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Assignment Information Semester 2 2020 Assessment 30% Submission Requirements.

This assignment is to be submitted before 23.59pm Friday 9 th October in Week 11 Assignments are to be submitted by one of the following means; DO NOT LODGE BY FAX nor EMAIL nor at LECTURER'S OFFICE KEEP A COPY •

The assignment must be lodged on or before the due date indicated in the assignment details. Only word docs will be acceptable. Handwritten answers will be rejected. If you create your worksheets in excel, please copy, and paste them into MSWord. Points are given for the quality of your calculation formats even if your final calculations are not correct.

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The assignment must conform to the requirements set out in this assignment The assignment must be lodged online via the ACT503 Learnline Assignment Lodgement link on the ACT503 Learnline site. Ensure your file is named using a file naming convention that allows the lecturer to identify to whom it belongs. Failure to use an acceptable file naming convention may result in your assignment lodgement being rejected. DO NOT LODGE VIA EMAIL or FAX - assignments lodged by email or fax will not be accepted. KEEP A COPY - Ensure you have a copy of the assignment lodged. If you have submitted assessment work electronically, please make sure you have a backup copy. Assignment lodgements will be acknowledged automatically on the Learnline site, on submission. DO NOT submit an assignment front sheet.

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Resubmission As a general rule resubmission of assessment items is NOT possible, however the Lecturer may ask for resubmission if it is deemed appropriate. Details for such resubmission will be made available by the Lecturer if and when the situation occurs. University Plagiarism policy Plagiarism is the unacknowledged use of material written or produced by others or a rework of your own material. All sources of information and ideas used in assignments must be referenced. This applies whether the information is from a book, journal article, the internet, or a previous essay you wrote or the assignment of a friend. Plagiarism policy is available at Student Breach of Academic Integrity Procedures EXTENSIONS AND LATE LODGEMENTS LATE ASSIGNMENTS WILL GENERALLY NOT BE ACCEPTED UNLESS AN EXTENSION TO THE DUE DATE HAS BEEN GRANTED BY THE BUSINESS ADMINISTRATOR. Exceptions will only be made where assignments are late due to special circumstances that are supported by documentary evidence and may be subject to a penalty of 5% of assignment marks per day. Partially completed assignments will be accepted with appropriate loss of marks for the incomplete portion. Should students foresee potential difficulties with submission of assessment items, they should contact the lecturer immediately the difficulties come to notice, to discuss suitable arrangements etc. for the submission of those assessment times. An Application for Assignment Extension or Special Consideration should be completed and provided to [email protected]. This application form, explanation and instructions is available on the ACT503 CDU Learnline course site or direct from http://learnline.cdu.edu.au/units/lb_school_templates/deployed/assignment_extension.docx

Asia Pacific College of Business and Law

ACT503 Corporate Accounting Assignment

Semester 2, 2020 Page 4 of 5

Please note that it is now College policy that all extension requests must be approved by the Business Administrator. The lecturer is no longer able to personally approve extension requests. Leaving a request for an extension, special assessment, or special consideration until the last moment, based on grounds that students could have reasonably been able to foresee, may result in the application being rejected. ASSIGNMENT INFORMATION This Assignment is worth 30% of the total assessment for this unit. This assignment will be marked out of 100 and scaled down to being out of 30. The assignment has 4 questions.

Question 1 (5 x 5 = 25 marks) Bill Pty Ltd (Bill) is a private company with many strategic investments. The finance director is concerned that he might be required to consolidate some of these investments, pursuant to AASB 10.

Details of the

investment relationships are as follows: I.

Bill has a 25% interest in the share capital of William Pty Ltd (William), which is a company involved in the same industry as Bill. The remaining 75% of the share capital is owned by William’s founders, Mr and Mrs Russel. Mr and Mrs Russel are unfamiliar with the industry and so have given Bill three of the five seats available on the board of directors. Bill takes the lead on all decisions, but the business is closely monitored by Mr and Mrs Russel who hold the other two board positions.

