Comprehensive exercise 14.18 (Multiple transactions and the calculation of non-controlling interest)
On 1 July 20X1, Bud Ltd acquired 75% of the share capital of Weiser Ltd. The shareholders’ equity of Weiser Ltd was as follows:
$
Share capital 150 000
Retained earnings 8 000
At the date of acquisition, all assets were stated at their fair value. The following are the � noncoal statements of Bud Ltd and Weiser Ltd as at 30 June 20X3.
Financial Statements for the year ended 30 June 20X3
| Sales | Bud Ltd $ 440 000 | Weiser Ltd $ 220 000 |
| Cost of sales | 200 000 | 108 000 |
| Gross pro� t | 240 000 | 112 000 |
| Dividends from Weiser Ltd Interest from Bud Ltd | 7 125 | 1 000 |
| 247 125 | 113 000_ | |
| Marketing expenses | 53 000 | 26 000 |
| Administration expenses | 56 425 | 25 000 |
| Finance expenses | 7 500 | 3 000 |
| Total operating expenses | 116 925 | 54 000 |
| Operating pro� t before tax | 130 200 | 59 000 |
| Income tax expense | 59 500 | 24 000 |
| Operating pro� t after tax | 70 700 | 35 000 |
| Retained earnings 1 July 20X2 | 24 000 | 19 000 |
| 94 700 | 54 000 | |
| Interim dividend | 8 000 | 9 500 |
| Proposed dividend | 45 000 | 22 500 |
| 53 000 | 32 000 |
476 CORPORATE ACCOUNTING IN AUSTRALIA
| Retained earnings 30 June 20X3 | Bud Ltd $ 41 700 | Weiser Ltd $ 22 000 | |
| Share capital | 300 000 | 150 000 | |
| General reserve 10% unsecured notes Dividend payable | 38 000 50 000 — 45 000 | 10 000 22 500 | |
| Current tax liability | 60 000 | 24 000 | |
| Other current liabilities | 59 600 | 38 900 | |
| 594 300 | 267 400_ | ||
| Shares in Weiser Ltd | 126 000 — | ||
| 10% unsecured notes (in Bud Ltd) | — | 10 000 | |
| Other non-current assets | 325 600 | 180 000 | |
| Inventory | 32 000 | 22 000 | |
| Other current assets | 110 700 | 55 400 | |
| 594 300 | 267 400_ | ||
| Additional information: | |||
| (a) Intragroup sales were: Bud Ltd to Weiser Ltd | $15 000 | ||
| Weiser Ltd to Bud Ltd | $35 000 |
| (b) Unrealised pro� ts in closing inventory were: | ||
| Y/E 30/06/20X2 | Y/E 30/06/20X3 | |
| $ | $ | |
| Goods sold by Weiser Ltd to Bud Ltd | 2000 | 2500 |
| Goods sold by Bud Ltd to Weiser Ltd | — | 1000 |
- The directors have applied the impairment test for goodwill annually and determined that a write- down of $1500 is required for consolidation purposes as at 30 June 20X3. The cumulative goodwill impairment write-downs for prior years totaled $1500.
- The tax rate is 30%.
Required
Prepare the consolidated statement of comprehensive income and statement of financial position for the economic entity at 30 June 20X3, showing a consolidated worksheet and all calculations.
Assignment Questions
Using the information provided in Comprehensive Exercise 14.18 in the textbook, prepare answers for the following parts, showing all relevant calculations and workings.
- Show all consolidation journal entries necessary for the preparation of the consolidated financial statements for Bud Ltd and its subsidiary for the year ended 30 June 20×3, using the partial goodwill method.
- Show the NCI calculations, and prepare the consolidated statements of comprehensive income and financial position for the economic entity at 30 June 20×3.
Assessment Task – Tutorial Questions Assignment Unit Code: HA3011 Unit Name: Advanced Financial Accounting Assignment: Tutorial Questions Assignment (Individual) Due: Friday, 23rd October 2020 (11:30pm) Weighting: 50% Purpose: This assignment is designed to assess your level of knowledge of the key topics covered in this unit Learning Outcomes Assessed: 1. Apply knowledge of accounting for specific financial reporting issues in accordance to AASB accounting standards. 2. Accounting for non-current Assets, revaluations and impairments of non-current assets. 3. Accounting for liabilities. 4. Accounting for leases for both lessees and lessors. 5. Accounting for company income taxes. 6. Accounting for extractive industries. 7. Accounting for foreign currency transactions. Description: Each week students were provided with three tutorial questions of varying degrees of difficulty. The tutorial questions are available in the Tutorial Folder, for each week, on Blackboard. The Interactive Tutorials are designed to assist students with the process, skills and knowledge to answer the provided tutorial questions. Your task is to answer a selection of tutorial questions for weeks 6 to 11 inclusive and submit these answers in a single document.
