the current ability to direct the relevant activities, the activities that significantly affect the investor’s return. But in this case NAGIL will be paid his interest in spit of the losses also so they may not be required to consolidate the financial statements.
  4. In the company CrocsRUs, NAGIL has 40% investment and keep a close eye on all the major decisions so as per para 7 a, b, c of AASB10 NAGIL is required to consolidate the financial statements.