ACW2491 Assignment Final - Financial Accounting PDF

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An assignment on Consolidation Step 1,2,3 & 4....

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1. Prepare consolidated worksheet entries for the preparation of the consolidated financial statements of Huge Ltd on 1 July 2014. (15.5 marks) Step 1: Acquisition Analysis Fair Value of Identifiable Net Assets (FVINA) = Share Capital @ $1 per unit + General Reserves + Retained Earnings + Business Combination Valuation Reserve (BCVR) Plant (1 – 30%) + Business Combination Valuation Reserve (BCVR) Land (1 – 30%) + Business Combination Valuation Reserve (BCVR) Inventory (1 – 30%) – Business Combination Valuation Reserve (BCVR) Accounts Receivable (1 – 30%) – Provision for Legal Expense (1 – 30%) – Existing goodwill prior to acquisition = $200,000 + $100,000 + $60,000 + ($20,000)(1 – 30%) + ($10,000)(1 – 30%) + ($8000)(1 – 30%) – ($2000)(1 – 30%) – ($25,000)(1 – 30%) - $10,000 = $357,700 Consideration Transferred = Shares in Tiny Ltd – Dividend Payable = $420,000 - $30,000 = $390,000 Goodwill = Consideration Transferred – Fair Value of Identifiable Net Assets (FVINA) = $390,000 - $357,700 = $32,300 - $10,000 Unrecorded Goodwill = $22,300

Step 2: Business Combination Valuation Entries Date Item 1/7/2014 Accumulated Depreciation – Plant Plant (To close accumulated depreciation up to acquisition date) Plant (1.a) Business Combination Valuation Reserve (1.b) Deferred Tax Liability (1.c) (To revalue plant to fair value) Land (2.a) Business Combination Valuation Reserve (2.b) Deferred Tax Liability (2.c)

Debit $200,00 0

$20,000

Credit $200,000

$14,000 6,000

$10,000 $7,000 3,000

(To revalue land to fair value) Inventory (3.a) Business Combination Valuation Reserve (3.b) Deferred Tax Liability (3.c) (To revalue inventory to fair value)

$8,000

Business Combination Valuation Reserve (4.a) Deferred Tax Asset (4.b) Accounts Receivable (4.c) (To revalue accounts receivable to fair value)

$1,400 600

Business Combination Valuation Reserve (5.a) Deferred Tax Asset (5.b) Provision for Legal Expense (To record provision for contingent liability)

$17,500 7,500

$5,600 2,400

$2,000

$25,000

Step 3: Pre-acquisition Entries Date Item 1/7/2014 Share Capital @ $1 per unit General Reserves Retained Earnings Business Combination Valuation Reserve Goodwill Shares in Tiny Ltd (Pre-acquisition entries required on consolidation)

Debit $200,00 0 100,000 60,000 7,700 22,300

$390,000

Dividend Payable Dividend Receivable (Pre-acquisition entries required on consolidation)

$30,000

$30,000

Workings: 1. a) $320,000 - $300,000 = $ 20,000 b) $20,000 x 70% = $14,000 c) $20,000 x 30% = $6000 2. a) $370,000 - $360,000 =$10,000 b) $10,000 x 70% = $7000 c) $10,000 x 30% = $3000 3. a) $88,000 - $80,000 = $10,000 b) $8000 x 70% = $5600 c) $8000 x 30% = $2400 4. c) $90,000 - $88,000 = $2000 a) $2000 x 70% = $1400 b) $2000 x 30% = $6000