Asia Pacific College of Business and Law

ACT503 Corporate Accounting Assignment

Semester 2, 2020 Page 4 of 5

II.

Bill has a substantial loan receivable from Susan Pty Ltd (Susan). Susan, as a result of the current economic climate, has experienced significant trading problems. Susan has failed to make its regular payments under the loan agreement. Bill has become concerned about the recoverability of the loan and has reach an agreement with the management of Susan that Bill executives will take control of the company’s finances for a period of five years. An executive of Bill has been given control of Susan’s cheque book and makes all payments. Bill has not gained any seats on Susan’s board of directors, which is still dominated by Susan shareholders.

III.

Bill owns 50% of Tom Pty Ltd (Tom), with the other 50% being owned by Jerry Pty Ltd (Jerry). Both companies have equal voting rights and an equal share of seats on the board of directors. Under an agreement with Jerry, Bill supplies the finance to the company on normal commercial terms. The loan is fully secured against the assets of the company.

Jerry provides the management and

entrepreneurial flair to Tom. Under the agreement forged, Jerry will receive a management fee in respect of the net profits of Box after allowing for interest payments on the Bill loan. In times of no profits the interest payments will still be met but Jerry will not receive any remuneration. IV.

Bill operates the trustee company for the Bill Trading Trust. The trust is a discretionary trust with the nominated beneficiaries being the directors of Bill. These directors are Mr Fuschia, Mrs Glady and Mr Lilac. Over the years the trust has distributed its income in the following proportions; Mr Fuschia 70, Mrs Glady 20 and Mr Lilac 10. Under the terms of the trust deed, Bill has complete control over the operating and financing decisions of the trust.

Asia Pacific College of Business and Law

ACT503 Corporate Accounting Assignment

Semester 2, 2020 Page 4 of 5

V.

Bill holds 75% interest in Felix Pty Ltd (Felix). The interest was created when Bill converted a substantial loan it made to Felix into equity at the invitation of Felix when Felix began trading poorly and recovery of the loan seemed uncertain. Felix has a large deficiency in net assets and has been consolidated for many years. Bill is a passive investor, having no seats on the board of directors and no say in the financing or operating decisions of Felix.

REQUIRED 1. Advise the finance director of Bill of the requirements of AASB 10 in respect of the control criterion. 2. For each of the above investments: a. Discuss in which entity control lies; and, b. Explain whether consolidation is required.

1. There is an error in ACT503 Assignment Question No 2: Lobstar Ltd. In the question it was written "At 1 July 2017". This should be read as "At 1 July 2014". 2. There is an error in ACT503 Assignment Question No 4: Fluffy Ltd: in the question financial information of Fluffy Ltd was written “office expenses $4950 dr”. This should be read as “office expense $7950 dr” 3. There is no information provided for reference in the assignment. In answering question 1: need to provide reference. There is no limitation number for reference i.e. can be used 4 to 5 references. 4. Assignment Structure: Need to follow following structure for preparing assignment. A. Cover page, B. Content List: Introduction, Answer of the assignment questions, Conclusion, reference. C. Need to answer according to content list.

Question 2 (15 marks)

Asia Pacific College of Business and Law

ACT503 Corporate Accounting Assignment

Semester 2, 2020 Page 4 of 5

At 1 July 2014, Lobstar Ltd acquired the following non-current assets: Equipment Vehicles

$100 000 $80 000

They are in different classes of non-current assets and are to be measured at fair value. The expected useful lives of vehicles and equipment are 5 years and 10 years, respectively. At 30 June 2015, the fair values of both assets were assessed. The equipment had a fair value of $82 000, and the vehicles, $70 000. The remaining useful lives were assessed to be 8 years for equipment and 7 years for vehicles. Required Prepare the journal entries for Lobstar Ltd for the years ending 30 June 2015 and 2016.

