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UPASS revision for final exam...

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Question 2: Associates Consulting Club Ltd, acquired on 1 July 2013 a 25% voting interest in Enactus Ltd for $200,000 cash. At the date of acquisition the accounts of Enactus Ltd include the following: Issued capital Retained earnings General reserve Total equity

500,000 300,000 200,000 1,000,000

All the identifiable assets and liabilities of Enactus Ltd were recorded at fair value except for the following: Carrying Amount Fair Value Equipment (Cost $200,000) $60,000 $250,000 Land $50,000 $102,000 The remaining useful life of the equipment is 8 years. The land was all sold by 30 June 2014. Additional Information: a) At 1 April 2014, Consulting Club Ltd sold inventory to Enactus Ltd for $250,000. This inventory originally cost Consulting Club Ltd $200,000. By 30 June 2014, Enactus Ltd has 20% of the inventory remaining. The entire remaining inventory is sold by 30 June 2015. b) On 1 July 2014, Enactus Ltd sold plant to Consulting Club Ltd for $840,000. The machinery originally cost Enactus Ltd $1,000,000. The carrying amount at the date of sale was $790,000 and the remaining useful life of the machinery is 4 years. c) Enactus Ltd transferred $10,000 from retained earnings to general reserve in the financial year ending 30 June 2015. d) During the year ended 30 June 2015, Enactus Ltd’s revaluation surplus increased by $100,000. e) The company tax rate is 30% The financial statements of Enactus Ltd for the year ended 30 June 2015 showed: Profit before income tax Income tax expense Profit for the year Opening retained earnings Dividend paid Closing retained earnings

200,000 (30,000) 170,000 500,000 (100,000) 570,000

Required Prepare the equity accounting journal entries for Consulting Club Ltd to apply the equity method to account for its investment in Enactus Ltd for the year ended 30 June 2015.

Question 3: Joint Operations On 1 July 2014, Head Ltd entered into a 50:50 joint operation with Shoulders Ltd to produce hair conditioners. It was agreed that each operator would share output and costs equally. Head Ltd’s contribution: Cash

Fair value $20 million

Shoulders Ltd’s contribution Fair value Land $20 million (carrying amount is $15 million) For the year ended 30 June 2015, the following financial statements were prepared by the joint operation manager. Balance sheet as at 30 June 2015

Costs incurred at 30 June 2015

Assets: Cash Inventory-WIP Plant Land Total assets

Wages Materials Management fees Utilities

Liabilities: Creditors

$’000 2,000 1,500 10,000 21,000 34,500

Less: Product distributed to operators Inventory-WIP

$’000 5,600 900 1,000 500 8,000 6,500 1,500

1,000

Net assets

33,500

Operators’ capital

33,500

Additional Information: a) Shoulders Ltd uses a depreciation rate of 20% for plant. b) Shoulders Ltd has sold 70% of the hair conditioner it received from the joint operation for a total of $3,000,000. c) Shoulders Ltd was appointed manager of the joint operation. d) The tax rate is 30%. Required Prepare all journal entries recorded by Shoulders Ltd on 30 June 2015 to comply with AASB 11 “Joint arrangements”....