The questions to be answered are: Question 1 (7 marks) (Note this question is from Topic 6 Tutorial) Gunna Ltd acquired a printing machine on 1 July 2018 for $100,000. It is expected to have a useful life of 5 years, with the benefits being derived on a straight- line basis. The residual is expected to be $nil. On 1 July 2019 the machine is deemed to have a fair value of $75,000 and a revaluation is undertaken in accordance with Gunnamatta Ltd.’s policy of measuring property, plant and equipment at fair value. The asset is sold for $89,000 on 1 July 2020. Required: Provide the journal entries necessary to account for transactions and events at the following date. Narrations are required. (7 marks. Word limit: n/a) a) 30 June 2019 b) 1 July 2019 c) 30 June 2020 d) 1 July 2020 Question 2 (7 marks) (Note this question is from the Topic 7 Tutorial) M&N company issues $20 million of ten-year, 7 per cent, semi-annual coupon debentures to public which pay interest each six months. The market also requires a rate of return of 7 per cent. Assume that the monies come in and the debentures are allocated on the same day 30 June 2020. Required: a) Provide the accounting entries at 30 June 2020, 31 December 2020. Narrations are required. (4 marks) b) Discuss what factors may cause a debenture is issued at discount, premium and par value. (3 marks) (7 marks. Word limit for part b: minimum 120 to maximum 250 words)
Question 3 (7 marks) (Note this question is from the Topic 9 Tutorial) Adam & Smith Ltd purchases a machine on 1/07/2019 for $450,000. Expected life is 6 years using straight-line method and no residual value. For tax purposes, ATO allows the company to depreciate over 5 years. The profit before tax of the company for the year ended at 30 June 2020 is $550,000. Tax rate is 25%. Required: a) What is the amount of the temporary difference? Does this give rise to a deferred tax asset or a deferred tax liability? Provide relevant journal entries that relates to the temporary difference at 30 June 2020. (3 marks) b) Determine the taxable profit and the taxes payable and provide relevant journal entries at 30 June 2015. (2 marks) c) Provide one example of temporary differences that create a deferred tax asset and one example of a deferred tax liability. (2 marks) (7 marks. Word limit for part c: minimum 120 to maximum 250 words) Question 4 (7 marks) (Note this question is from the Topic 11 Tutorial) On 1/04/2019, AUS Ltd enters into a binding agreement with a Canadian company to construct an item of machinery that manufactures spoons. The cost of the machinery is $400,000 Canadian Dollars. The construction of the machinery is completed on 1/06/2020 and shipped FOB Canada on that date. The debt is unpaid at 30 June 2020, which is also AUS Ltd.’s end of reporting period. The exchange rates at the relevant dates are: • 01/04/2019 A$1.00 = C$1.10 • 30/06/2019 A$1.00 = C$1.05 • 01/06/2020 A$1.00 = C$1.02 • 30/06/2020 A$1.00 = C$1.00 Required: Provide the required journal entries for the above transactions. (7 marks, word limit: n/a)
Question 5 (11 marks) (Note this question is from the Topic 8 Tutorial) River Ltd enters into a non-cancellable lease agreement with Machinery Ltd on 1 January 2017. River Ltd.’s financial year ends on 31 December. The lease consists of the following: Date of inception: 1/1/2017 Duration of lease: 5 years Life of leased asset: 6 years Guaranteed residual value (Added to final payment): $40,000 Implicit rate of interest: 8% Fair value at the inception of the lease $346,640 There are to be 5 annual payment of $90,000, the first being made on 31 December 2017. Included within the $90,000 lease payment is an amount of $10,000 representing payment to the Lessor Machinery Ltd for the insurance and maintenance of the equipment. The equipment is to be depreciated on a straight-line basis. Required: a) Verify the implicit rate of interest is correct against Fair Value. (2 marks) b) Develop a table that shows the payment schedule to determine the interest expense for each year. (2 marks) c) Prepare the journal entries for River Ltd. using the Net Method at the following date. (7 marks) • 1/1/2017 • 31/12/2017 • 31/12/2018 (11 marks. Word limit: n/a)
Question 6 (11 marks) (Note this question is from the Topic 10 Tutorial) Assume that Hunter Ltd commences operations on 1/7/2018. It explores two areas (Site East and Site West) and incurs the following costs: Exploration & Evaluation Expenditure ($m) Tangible ($m) Intangible ($m) Site East 18 12 6 Site West 24 15 9 Total 42 Other information: • Financial year ends at 30 June. • In the year of 2018, oil is discovered at Site West. Site East is abandoned as no prove of existence of economically recoverable resources, and an impairment loss is recognized. • Of Site East, $12 million relates to tangible assets, $6 million intangible assets. • Of the $24 million of Site West, $15 million relates to tangible assets, $9 million intangible. • Development costs of $26m are incurred at Site West in 2019. Out of the $26m, $16 million are property, plant and equipment, $10 million are in intangibles. • Development costs are to be written off on a production basis in 2019 for Site West. Development at Site West concludes at the end of 2019 financial year, production commences at the start of July 2020. • It is estimated that Site West will produce 20 million barrels of oil. • In 2020, 1.4m barrels are extracted at a production cost of $3.2m. Required: Prepare the necessary journal entries for the costs incurred in 2018, 2019 and 2020 (using the area of-interest method of accounting). (11 marks. Word limit: n/a)