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Practice-Based Assignment
Trimester 2, 2020
TOTAL MARKS: 100
TOTAL WEIGHTING: 30%
DUE DATES: 5.00pm Friday 25 September 2020.
This assignment requires students to apply appropriate Australian Accounting Standards and Corporate Legislation in the preparation of accounting reports for related companies. Students are required to complete the case study individually.
REQUIREMENTS:
SUBMISSION:
Case Study
Financial information at 30 June 2020 of Great Ltd and its subsidiary company, Wall Ltd, is shown below.
At 1 July 2017, the date Great Ltd acquired its 80% shareholding in Wall Ltd, all the identifiable assets and liabilities of Wall Ltd were at fair value except for the following assets:
Carrying amount | Fair value | |||
Plant (cost $75,000) | $49,000 | $55,000 | ||
Land | 29,000 | 37,000 |
The plant 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 2017 was sold on 1 February 2018 for $40,000. Any valuation reserve in relation to the land is transferred on consolidation to retained earnings.
Great Ltd uses the full goodwill method. The fair value of the non-controlling interest at 1 July 2017 was $31,500.
Great Ltd | Wall Ltd | |||||||
Sales revenue | $ | 316,000 | $ | 220,000 | ||||
Other revenue: | ||||||||
Debenture interest | 5,000 | — | ||||||
Management and consulting fees | 5,000 | — | ||||||
Dividend from Wall Ltd | 12,000 | — | ||||||
Total revenues | 338,000 | 220,000 | ||||||
Cost of sales | 130,000 | 85,000 | ||||||
Manufacturing expenses | 90,000 | 60,000 | ||||||
Depreciation on plant | 15,000 | 15,000 | ||||||
Administrative | 15,000 | 8,000 | ||||||
Financial | 11,000 | 5,000 | ||||||
Other expenses | 14,000 | 12,000 | ||||||
Total expenses | 275,000 | 185,000 | ||||||
Profit before tax | 63,000 | 35,000 | ||||||
Income tax expense | (25,000 | ) | (17,000 | ) | ||||
Profit | 38,000 | 18,000 | ||||||
Retained earnings (1/7/19) | 50,000 | 45,000 | ||||||
88,000 | 63,000 | |||||||
Transfer to general reserve | 3,000 | — | ||||||
Interim dividend paid | 10,000 | 10,000 | ||||||
Final dividend declared | 10,000 | 5,000 | ||||||
23,000 | 15,000 | |||||||
Retained earnings (30/6/20) | 65,000 | 48,000 | ||||||
General reserve | 50,000 | 10,000 | ||||||
Other components of equity | 13,000 | 10,000 | ||||||
Share capital | 300,000 | 100,000 | ||||||
Debentures | 200,000 | 100,000 | ||||||
Current tax liability | 25,000 | 17,000 | ||||||
Dividend payable | 10,000 | 5,000 | ||||||
Deferred tax liability | — | 7,000 | ||||||
Other liabilities | 90,000 | 12,000 | ||||||
$ | 753,000 | $ | 309,000 | |||||
Financial assets | $ | 50,000 | $ | 60,000 | ||||
Debentures in Wall Ltd | 100,000 | — | ||||||
Shares in Wall Ltd | 131,600 | — | ||||||
Plant (cost) | 120,000 | 102,000 | ||||||
Accumulated depreciation – plant | (65,000 | ) | (55,000 | ) | ||||
Other depreciable assets | 76,000 | 55,000 | ||||||
Accumulated depreciation | (40,000 | ) | (25,000 | ) | ||||
Inventory | 90,000 | 85,000 | ||||||
Deferred tax asset | 85,400 | 30,000 | ||||||
Land | 201,000 | 57,000 | ||||||
Dividend receivable | 4,000 | — | ||||||
$ | 753,000 | $ | 309,000 |
Additional information
Share capital (100,000 shares) | $100,000 | |
General reserve | 3,000 | |
Retained earnings | 37,000 |
Required:
Section 1 (Total 70 marks):
(Note: You must show all workings. The calculation figures will be marked.)
Section 2 (Total 15 marks):
Jenny Chan is the accountant for Great Ltd. She is required to prepare a set of consolidated financial statements for the group. Jenny is concerned about the calculation of the NCI share of equity, particularly where there are intragroup transactions. The auditors have advised Jenny that when adjustments are made for intragroup transaction the effects of these transactions on the NCI should also be adjusted for.
Jenny reports to Mr Frank Finn, the Chief Financial Officer of the company. He has asked Jenny to report to him on these issues raised by the auditor. In her report, Jenny will need to clarify how the adjustment to NCI is made and why. She has also been asked to explain why she has measured NCI in the subsidiary at fair value and to report on any alternative method that is available.
From the above information, discuss the issues that Jenny must address in her report to Mr Finn. In your discussions please include references to applicable accounting standards and the amounts used in your consolidation workings (at least two examples for each argument are to be provided).
Section 3 (Total 15 marks):
In making consolidation worksheet adjustments, sometimes tax-effect entries are made. Why? Make reference to applicable accounting standards and the amounts used in your consolidation workings (at least two examples for each argument are to be provided).
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