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5. a) $25,000 x 70% = $17,500 b) $25,000 x 30% = $7500 2. Prepare consolidated worksheet entries for the preparation of the consolidated financial statements of Huge Ltd for the years ending 30 June 2015. (17 marks) Step 1: Acquisition Analysis Fair Value of Identifiable Net Assets (FVINA) = Share Capital @ $1 per unit + General Reserves + Retained Earnings + Business Combination Valuation Reserve (BCVR) Plant (1 – 30%) + Business Combination Valuation Reserve (BCVR) Land (1 – 30%) + Business Combination Valuation Reserve (BCVR) Inventory (1 – 30%) – Business Combination Valuation Reserve (BCVR) Accounts Receivable (1 – 30%) – Provision for Legal Expense (1 – 30%) – Existing goodwill prior to acquisition = $200,000 + $100,000 + $60,000 + ($20,000)(1 – 30%) + ($10,000)(1 – 30%) + ($8000)(1 – 30%) – ($2000)(1 – 30%) – ($25,000)(1 – 30%) - $10,000 = $357,700 Consideration Transferred = Shares in Tiny Ltd – Dividend Payable = $420,000 - $30,000 = $390,000 Goodwill = Consideration Transferred – Fair Value of Identifiable Net Assets (FVINA) = $390,000 - $357,700 = $32,300 - $10,000 Unrecorded Goodwill = $22,300 Step 2: Business Combination Valuation Entries Date Item 30/6//2015 Accumulated Depreciation – Plant Plant (To close accumulated depreciation up to acquisition date) Plant Business Combination Valuation Reserve Deferred Tax Liability (To revalue plant to fair value) Depreciation Expense – Plant (1.a) Accumulated Depreciation - Plant (Depreciation effect on plant)

Debit $200,00 0

Credit

$200,00 0 $20,000 $14,000 6000 $4,000 $4,000

Deferred Tax Liability (1.b) Income Tax Expense (Tax-effect on depreciation of plant) Land Business Combination Valuation Reserve Deferred Tax Liability (To revalue land to its fair value)

$1,200 $1,200 $10,000 $7,000 $3,000

Inventory (2.a) Business Combination Valuation Reserve (2.b) Deferred Tax Liability (2.c) (To revalue remaining inventory to fair value)

$1,600

Cost of Sale (3.a) Income Tax Expense (3.b) Transfer from Business Combination Valuation Reserve (Valuation adjustment on sale of inventory)

$6,400

Transfer from Business Combination Valuation Reserve Income Tax Expense Settlement on Legal Expense Gain on Settlement of Legal Expense (To record settlement on contingent liability)

$17,500 7,500

Transfer from Business Combination Valuation Reserve Income Tax Expense Bad Debts Expense (Valuation adjustment on accounts receivable collection)

$1,400 600

Step 3: Pre-acquisition Entries Date Item 30/6/2015 Share Capital @ $1 per unit General Reserves Retained Earnings Business Combination Valuation Reserve Goodwill Shares in Tiny Ltd (Pre-acquisition entries required on consolidation)

$1,120 480

$1,920 4,480

$20,000 5,000

$2,000

Debit $200,000 100,000 60,000 7,700 22,300

Credit

$390,00 0

Transfer from Business Combination Valuation Reserve Business Combination Valuation Reserve (To record sale of inventory in current period)

$4,480

Business Combination Valuation Reserve Transfer from Business Combination Valuation Reserve (To record settlement of legal fees in current period)

$17,500

$4480

$17,500

Business Combination Valuation Reserve Transfer from Business Combination Valuation Reserve (To record bad debts expense in current period) Dividend Revenue Dividend Paid (To record dividend paid) Workings: 1. a) $20,000/5 = $4000 b) $4000 x 30% = $1200 2. a) $8000 x 20% = $1,600 b) $1600 x 70% = $1120 c) $1600 x 30% = $480 3. a) $8000 x 80% = $6400 b) $6400 x 30% = $1920 c) $6400 x 70% = $4480

$1,400 $1,400 $30,000 $30,000

3. Prepare consolidated worksheet entries for the preparation of the consolidated financial statement of Huge Ltd for the years ending 30 June 2016. (21 marks) Step 1: Acquisition Analysis Fair Value of Identifiable Net Assets (FVINA) = Share Capital @ $1 per unit + General Reserves + Retained Earnings + Business Combination Valuation Reserve (BCVR) Plant (1 – 30%) + Business Combination Valuation Reserve (BCVR) Land (1 – 30%) + Business Combination Valuation Reserve (BCVR) Inventory (1 – 30%) – Business Combination Valuation Reserve (BCVR) Accounts Receivable (1 – 30%) – Provision for Legal Expense (1 – 30%) – Existing goodwill prior to acquisition = $200,000 + $100,000 + $60,000 + ($20,000)(1 – 30%) + ($10,000)(1 – 30%) + ($8000)(1 – 30%) – ($2000)(1 – 30%) – ($25,000)(1 – 30%) - $10,000 = $357,700 Consideration Transferred = Shares in Tiny Ltd – Dividend Payable = $420,000 - $30,000 = $390,000 Goodwill = Consideration Transferred – Fair Value of Identifiable Net Assets (FVINA) = $390,000 - $357,700 = $32,300 - $10,000 Unrecorded Goodwill = $22,300

