PACC6004 Financial Accounting

Published : 20-Sep,2021 | Views : 10

Question:

(a)The inventory on hand of Subsidiary Ltd on 1 July 2016 included a quantity priced at $20,000 that was transferred from Parent Ltd during the prior financial year. This inventory had cost Parent Ltd $15,000. This entire inventory was sold by Subsidiary Ltd to parties external to the group during the current financial year.
(b) Subsidiary Ltd sold inventory to Parent Ltd for $120,000 during the year. This inventory had an original cost to Subsidiary Ltd of $110,000. This entire inventory was held by Parent Ltd during the year.
(c) On 1 January 2016, Subsidiary Ltd sold an item from its inventory to Parent Ltd for $40,000.Parent Ltd had treated this item as an addition to its plant. The item was put into service as soon as received by Parent Ltd and depreciation charged at 20% p.a. The cost of that item to Subsidiary Ltd was $30,000.
(d) The management and consulting fees of Parent Ltd were all paid by Subsidiary Ltd and represented charges made for administration $4,400 and technical services $5,600. The latter were recognised as manufacturing expenses by Subsidiary Ltd.
(e) All debentures issued by Subsidiary Ltd are held by Parent Ltd. The related interest has been recorded by Parent Ltd accordingly and Subsidiary Ltd recorded the interest paid in financial expenses.
(f) Other components of equity relate to movements in the fair values of the financial assets. The balance of these accounts on 1 July 2016 was $20,000 for Parent Ltd and $16,000 for Subsidiary Ltd.

(g) The tax rate is 30%.

Required:
Prepare an acquisition analysis and the consolidation journal entries necessary for preparation of the consolidated financial statements for the year ending 30 June 2017 for the group comprising Parent Ltd and Subsidiary Ltd.

The plant was considered to have a further useful life of 5 years. The land was revalued in the records of Commercial Ltd and the revaluation model applied in the measurement of the land. The tax rate is 30%. At 30 June 2017,Commercial Ltd reported the following information:

Profit before tax 360 000
Income tax expense (150 000)
Profit after tax 210 000
Retained earnings at 1 July 2016 410 000
620 000
Dividends paid (20 000)
Dividends declared (25 000)
Transfer to general reserve (15 000)
(60 000)
Retained earnings at 30 June 2017 560 000
Share capital 320 000
General reserve 75 000
Asset revaluation surplus 155 000
Total equity 1 110 000
Commercial Ltd also reported other comprehensive income relating to gains on revaluation of land of $5 000.

Required:
Prepare the journal entries in the books of Rules Ltd to account for the investment in Commercial Ltd under the equity method for the year ended 30 June 2017.

Tassie Ltd is an Australian company with a reporting periods ending on 30 June. During the year ended 30 June 2017, Tassie Ltd purchased goods from Britania Ltd, a company based in London. On 15 March 2017, Tassie Ltd ordered goods of £300 000 from Luca Ltd under FOB London contract. On 11 May, the goods were shipped FOB London and arrived at Tassie Ltd’s warehouse on the 2 July 2017. Tassie Ltd paid the £300 000 due to Luca on the 14 August 2017.
Applicable exchange rates are as follows.
15 March 2017 A$1.00 = 37p
11 May 2017 A$1.00 = 41p
30 June 2017 A$1.00 = 43p
2 July 2017 A$1.00 = 42p
14 August 2017 A$1.00 = 39p

Required:
(1) In accordance with AASB 121, prepare the relevant journal entries of Tassie Ltd for the years ending 30 June 2017 and 30 June 2018.
(2) Assuming that, instead of goods, Tassie Ltd was purchasing plant and equipment, which is installed ready for use on 15 July 2017 when the rate is still A$1.00=42p. Prepare relevant journal entries of Tassie Ltd for the years ending 30 June 2017 and 30 June 2018.

Answer:

Acquisition analysis
Cost of acquistition	2,63,200.00
Share capital	1,60,000.00
General reserve on 01.07.2015	4,800.00
Retained earnings on 01.07.2015	59,200.00
Total book value of net assets	2,24,000.00
After tax increase in land(76000-60000)*(1-30%)	11,200.00
After tax increase in machinery (110000-100000)*(1-30%)	7,000.00
Net assets	18,200.00
Fair value of identifiable net assets	2,42,200.00
Acquisition %	80%
Goodwill/(bargain purchase) on acquisition	21,000.00
Land	16,000.00
Machinery	10,000.00
Inventory	40,000.00
Depreciation	8,000.00
Unrealised profit on inventory	3,000.00
Share capital	1,60,000.00
Retained earning	59,200.00
General reserve	4,800.00
Business combination valuation reserve	60,200.00