Question 1 - On 1 July 2016, Velo Ltd acquired all the issued shares of City Ltd for $220 800. The equity of City Ltd at the date of acquisition was:
|
$
|
|
Share capital
|
100 000
|
|
Retained earnings
|
50 000
|
|
General reserve
|
8 800
|
All the identifiable assets and liabilities of City Ltd were recorded at amounts equal to fair value except for:
|
Carrying amount
|
Fair value
|
|
Patent
|
$70 000
|
$72 000
|
|
Plant (net of $40 000 depreciation)
|
40 000
|
60 000
|
|
Inventory
|
21 600
|
28 000
|
Additional information regarding City Ltd:
- The patent was considered to have an indefinite life.
- The plant had a further life of 10 years, and was depreciated on a straight-line basis.
- All the inventory was sold by 30 June 2017.
- In June 2017, City Ltd conducted an impairment test of goodwill and considered it to be impaired by $1300.
- In May 2017, City Ltd transferred $30 000 from the retained earnings on hand at 1 July 2016 to a general reserve.
- The tax rate is 30%.
Required: Prepare the consolidation adjustment entries at 1 July 2016 and 30 June 2017.
Question 2 - The financial reports, comprising the statement of financial performance (or the profit and loss statement), the statement of financial position (or the balance sheet) and the statement of changes in equity are prepared using the full accruals basis. Taxable profit, on the other hand, is determined using the partial accruals basis.
Required:
1. What is the partial accruals basis?
2. Contrast the difference between the full accruals basis and the partial accruals basis for the following items:
a) long service leave,
b) doubtful debts,
c) prepayments,
d) warranty costs,
e) interest costs,
f) development costs and
g) rent received in advance.