Advanced Financial Accounting
Assignment: New Zealand Limited (NZL)
Part A
You are on an internship with the Accounting Team at New Zealand Limited (NZL). As you have studied consolidations in your advanced financial accounting paper at Massey University, the Accounting Team has requested your assistance in preparing the consolidated financial statements of NZL and its subsidiaries for the year ended 31 March 2016.
New Zealand Limited (NZL) is a major trading company. It embarked on an ambitious expansion programme in 2015 including the acquisition of two other companies, North Island Limited (NIL) and South Island Limited (SIL). All three companies have financial years 1 April to 31 March
NZL partly acquiring NIL
New Zealand Limited (NZL) acquired a 55 per cent interest in North Island Limited (NIL) on 1 April 2015 for $2 million. All assets and liabilities are fairly valued in the books of NIL limited. The equity section on the balance sheet of NIL at the date of acquisition appears below:
|
|
$
|
|
Share Capital
|
2,000,000
|
|
Retained Earnings
|
600,000
|
|
|
2,600,000
|
NZL partly acquiring SIL
NZL Limited acquires a 55 per cent interest in South Island Limited (SIL) on 1 April 2015 for $1.6 million. All assets and liabilities are fairly valued in the books of SIL limited. The equity section on the balance sheet of SIL on 31 March 2015:
|
|
$
|
|
Share Capital
|
1,600,000
|
|
Retained Earnings
|
800,000
|
|
|
2,400,000
|
End of year financials
The trial balances of the three entities as at 31 March 2016 can be downloaded in a spreadsheet by clicking here.
Additional information:
Plant and equipment
1. On 1 April 2015, NZL Ltd sold plant to NIL for $15,000. The plant cost NZL $10,000 on 1 April $2013. Both companies apply a 10% p.a. straight-line method of depreciation in relation to these assets.
Inventory
2. During the current year, NZL sold inventory to NIL Ltd for $18,000 recording a profit of $3000. NIL has not resold any of these items.
3. During the current financial year, SIL Ltd sold inventory to NZL Ltd for $23,000 recording a profit of $4000. NZL has since resold half of these items.
4. During the current year NIL sold inventory to SIL Ltd for $15,000 recording a profit of $2000. SIL has resold all of these items.
Services
5. During the current financial year, NIL paid $2000 to NZL Ltd for services rendered.
Goodwill
6. Goodwill from investment in SIL has not been impaired while the goodwill from the investment in NIL had an impairment loss of 20 per cent during the current financial year.
Non-controlling interests
7. The group has adopted the policy of measuring non-controlling interest at the fair value of total acquisition and recognising full goodwill.
Tax Implications
8. You may ignore tax implications for the purposes of this assignment.
|
The trial balances as at 31 March 2016
|
|
NZL
|
NIL
|
SIL
|
|
Dr
|
Cr
|
Dr
|
Cr
|
Dr
|
Cr
|
|
Sales revenue
|
|
1,400,000
|
|
520,000
|
|
450,000
|
|
Other income
|
|
136,000
|
|
80,000
|
|
50,000
|
|
Cost of Sales
|
300,000
|
|
200,000
|
|
200,000
|
|
|
Operating expenses
|
200,000
|
|
240,000
|
|
100,000
|
|
|
Income tax expense
|
540,000
|
|
50,000
|
|
80,000
|
|
|
Dividends declared
|
400,000
|
|
|
|
|
|
|
Share Capital
|
|
8,000,000
|
|
2,000,000
|
|
1,600,000
|
|
Retained earnings (31 March 2015)
|
|
2,000,000
|
|
600,000
|
|
800,000
|
|
Loans
|
|
2,400,000
|
|
500,000
|
|
|
|
Accounts payable
|
|
340,000
|
|
80,000
|
|
|
|
Dividends payable
|
|
400,000
|
|
|
|
|
|
Land
|
4,800,000
|
|
|
|
400,000
|
|
|
Property Plant and Equipment
|
3,600,000
|
|
2,730,000
|
|
920,000
|
|
|
Accumulated depreciation - PPE
|
|
600,000
|
|
500,000
|
|
200,000
|
|
Investment in NIL
|
2,000,000
|
|
|
|
|
|
|
Investment in SIL
|
1,600,000
|
|
|
|
|
|
|
Cash
|
590,000
|
|
110,000
|
|
200,000
|
|
|
Accounts receivable
|
246,000
|
|
350,000
|
|
400,000
|
|
|
Inventory
|
1,000,000
|
|
600,000
|
|
800,000
|
|
|
15,276,000
|
15,276,000
|
4,280,000
|
4,280,000
|
3,100,000
|
3,100,000
|
Instructions:
Prepare the consolidated financial statements for NZL and its controlled entities as at 31 March 2016. You have been provided with an Excel template for entering the $ amounts for the items in the consolidated financial statements. To download this Excel template click here.