Question 1 - Consolidation: Principles and accounting requirements; and intra-group transactions.
Joan Ltd acquired 100% of the share capital of Jewel Ltd on 1 July 2011, for $356,000. At that date, the share capital and reserves of Jewel Ltd were:
|
|
$
|
|
Share capital
|
200,000
|
|
Retained earnings
|
80,000
|
|
|
280,000
|
At 30 June 2016, five years after acquisition, the following data has been extracted from their financial records:
|
|
Joan Ltd
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Jewel Ltd
|
|
|
$
|
$
|
|
Sales
|
781,400
|
740,000
|
|
Cost of sales
|
(494,000)
|
(438,000)
|
|
Gross profit
|
287,400
|
302,000
|
|
Dividends received from Jewel Ltd
|
93,000
|
-
|
|
Management fee revenue
|
26,500
|
-
|
|
Gain on sale of plant
|
40,000
|
36,000
|
|
Expenses
|
|
|
|
Administrative expenses
|
(40,800)
|
(28,700)
|
|
Depreciation
|
(29,500)
|
(56,800)
|
|
Management fee expense
|
-
|
(26,500)
|
|
Other expenses
|
(125,100)
|
(86,000)
|
|
Operating profit before tax
|
251,500
|
140,000
|
|
Income tax expense
|
(75,500)
|
(42,000)
|
|
Operating profit after tax
|
176,000
|
98,000
|
|
Retained earnings 1 July 2015
|
319,400
|
239,200
|
|
Available for appropriation
|
495,400
|
337,200
|
|
Dividends paid
|
(137,400)
|
(93,000)
|
|
Retained earnings 30 June 2016
|
358,000
|
244,200
|
|
|
|
|
|
Equity
|
|
|
|
Retained earnings
|
358,000
|
244,200
|
|
Share capital
|
350,000
|
200,000
|
|
Current liabilities
|
|
|
|
Accounts payable
|
81,700
|
76,300
|
|
Tax payable
|
66,300
|
25,000
|
|
Non-current liabilities
|
|
|
|
Loans
|
152,500
|
120,000
|
|
|
1,008,500
|
665,500
|
|
Current assets
|
|
|
|
Accounts receivable
|
55,400
|
84,500
|
|
Inventory
|
105,000
|
38,000
|
|
Non-current assets
|
|
|
|
Land and buildings
|
278,000
|
326,000
|
|
Plant - at cost
|
299,850
|
355,800
|
|
Less: Accumulated depreciation
|
(85,750)
|
(138,800)
|
|
Investment in Jewel Ltd
|
356,000
|
-
|
|
|
1,008,500
|
665,500
|
Additional information:
(a) The identifiable net assets of Jewel Ltd were recorded at fair value at the date of acquisition, except for inventory that had a fair value which was $2,000 higher than its carrying amount, and an item of plant (cost $25,000 and accumulated depreciation of $15,000) that had a fair value of $19,000. This plant had a remaining useful life of 6 years, with no residual value. All of the inventory was sold by 30 June 2012, but the plant is still owned as at 30 June 2016.
(b) During the year ended 30 June 2016, Joan Ltd made inventory sales to Jewel Ltd of $42,000, while Jewel Ltd made inventory sales to Joan Ltd of $65,000.
(c) The closing inventory (at 30 June 2016) of Joan Ltd includes inventory acquired from Jewel Ltd at a cost of $33,000. This cost Jewel Ltd $20,000 to produce.
(d) The closing inventory (at 30 June 2016) of Jewel Ltd includes inventory acquired from Joan Ltd at a cost of $7,000. This cost Joan Ltd $5,000 to produce.
(e) The opening inventory of Joan Ltd (at 1 July 2015) included inventory acquired from Jewel Ltd for $20,000, that had cost Jewel Ltd $15,000 to produce. This entire inventory was sold by Joan Ltd to parties external to the group during the year ended 30 June 2016.
(f) On 1 July 2015, Jewel Ltd sold an item of plant to Joan Ltd for $116,000 when its carrying amount in Jewel Ltd's financial statements was $80,000 (cost $135,000 less accumulated depreciation of $55,000). This plant is assessed as having a remaining useful life of 6 years, with no residual value.
(g) During the year ended 30 June 2016, Jewel Ltd paid management fees of $26,500 to Joan Ltd.
(h) The tax rate is 30%.
Required:
A. Prepare an acquisition analysis and the consolidation journal entries the year ending 30 June 2016 for the group comprising Joan Ltd and Jewel Ltd.
B. Prepared a consolidation worksheet for the year ending 30 June 2016.
Question 2 - Consolidation: Principles and accounting requirements; intra-group transactions and non-controlling interests.
On 1 July 2014, Bosco Ltd purchased 80% of the issued shares of Circus Ltd for $890,000. At the date of acquisition, the equity of Circus Ltd consisted of share capital and retained earnings of $500,000 and $425,000 respectively. At the date of acquisition, all assets of Circus Ltd were recorded at fair value, except for inventory, that had a fair value which was $10,000 higher than its carrying amount. All of this inventory was on-sold to external parties by 30 June 2015.