Step 2: Business Combination Valuation Entries Date 30/6/2016

Item Accumulated Depreciation – Plant Plant (To record accumulated depreciation up to acquisition date)

Debit $200,000

Plant Business Combination Valuation Reserve Deferred Tax Liability

$20,000

Credit $200,000

$14,000 6,000

(To revalue plant to fair value) Depreciation Expense – Plant Retained Earnings Accumulated Depreciation – Plant (To record depreciation effect for plant) Deferred Tax Liability Income Tax Expense Retained Earnings (To record tax effect on depreciation of plant)

$4,000 4,000

Land Business Combination Valuation Reserve Deferred Tax Liability (To revalue land to fair value)

$10,000

Cost of Sales Transfer to Business Combination Valuation Reserve Income Tax Expense (Valuation adjustment on sale of inventory)

$1,600

Step 3: Pre-acquisition Entries Date Item 30/6/2016 Share Capital @ $1 per unit General Reserves Retained Earnings Business Combination Valuation Reserve Goodwill Shares in Tiny Ltd (Pre-acquisition entries required on consolidation)

$8,000 $2,400 $1,200 1,200

$7,000 3,000

$1,120 480

Debit $200,000 100,000 60,000 7,700 22,300

Credit

$390,000

Retained Earnings Business Combination Valuation Reserve (To record sale of inventory in past period)

$4,480

Business Combination Valuation Reserve Retained Earnings (To record settlement of legal fees on court case in past period)

$17,500

Business Combination Valuation Reserve Retained Earnings (To record bad debts expense in past period)

$1,400

Transfer from Business Combination Valuation Reserve Business Combination Valuation Reserve (To record sale of inventory in current period)

$1,120

$4480

$17,500

$1,400

$1,120

Step 4: Intra-Group Transactions Date Item 30/6/2016 Item 1 Proceeds on Sale of Plant Carrying Amount of Plant (1.a) Inventory (To eliminate unrealised profit on sale of plant)

Debit $70,000

$55,000 15,000

Deferred Tax Asset (1.b) Income Tax Expense (Tax effect on unrealised profit) Item 3 Proceeds on Sale of Plant Carrying Amount of Plant (2.a) Plant (To eliminate unrealised profit on sale of plant)

$ 4,500

Deferred Tax Asset (2.b) Income Tax Expense (Tax effect on unrealised profit)

$3,000

Accumulated Depreciation – Plant (2.c) Depreciation Expense – Plant (Depreciation effect on elimination)

$1,250

Income Tax Expense (2.d) Deferred Tax Asset (Tax effect on depreciation)

$ 375

Workings: 1. a) $70,000 - $15,000 = $55,000 b) $15,000 x 30% = $4500 2. a) $100,000 – [($100,000/5) x 1.5] = $ 70,000 b) $10,000 x 30% = $3000 c) ($10,000/4) x ½ = $1250 d) $1250 x 30% = $375

