accounting-12-1

BUACC5932 CORPORATE ACCOUNTING

ASSIGNMENT SEMESTER 2  2014

 

On 1 July 2008 Max Ltd acquired 100% of the issued shares of Millie Ltd at a cost of $550,000. At this date the capital of Millie Ltd was as follows:

 

Share Capital      $300,000

General Reserve     10,000

Retained Earnings  70,000

 

At 1 July 2008 all the identifiable net assets of Millie Ltd were recorded at fair value with the exception of :

                                    Carrying Amount          Fair Value

Plant and Equipment *         $83,000                    $100,000

Inventory**                            32,500                        35,000

Contingent Liability                –                                10,000

 

*At acquisition date Plant and Equipment had a further 5 years of useful life

 

**Sold during year ended 30 June 2009

 

                        

Additional Information:

 

a)      Inventory

          Closing inventory of Max Ltd at 30 June 2009 included goods purchased from Millie Ltd for $2,100. Max Ltd purchases inventory from Millie Ltd at cost plus 25%

          Total purchases by Max Ltd from Milly Ltd for year ended 30 June 2010 was $9,000.

          At 30 June 2010 Max Ltd held $6,000 inventory purchased from Millie Ltd.

          During the year ended 30 June 2010 Max Ltd sold inventory to Millie Ltd for $12,000. All this inventory had been sold outside the group by 30 June 2010.

        

b)      Non current asset transfers

          A Motor Vehicle was sold by Millie Ltd to Max Ltd on 1 July 2008. The before tax gain on this sale was $4,800. Details of asset sold:

 

Original Cost                                     $29,000

Carrying Amount at 1 July 2008        19,000

Remaining useful life at 1 July 2008      4 years

 

 

          An item of Plant and Equipment was sold by Max Ltd to Millie Ltd on 31 December 2009 for $47,000

 

Original Cost                                                            $49,500

Accumulated Depreciation at 31 December 2009      $7,700

Depreciation Rate                           25% per annum Straight Line

 

c)      Intra group dividends

 

All dividends paid/declared were from post acquisition profits with the exception of the interim dividend paid by Millie Ltd of $43,000

Dividends from other group entities are recognised as revenue at the time the dividend is declared

 

d)     Interest on Loan

Interest of $3,000 was paid on the intra group loan during the year ended 30 June 2010

 

e)      Impairment of goodwill

The directors of Max Ltd believe that an impairment charge of $10,000 should be recorded on goodwill at 30 June 2010

 

 

Trial balances of each entity at 30 June 2010 are as shown below

 

                                                Trial Balances as at 30 June 2010

                                                                      Max Ltd                          Millie Ltd

                                                                Dr                  Cr              Dr                  Cr

Share Capital                                                            500000                              300000

Retained Earnings (1 July 2009)                              200000                                95000

General Reserve                                                         50000                                15000

Current Tax Liability                                                 37500                                19000

Deferred Tax Liability                                               19000                                18000

Dividend Payable                                                       35000                                37500

Loan from Max Ltd                                                                                              53000

Payables                                                                     85000                                72000

Land                                                  100000                               170000

Plant and Equipment                         105000                               185000

Accumulated Depreciation Plant                              38050                                102000 

Motor Vehicles                                  52000                                  72500

Accum. Deprec MV                                                  24800                                 34000

Loan to Millie                                     53000                                     –

Dividends Receivable                         37500                                   2500

Other Receivable                                28530                                  43970 

Shares in Millie  Ltd                         550000

Accum Impairment Losses                                        43000                                    

Inventory                                             35000                                32500   

Cash                                                     50000                              120000

Other Investments                                   –                                     30000

Sales Revenue                                                          140000                               110000

Interest Revenue                                                          3180                                    –

Service Fee Revenue – Millie                                   12200                                     –

Dividend Revenue                                                     80500                                  10000

Other Income                                                              8800                                    9400

Cost of Sales                                      70000                                55000

Interest Expense                                    –                                        3230

Service Fee Expense                             –                                      12200

Impairment Loss Investment in Millie 43000                                 –

Other  Expenses                                    55000                             47500

Income Tax Expense                            30000                              20000

Dividend Paid                                       33000                              43000

Final Dividend Declared                      35000                              37500

 

                                                          1277030         1277030      874900         874900

 

 

 

 

Required:

Using the information provided:

 

A

Prepare the consolidated financial statements for the year ended 30 June 2010 for Max Ltd. including:

          Acquisition analysis

          Consolidation journal entries for year ended 30 June 2010

          Consolidation worksheet at 30 June 2010

          Consolidated statement of comprehensive income for year ended 30 June 2010

          Consolidated statement of changes in equity for year ended 30 June 2010

          Consolidated statement of financial position at 30 June 2010

 

1 + 10 + 4 + 3  = 18 marks

 

Note:

          Income tax rate is 30%

          Max Ltd share capital consists of 500,000 x $1 shares fully paid

 

 

B

Discuss the issues arising from the choice between making asset revaluation (BCVR) adjustments on consolidation or in the records of the subsidiary

 

(Maximum 500 words)

 

2 marks

 

 

 

Key assignment details and assessment criteria:

 

1.     Group assignment with no more than three students in each group

2.     Submission due date:  Week 11

 

 

Assessment Criteria

 

The criteria used to assess the submitted assignment will be:

·        Ability to work collegially in a group environment for shared success.

·        Evidence of relevant research and demonstrated understanding of research materials. As a minimum students should consult the references listed under additional resources in the Unit Description

·        The structure, coherence and logic of arguments and analysis presented.

·        Demonstrated understanding of the subject matter that is the focus of the assignment topic.

 

 

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