Question 3

(5 + 5 = 10 marks)

Swiftsure Ltd has carried forward a deferred tax liability of 170000, arising from differences between carrying amount and tax bases of the company’s assets. On 30 June 2013, the carrying amounts and tax bases of the company’s assets were as follows:

Assets

Carrying amount

Tax base

A

$142000

$108000

B

$541000

$340000

C

$820000

$610000

D

$86000

$40000

The current income tax expense for the year ended 30 June 2013 is $8400000 and tax rate is 30%. Required: (a) Prepare general journal entries on 30 June 2013 to record company’s income tax expense. (b) How would your answer differ if the balance of the deferred tax liability carried forward was $120000?

Question 4

(50 Marks)

On 1 July 2015, Fluffy Ltd acquired all the issued shares of Glider Ltd. Fluffy Ltd paid $30 000 in cash and 20 000 shares in Fluffy Ltd valued at $3 per share. At this date, the equity of Glider Ltd consisted of $66 000 share capital and $6000 retained earnings.

Asia Pacific College of Business and Law

ACT503 Corporate Accounting Assignment

Semester 2, 2020 Page 4 of 5

At 1 July 2015, all the identifiable assets and liabilities of Glider Ltd were recorded at amounts equal to their fair values except for:

Carrying amount

Fair value

Plant (cost $150 000)

$120 000

$123 000

Patents

$105 000

$90 000

Inventory

$18 000

$22 500

The plant was considered to have a further 5-year life. The patents were sold for $120 000 to an external entity on 18 August 2015. The inventory was all sold by 30 June 2016. Additional information (a)

Fluffy Ltd sells certain raw materials to Glider Ltd to be used in its manufacturing process. At 1 July 2016, Glider Ltd held inventory sold to it by Fluffy Ltd in the previous year at a profit of $600. During the 2016–17year, Fluffy Ltd sold inventory to Glider Ltd for $21 000. None of this was on hand at 30 June 2017.

(b)

Glider Ltd also sells items of inventory to Fluffy Ltd. During the 2016–17year, Glider Ltd sold goods to Fluffy Ltd for $4500. At 30 June 2017, inventory which had been sold to Fluffy Ltd at a profit of $300 was still on hand in Fluffy Ltd’s inventory.

(c)

On 1 July 2016, Glider Ltd sold an item of plant to Fluffy Ltd for $15 000. This plant had a carrying amount in the records of Glider Ltd of $14 000 at time of sale. This type of plant is depreciated at 10% p.a. on cost.

(d)

On 1 January 2015, Fluffy Ltd sold an item of inventory to Glider Ltd for $18 000. The inventory had cost Fluffy Ltd $16 000. This item was classified by Glider Ltd as plant. Plant of this type is depreciated by Glider Ltd at 20% p.a.

(e)

On 1 March 2017, Glider Ltd sold an item of plant to Fluffy Ltd. Whereas Glider Ltd classified this as plant, Fluffy Ltd classified it as inventory. The sales price was $9000 which included a profit to Glider Ltd of $1500. Fluffy Ltd sold this to another entity on 31 March for $9900.

(f)

The tax rate is 30%.

At 30 June 2017, the following financial information was provided by the two companies:

Fluffy Ltd Dr Sales revenue Cost of sales Trading expenses Office expenses Depreciation expenses Proceeds on sale of plant Carrying amount of plant sold Asia Pacific College of Business and Law

Cr 64500

30900 4800 7950

1800

Glider Ltd Dr CR 78000 46350 9000 4050 3900

9000 7500 ACT503 Corporate Accounting Assignment

15000 14000 Semester 2, 2020 Page 4 of 5

Income tax expense Share capital Retained earnings Current liabilities Deferred tax liability Plant Accumulated depreciation – plant Intangibles Deferred tax assets Shares in Glider Ltd Inventory Receivables

11100

7300 96000 48000 21100 11000

57000

66000 31500 10500 15000 107250

18300 12000 8100 90000 28500 8250 267900

267900

33450 11100 9450 0 24600 12450 249450

249450

Required Prepare a consolidation worksheet for the preparation of the consolidated financial statements of Fluffy Ltd at 30 June 2017.

Asia Pacific College of Business and Law

ACT503 Corporate Accounting Assignment

Semester 2, 2020 Page 4 of 5...