Australian Accounting
QUESTION: House Ltd and Smart Ltd
On 1st December 20X7, House Ltd acquired 70% of the voting shares (ex div) of Smart Ltd for $6,000,000 and obtained the c a pa city to dominate the financial and operating policies of Smart Ltd. At this d ate, the accounts of Smart Ltd included the following balances:
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Share capital
($1 ordinary shares)
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$3,990,000
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General reserve
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1,140,000
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Retained profits
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2,760,000
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Dividends payable
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319,200
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All the identifiable net assets of Smart Ltd were recorded at fair value except for the asset Land, which had a recoded amount of $900,000 below its fair value. Adjustments for the differences between carrying amounts and fair values are made on consolidation.
On the 1st January 20X8, Smart Ltd p aid a further cash dividend of 5% (calculated on the share capital) appropriated from pre-acquisition profits. This amount was recognised as revenue, but the Financial Controller of House Ltd felt that the dividend had impaired the value of the company's investment in Smart Ltd and subsequently records an impairment of the Investment in Smart Account for the amount received as a dividend.
Additional Information for the current year ended 30th June 20X9
(a) On 1st April 20X9, Smart sold inventory to House Ltd for $1,650,000, at a mark- up of 75%. At 30th June 20X9, $950,000 of this inventory was still on hand.
(b) On 5th December 20X7, Smart Ltd sold some inventory to House Ltd for $560,000, at a profit before loss of $200,000. This was still on hand in House Ltd at 30th June 20X8, but was all sold by 30th June 20X9.
(c) On 1st January 20X8, Smart Ltd sold p art of its Motor Vehicle Flee t to House Ltd for $2,500,000 at a before tax profit of $620,000. The Vehicles have a further useful life of 2 years and are depreciated using the straight-line method by both companies.
(d) During the current year, Smart Ltd borrowed funds from House Ltd to undertake the installation of solar panels in several of its buildings so as to reduce the energy consumption of the com p any. House Ltd extended a loan of $2,090,000 to Smart Ltd. This loan was issued on the 1st March 20X9 payable over 5 years, with an interest rate on the loan of 4.5% p a. Interest on the loan is paid on 31st March of every year. Interest has been paid up to 31st March 20X9.
(e) As p art of the loan transaction, Smart Ltd incurred $145,000 charges owing to House Ltd for services performed in helping with a feasibility study for the solar panels. Only $45,000 of this amount has been paid at 30th June 20X9
(f) All dividends are rec ognised before receipt of cash.
(g) It is Group Policy that any Goodwill is impairment tested on an annual basis. It was determined that goodwill was impaired by 20,000 in the year ended 30 June 20X8. However, no impairment of goodwill was estimated for the year ended 30 June 20X9.
(h) The tax rate is 30%.
(i) The companies in the group have financial years from 1st July to 30th June.
The financial statements of House Ltd and Smart Ltd at 30th June 20X9
Statement of Comprehensive Income (Extract)
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House Ltd
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Smart Ltd
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Revenues
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$83,160,000
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$27,562,500
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Cost of Sales
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$18,295,200
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$6,063,750
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Operating Expenses
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$29,106,000
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$9,646,875
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Selling Expenses
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$12,474,000
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$4,134,375
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Finance Costs
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$1,247,500
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$413,500
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Other Expenses
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$4,158,000
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$1,378,125
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Profit before Income Tax
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$17,879,300
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$5,925,875
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Interest Income
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$837,774
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$378,000
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Dividend Income
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$363,090
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$0
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Tax Expense
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$5,363,790
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$1,777,762
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Profit after Income Tax
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$13,716,374
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$4,526,113
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Retained Profits as at 1 July 20X8
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$2,264,063
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$2,917,500
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Amount Available for Appropriation
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$15,980,437
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$7,443,613
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Transfer to General Reserve
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$1,200,000
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$740,000
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Dividends Paid
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$1,155,000
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$119,700
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Dividends Provided
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$1,443,750
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$399,000
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Retained Profits as at 30 June 20X9
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$12,181,687
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$6,184,913
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Extract from Statements of Financial Position
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House Ltd
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Smart Ltd
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Assets
Cash and Cash Equivalents
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$7,455,000
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$0
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Trade and Other Receivables
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$1,587,600
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$1,837,500
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Other Current Assets
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$7,144,200
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$4,665,570
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Deferred Tax Asset
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$1,742,400
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$0
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Trademarks and Patents
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$3,745,190
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$6,930,000
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|
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Goodwill (net of impairment)
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$2,605,000
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$0
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Plant & Equipment
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$9,513,000
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$5,628,000
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Less Ac cumulated Depreciation (P&E)
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-$1,902,600
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-$504,000
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Motor Vehicles & Fleet Equipment
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$5,363,400
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$3,643,500
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Less Ac cumulated Depreciation (MV)
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-$1,609,020
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-$1,457,400
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Investment in S Ltd
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$6,000,000
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$0
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Less Ac cumulated Impairment
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-$139,650
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Loans Receivable
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$7,000,000
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$2,323,000
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Buildings
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$15,550,000
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$0
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Land
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$5,972,400
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$8,610,000
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Total Assets
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$70,026,920
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$31,676,170
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Liabilities
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Bank Overdraft
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$0
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$1,955,920
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Trade and Other Payables
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$9,011,310
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$2,998,150
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Current Liabilities and Provisions
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$8,070,472
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$1,816,500
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Deferred Tax Liability
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$1,719,217
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$0
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Loans
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$5,326,650
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$2,090,000
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Other non-current Liabilities
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$4,088,350
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$4,102,350
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Total Liabilities
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$28,215,999
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$12,962,920
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Net Assets
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$41,810,921
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$18,713,250
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Shareholders' Equity:
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|
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Share Capital - Ordinary Shares
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$11,550,000
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$3,990,000
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Asset Revaluation Reserve
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$6,037,500
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$3,600,000
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General Reserve
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$12,041,734
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$4,938,337
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Retained Profits
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$12,181,687
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$6,184,913
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Total Shareholders' Equity
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$41,810,921
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$18,713,250
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REQUIRED:
Students are required to consolidate House Ltd and its subsidiary Smart Ltd,
(a) Prepare the consolidation journal entries to consolidate House Ltd and Smart Ltd for the year ended 30th June 20X9. Use Partial Goodwill method to account for goodwill and NCI.
(b) Prepare the consolidated work-sheet showing the consolidation adjustments by setting up a spreadsheet using Excel, or any other similar software package.
Hint: See pages 1086-87 (Figure 21.11) of the text book for an example of a worksheet.
(c) Produce the completed Consolidated Financial Reports (Income Statements and Balance Sheets) for the year ended 30th June 20X9.
Hint: See pages 1088-89 (Figure 21.11) of the text book for an example of consolidated financial statements.
Paper Length: 4 Pages/1000 words
Requirement: To be in excel format
Attachment:- 1086-1090.pdf