Credit

$4,500 $80,000 $70,000 10,000

$3,000

$1,250

$375

4. Prepare consolidated worksheet entries for the preparation of the consolidated financial statements of Huge Ltd for the years ending 30 June 2017. (21.5 marks) Step 1: Acquisition Analysis Fair Value of Identifiable Net Assets (FVINA) = Share Capital @ $1 per unit + General Reserves + Retained Earnings + Business Combination Valuation Reserve (BCVR) Plant (1 – 30%) + Business Combination Valuation Reserve (BCVR) Land (1 – 30%) + Business Combination Valuation Reserve (BCVR) Inventory (1 – 30%) – Business Combination Valuation Reserve (BCVR) Accounts Receivable (1 – 30%) – Provision for Legal Expense (1 – 30%) – Existing goodwill prior to acquisition = $200,000 + $100,000 + $60,000 + ($20,000)(1 – 30%) + ($10,000)(1 – 30%) + ($8000)(1 – 30%) – ($2000)(1 – 30%) – ($25,000)(1 – 30%) - $10,000 = $357,700 Consideration Transferred = Shares in Tiny Ltd – Dividend Payable = $420,000 - $30,000 = $390,000 Goodwill = Consideration Transferred – Fair Value of Identifiable Net Assets (FVINA) = $390,000 - $357,700 = $32,300 - $10,000 Unrecorded Goodwill = $22,300

Step 2: Business Combination Valuation Entries Date Item 30/6/201 Accumulated Depreciation – Plant 7 Plant (To record accumulated depreciation up to acquisition date)

Debit $200,000

Credit $200,000

Plant Business Combination Valuation Reserve Deferred Tax Liability (To revalue plant to fair value)

$20,000

Depreciation Expense – Plant Retained Earnings Accumulated Depreciation – Plant

$4000 8000

$14,000 6,000

$12,000

(To record depreciation effect on plant) Deferred Tax Liability Income Tax Expense Retained Earnings (To record tax effect on depreciation)

$3,600

Land Business Combination Valuation Reserve Deferred Tax Liability (To revalue land to fair value)

$10,000

Step 3: Pre-acquisition Entries Date Item 30/6/201 Share Capital @ $1 per unit 7 General Reserves Retained Earnings Business Combination Valuation Reserve Goodwill Shares in Tiny Ltd (Pre-acquisition entries required on consolidation)

$1,200 2,400

$7,000 3,000

Debit $200,000 100,000 60,000 7,700 22,300

$390,000

Retained Earnings Business Combination Valuation Reserve (To record sale of inventory in past period)

$5,600

Business Combination Valuation Reserve Retained Earnings (To record settlement of legal fees on court case in past period)

$17,500

Business Combination Valuation Reserve Retained Earnings (To record bad debts expense in past period)

$1,400

Step 4: Intra-Group Transactions Date Item 30/6/201 Item 2 & 4 7 Sales (1.a) Cost of Sales Inventory (1.b) (To eliminate unrealized profit in ending inventory) Deferred Tax Asset (1.c) Income Tax Expense

Credit

$5,600

$17,500

$1,400

Debit

Credit

$390,000 $387,500 2,500

$750 $750

(To record tax effect on unrealized profit) Item 3 Retained Earnings Plant (To record elimination of unrealized profit on sale of plant in past period)

$10,000 $10,000

Deferred Tax Asset Retained Earnings (To record tax effect on unrealized profit in past period)

$3,000

Accumulated Depreciation Retained Earnings Depreciation Expense (2.a) (To record depreciation effect)

$3,750

Retained Earnings Income Tax Expense (2.b) Deferred Tax Asset (To record tax effect on depreciation)

$375 750

Item 5 Loan from Huge Ltd (3.a) Loan to Huge Ltd (To record loan provided to Tiny Ltd from Huge Ltd) Interest Revenue (3.b) Interest Expense (To eliminate interest payment) Dividend Dividend Revenue Dividend Receivable (To record elimination of dividend declared and unpaid)

$3,000

$1,250 2,500

$1,125

$80,000 $80,000

$10,000 $10,000 $12,000 $12,000

Dividend Payable Dividend Provided (REs) (To record elimination of dividend declared and unpaid)

$12,000

Dividend Revenue Dividend Paid (REs) (To record elimination of the dividend declared and paid)

$8,000

Working: 1. a) $300,000 + $90,000 = $390,000 b) $15,000 -$12500 = $2500 c) $2500 x 30% = $750 2. a) $10,000/4 = $2500 b) $2500 x 30% =$750

$12,000

$8,000

3. a) $100,000 – ($100,000/5) = $80,000 b) [($100,000 x 0.1x ½) x 2] = $10,000...