Practice Questions - Final Exam PDF

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ABC U:PASS Revision Session True or false: a) Unrealised profit on upstream sale of inventory will decrease the NCI: TRUE b) Realised profit on downstream transaction will increase the NCI: FALSE Identify which of the following journal entries impact NCI memorandum of profit and NCI memorandum of eq...

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ABC U:PASS Revis Revision ion Session 1. True or false: a) Unrealised profit on upstream sale of inventory will decrease the NCI: TRUE b) Realised profit on downstream transaction will increase the NCI: FALSE 2. Identify which of the following journal entries impact NCI memorandum of profit and NCI memorandum of equity A. Consolidation adjustment to revalue sold land: Dr Retained Earnings op. bal. Cr FVA B. Consolidation adjustment to record depreciation on the revalued plant: Dr Depreciation expense Dr Retained earnings – op. bal. Cr Accumulated depreciation C. Tax effect: Dr Deferred tax liability Cr Income tax expense Cr Retained earnings – op. bal. D. Consolidation adjustment - Sale of Inventory (Upstream): Dr Retained Earnings - op. Bal. Cr COGS - realised profit E. Tax effect: Dr ITE Cr Retained earnings – op. bal. F. Consolidation adjustment - Sale of Inventory (Downstream): Dr Sales Revenue Cr COGS Cr Inventory G. Tax effect: Dr DTA Cr ITE H. Consolidation adjustment - Sale of Plant (Upstream) - Plant: Dr Retained Earnings - op. bal. Cr Plant Cr Accumulated Depreciation I.

Tax effect: Dr DTA Cr Retained Earnings op. bal.

J. Consolidation adjustment to adjust depreciation expense on sale of plant: Dr Accumulated Depreciation Cr Depreciation Expense Cr Retained Earnings - op. bal. K. Tax effect Dr ITE Dr Retained Earnings op. bal. Cr DTA

3. Sydney Ltd acquired 30% of the voting shares of Melbourne Ltd on 1 July 2018 for $350,000. At 1 July 2018, all the identifiable assets and liabilities of Melbourne Ltd were recorded at fair value except for: Carrying Amount

Fair Value

FVA

Land

$750,000

$900,000

$105,000

Machinery

$60,000

$72,000

$8,400

The machinery has a further 6-year life, while the land was sold by 30 June 2019. The tax rate is 30%. Additional information: A. At 30 June 2019, the closing stock of Melbourne Ltd included inventory sold to it by Sydney Ltd at a profit of $10,000. The entire inventory was sold by 30 June 2020. B. On 1 July 2019, Melbourne Ltd sold equipment to Sydney Ltd for $120,000. The asset has a remaining life of 5 years. The asset originally cost Melbourne Ltd $90,000 and had accumulated depreciation at the date of sale of $40,000. C. There is no evidence that the investment account is impaired. Required: Provide the equity accounting entries ONLY for fair value adjustments, inter-entity transactions and their related tax effect recorded by Sydney Ltd on consolidation for the investment in Melbourne Ltd for the current period 30/06/20. a) Fair Value Adjustments Machinery: Dr share of profit in ass. 420 Cr. Investment in ass. 420 Depreciation (72,000-60,000/6*70%*30%) Dr Retained earnings 420 Cr. Investment in ass. Prior year Land: Dr Retained earnings o/bal 31,500 Cr. Investment in ass. 31,500 (900,000-750,000*0.7*0.3) b) Inter-entity Transaction Adjustments

420

4. Andy Ltd, Melissa Ltd and Jock Ltd formed a joint operation on 1 July 2020. Andy Ltd has a 60% interest in the joint operation, whilst Melissa Ltd and Jock Ltd each have a 20% interest in the joint operation. Melissa Ltd agreed to contribute equipment with a fair value of $5m to the joint operation, whilst the other operators contributed $2m in cash. The carrying amount of the equipment was: Equipment 4,500,000 - Accumulated depn (500,000) =4,000,000 a) The investment account recognised by Melissa Ltd will be equal to:

Dr. Investment in JO

4,800,000

FV of asset to extent sold = 80% of 5m = 4m CA to the extent of ownership retained = 20% of 4m = $800,000 b) The entry recorded by Melissa Ltd for the transfer of the asset is:

1 July 2020 Dr. Investment in JO (20% * 4m + 20% * 5m) Dr. Acc. Dep (given) Cr. Equipment (given) Cr. Gain (5m-4m*80%)

4,800,000 500,000 4,500,000 800,000

5. The internal financial reporting system of the Eastfield Holdings Ltd reveals the following divisional information: Profit/Loss

Assets

Apple

50

30

Banana

(65)

20

Carrot

14

300

Dragonfruit

(85)

6

Eggplant

4

15

-82

371

a) Which operating segments are considered to be reportable under AASB 8 using the profit or loss threshold?

  

Combined result of loss-making segments is 150 (Banana, Dragonfruit) Combined result of profit-making segments is 68 In absolute amounts, combined loss > combined profit threshold = 10% x 150 = 15

Apple, Banana, Dragonfruit

b) Which operating segments are considered to be reportable under AASB 8 using the total asset threshold 10% of total segment assets:10% x 371 = 37 = Carrot

6. Which of the following are considered related parties to ABC Ltd under AASB 124? a) ASR Ltd who owns 15% shares in ABC Ltd (no significant influence) b) Bob Jones who is the best friend of a director of ABC Ltd (not close family member) c) Student Pty Ltd who is the main customer of ABC Ltd (customer + suppliers not related party) d) Mary Jane who is the daughter of a KMP of ABC Ltd (Child) e) FSA Ltd who shares a KMP with ABC Ltd (no mention FSA or KMP being related)...