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Corporate Accounting

September 16, 2014| Papers Haven

Corporate Accounting

BUACC5932 CORPORATE ACCOUNTING

ASSIGNMENT SEMESTER 2  2014

On 1 July 2008 Max Ltd acquired 100% of the issued shares of Millie Ltd at a cost of $550,000. At this date the capital of Millie Ltd was as follows:

Share Capital      $300,000

General Reserve     10,000

Retained Earnings  70,000

At 1 July 2008 all the identifiable net assets of Millie Ltd were recorded at fair value with the exception of :

Carrying Amount          Fair Value

Plant and Equipment *         $83,000                    $100,000

Inventory**                            32,500                        35,000

Contingent Liability                –                                10,000

*At acquisition date Plant and Equipment had a further 5 years of useful life

**Sold during year ended 30 June 2009

Additional Information:

  1. a) Inventory

–          Closing inventory of Max Ltd at 30 June 2009 included goods purchased from Millie Ltd for $2,100. Max Ltd purchases inventory from Millie Ltd at cost plus 25%

–          Total purchases by Max Ltd from Milly Ltd for year ended 30 June 2010 was $9,000.

–          At 30 June 2010 Max Ltd held $6,000 inventory purchased from Millie Ltd.

–          During the year ended 30 June 2010 Max Ltd sold inventory to Millie Ltd for $12,000. All this inventory had been sold outside the group by 30 June 2010.

  1. b) Non current asset transfers

–          A Motor Vehicle was sold by Millie Ltd to Max Ltd on 1 July 2008. The before tax gain on this sale was $4,800. Details of asset sold:

Original Cost                                     $29,000

Carrying Amount at 1 July 2008        19,000

Remaining useful life at 1 July 2008      4 years

–          An item of Plant and Equipment was sold by Max Ltd to Millie Ltd on 31 December 2009 for $47,000

Original Cost                                                            $49,500

Accumulated Depreciation at 31 December 2009      $7,700

Depreciation Rate                           25% per annum Straight Line

  1. c) Intra group dividends

All dividends paid/declared were from post acquisition profits with the exception of the interim dividend paid by Millie Ltd of $43,000

Dividends from other group entities are recognised as revenue at the time the dividend is declared

  1. d) Interest on Loan

Interest of $3,000 was paid on the intra group loan during the year ended 30 June 2010

  1. e) Impairment of goodwill

The directors of Max Ltd believe that an impairment charge of $10,000 should be recorded on goodwill at 30 June 2010

Trial balances of each entity at 30 June 2010 are as shown below

Trial Balances as at 30 June 2010

Max Ltd                          Millie Ltd

Dr                  Cr              Dr                  Cr

Share Capital                                                            500000                              300000

Retained Earnings (1 July 2009)                              200000                                95000

General Reserve                                                         50000                                15000

Current Tax Liability                                                 37500                                19000

Deferred Tax Liability                                               19000                                18000

Dividend Payable                                                       35000                                37500

Loan from Max Ltd                                                                                              53000

Payables                                                                     85000                                72000

Land                                                  100000                               170000

Plant and Equipment                         105000                               185000

Accumulated Depreciation Plant                              38050                                102000

Motor Vehicles                                  52000                                  72500

Accum. Deprec MV                                                  24800                                 34000

Loan to Millie                                     53000                                     –

Dividends Receivable                         37500                                   2500

Other Receivable                                28530                                  43970

Shares in Millie  Ltd                         550000

Accum Impairment Losses                                        43000

Inventory                                             35000                                32500

Cash                                                     50000                              120000

Other Investments                                   –                                     30000

Sales Revenue                                                          140000                               110000

Interest Revenue                                                          3180                                    –

Service Fee Revenue – Millie                                   12200                                     –

Dividend Revenue                                                     80500                                  10000

Other Income                                                              8800                                    9400

Cost of Sales                                      70000                                55000

Interest Expense                                    –                                        3230

Service Fee Expense                             –                                      12200

Impairment Loss Investment in Millie 43000                                 –

Other  Expenses                                    55000                             47500

Income Tax Expense                            30000                              20000

Dividend Paid                                       33000                              43000

Final Dividend Declared                      35000                              37500

1277030         1277030      874900         874900

Required:

Using the information provided:

A

Prepare the consolidated financial statements for the year ended 30 June 2010 for Max Ltd. including:

–          Acquisition analysis

–          Consolidation journal entries for year ended 30 June 2010

–          Consolidation worksheet at 30 June 2010

–          Consolidated statement of comprehensive income for year ended 30 June 2010

–          Consolidated statement of changes in equity for year ended 30 June 2010

–          Consolidated statement of financial position at 30 June 2010

1 + 10 + 4 + 3  = 18 marks

Note:

–          Income tax rate is 30%

–          Max Ltd share capital consists of 500,000 x $1 shares fully paid

B

Discuss the issues arising from the choice between making asset revaluation (BCVR) adjustments on consolidation or in the records of the subsidiarY

(Maximum 500 words)

2 marks

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