As at 30 June 2016, the following financial statements have been extracted from the financial records of Bosco Ltd and Circus Ltd:
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|
Bosco Ltd
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Circus Ltd
|
|
|
$
|
$
|
|
Sales revenue
|
2,035,000
|
1,250,000
|
|
Cost of goods sold
|
(1,280,000)
|
(595,000)
|
|
Gross profit
|
755,000
|
655,000
|
|
Dividend revenue - from Circus Ltd
|
186,000
|
-
|
|
Interest revenue
|
9,000
|
-
|
|
Profit on sale of plant
|
87,500
|
-
|
|
Expenses
|
|
|
|
Administrative expenses
|
(86,000)
|
(39,000)
|
|
Depreciation
|
(61,250)
|
(30,000)
|
|
Interest expense
|
-
|
(9,000)
|
|
Other expenses
|
(262,750)
|
(132,500)
|
|
Profit before tax
|
627,500
|
444,500
|
|
Tax expense
|
(182,250)
|
(133,350)
|
|
Profit after tax
|
445,250
|
311,150
|
|
Retained earnings 1 July 2015
|
798,750
|
598,350
|
|
|
1,244,000
|
909,500
|
|
Dividends paid
|
(350,000)
|
(232,500)
|
|
Retained earnings 30 June 2016
|
894,000
|
677,000
|
|
|
|
|
|
Equity
|
|
|
|
Retained earnings
|
894,000
|
677,000
|
|
Share capital
|
1,025,000
|
500,000
|
|
Current liabilities
|
|
|
|
Accounts payable
|
142,000
|
110,000
|
|
Tax payable
|
153,000
|
113,000
|
|
Non-current liabilities
|
|
|
|
Loan from Bosco Ltd
|
-
|
300,000
|
|
|
2,214,000
|
1,700,000
|
|
|
|
|
|
Current assets
|
|
|
|
Cash
|
110,000
|
228,000
|
|
Accounts receivable
|
94,000
|
275,000
|
|
Inventory
|
120,000
|
300,000
|
|
Non-current assets
|
|
|
|
Land and buildings
|
370,000
|
621,000
|
|
Plant - at cost
|
558,000
|
620,000
|
|
Less: accumulated depreciation
|
(228,000)
|
(344,000)
|
|
Loan to Circus Ltd
|
300,000
|
-
|
|
Investment in Circus Ltd
|
890,000
|
-
|
|
|
2,214,000
|
1,700,000
|
The following additional information is provided for the year ended 30 June 2016:
(a) Bosco Ltd uses the partial goodwill method when accounting for non-controlling interests.
(b) During the year ended 30 June 2016, Bosco Ltd made inventory sales to Circus Ltd of $143,000, while Circus Ltd made inventory sales to Bosco Ltd of $120,000.
(c) By 30 June 2016, all of the inventory sold by Bosco Ltd to Circus Ltd during the year had been on-sold to external parties.
(d) The closing inventory of Bosco Ltd at 30 June 2016 includes inventory acquired from Circus Ltd at a cost of $84,000. This had cost Circus Ltd $70,000 to produce.
(e) The directors believe that the goodwill acquired was impaired by $5,000 in the current financial year.
(f) On 1 July 2015, Bosco Ltd sold an item of plant to Circus Ltd for $190,000, when its carrying amount in Bosco Ltd's financial statements was $102,500 (cost $237,500 less accumulated depreciation of $135,000). This plant was assessed as having a remaining useful life of six years, with no residual value.
(g) On 1 January 2016, Bosco Ltd loaned Circus Ltd $300,000. Interest on the loan for the year ended 30 June 2016 amounted to $9,000, and was paid by Circus Ltd on 30 June 2016.
(h) The tax rate is 30%.
Required:
A. With reference to the relevant accounting standards, explain why the relationship between Bosco Ltd and Circus Ltd is a parent-subsidiary relationship and not an associate relationship, even though Bosco Ltd does not own 100% of the shares in Circus Ltd.
B. Prepare the acquisition analysis and consolidation journal entries (including NCI entries) necessary for the preparation of consolidated financial statements for Bosco Ltd and its subsidiary, Circus Ltd, for the financial year ended 30 June 2016.
C. Prepare the acquisition analysis assuming that Bosco Ltd uses the full goodwill method when accounting for non-controlling interests. Assume that the fair value of the non-controlling interest at 1 July 2014 was $200,000.
Question 3 - Accounting for associates
On 1 July 2015, Cricket Ltd acquired 40% of the share capital of Charlie Ltd, for $160,000. The equity of Charlie Ltd on that date was:
|
Share capital
|
$200,000
|
|
Retained earnings
|
$95,000
|
All of the identifiable net assets of Charlie Ltd were recorded at fair value. The following information is provided for Charlie Ltd for the year ended 30 June 2017:
|
|
$
|
|
Operating profit before tax
|
3,620,000
|
|
Income tax expense
|
(1,086,000)
|
|
Operating profit after tax
|
2,534,000
|
|
Retained earnings at 1 July 2016
|
257,000
|
|
Dividends paid
|
(200,000)
|
|
Retained earnings at 30 June 2017
|
2,591,000
|
Additional information:
- The closing inventory of Cricket Ltd included goods purchased from Charlie Ltd during the year for $6,000. Their cost to Charlie Ltd was $4,000.
- The closing inventory of Charlie Ltd included goods purchased from Cricket Ltd during the year for $12,000. Their cost to Cricket Ltd was $9,000.
- During the year ended 30 June 2017, Charlie Ltd revalued land upwards $50,000, resulting in asset revaluation surplus of $35,000 being recognised in equity.
- The tax rate is 30%.
Required: Prepare the consolidation journal entries to account for Cricket Ltd's investment in Charlie Ltd for the year ended 30 June 2017 in accordance with AASB 128, assuming that Cricket Ltd does prepare consolidated financial statements. Show all workings.