Question 2 (Marks 20)
ChallengeMe Pty Ltd acquired 100 per cent of the issued capital of TakeItEasy Ltd on 30 June 2018 for $900 000, when the statement of financial position of TakeItEasy Ltd was as follows:
Statement of financial position TakeItEasy Ltd as at 30 June 2018
| $(‘000) | $(‘000) | |||
| Assets | Liabilities | |||
| Accounts receivable | 70 | Loan | 300 | |
| Inventory | 100 | Shareholders’ equity | ||
| Land | 400 | |||
| Property, plant and equip | 700 | Share Capital | 500 | |
| Accumulated depreciation | (270) | Retained Earnings | 200 | |
| 1,000 | 1,000 | |||
Additional Information:
- Tax rate is 30 per cent
- As at the date of acquisition, all assets of TakeItEasy Ltd were at fair value, other than the property, plant and equipment, which had a fair value of $530 000. TakeItEasy Ltd adopts the cost model for measuring its property, plant and equipment. The property, plant and equipment is expected to have a remaining useful life of 10 years, and no residual value.
- One year following acquisition it was considered that TakeItEasy Ltd’s goodwill had a recoverable amount of $60 000.
- TakeItEasy Ltd declared a dividend of $40 000 on 10 July 2018, with the dividends being paid from pre-acquisition retained earnings.
The statements of financial position and statements of comprehensive income of ChallengeMe Pty Ltd and TakeItEasy Ltd one year after acquisition are as follows:
Statement of financial position of ChallengeMe Pty Ltd and TakeItEasy LTd as at 30 June 2019
| ChallengeMe Pty Ltd | TakeItEasy Ltd | ||||
| ($000) | ($000) | ||||
| Assets | |||||
| Cash | 80 | 40 | |||
| Accounts receivable | 50 | 50 | |||
| Inventory | 140 | 123 | |||
| Land | 600 | 400 | |||
| Property Plant and equipment | 900 | 700 | |||
| Accumulated depreciation | (300) | (313) | |||
| Investment in Beach Ltd | 900 | – | |||
| Total non-current assets | 2,370 | 1,000 | |||
| Liabilities | |||||
| Accounts payable | 100 | 10 | |||
| Dividends payable | 100 | 50 | |||
| Loan | 670 | 140 | |||
| Shareholders’ equity | |||||
| Share capital | 1,000 | 500 | |||
| Retained earnings | 500 | 300 | |||
| Total shareholders’ equity | 2,370 | 1,000 | |||
| Reconciliation of opening and closing retained earnings | |||||
| Profit after tax | 400 | 190 | |||
| Retained earnings — 30 June 2018 | 300 | 200 | |||
| Interim dividend | (90) | (40) | |||
| Final dividend | (110) | (50) | |||
| Retained earnings — 30 June 2019 | 500 | 300 | |||
Required:
Provide the consolidated accounts of ChallengeMe Pty Ltd and TakeItEasy Ltd as at 30 June 2019 with the following:
- Acquisition analysis in recognition for Goodwill or Gain from Bargain Purchase. Show relevant calculations
- All relevant worksheet journal entries
- Fair Value of assets adjustment
- Pre-acquisition eliminating entries
- Consolidated worksheet for ChallengeMe Pty Ltd and its controlled entity for the period ending 30 June 2019 showing columns of Eliminations and adjustments and consolidated amounts
- Consolidated statement of financial position of ChallengeMe Group.
Question 3 (Marks 10)
I Love Corporate Accounting Ltd commences operations on 1 July 2018 and presents its first statement of profit and loss and other comprehensive income and first statement of financial position on 30 June 2019. The statements are prepared before considering taxation. The following information is available:
Statement of profit or loss and other comprehensive income for the year ended 30 June 2019
Gross Profit 730,000
Expenses
| Administration expenses | 80,000 | |||
| Salaries | 200,000 | |||
| Long-service Leave | 20,000 | |||
| Warranty expenses | 30,000 | |||
| Depreciation expense – plant | 80,000 | |||
| Insurance | 20,000 | 430,000 | ||
| Accounting profit before tax | 300,000 | |||
| Other comprehensive income | Nil | |||
Assets and liabilities as disclosed in the statement of financial positions as at 30 June 2019
Assets
| Cash | 20,000 | ||
| Inventory | 100,000 | ||
| Accounts receivable | 100,000 | ||
| Prepaid Insurance | 10,000 | ||
| Plant – cost | 400,000 | ||
| Less: Accumulated depreciation | 80,000 | 320,000 | |
| Total assets | 550,000 | ||
| Liabilities | |||
| Accounts payable | 80,000 | ||
| Provision for warranty expenses | 20,000 | ||
| Loan payable | 200,000 | ||
| Provision for long service leave expenses | 20,000 | ||
| Total liabilities | 320,000 | ||
| Net assets | 230,000 | ||
Other information
- All administration and salaries expenses incurred have been paid as at year end.
- None of the long service leave expense has actually been paid.
- Warranty expenses were accrued, and at year end, actual payments of $10 000 have been made (leaving an accrued balance of $20 000).
- Insurance was initially prepaid to the amount of $30 000. At year end, the unused component of the prepaid insurance amounted to $10 000.
- Amounts received from sales, including those on credit terms, are taxed at the time of sale is made.
- The plant is depreciated over five years for accounting purposes, but over four years for taxation purposes.
- The tax rate is 30 per cent
Required:
Prepare Deferred Tax worksheet for I Love Corporate Accounting Ltd as at 30 June 2019 and provide the Journal entries to account for tax in accordance with AASB 112. Include supporting calculation such as Taxable Income.
Question 4 (Marks 20)
Assuming that Wiley & Sons Australasia Ltd acquires 70 per cent of WileyPlus Ltd for a cash price of $10 million when the share capital reserves of WileyPlus are:
| Share Capital | $8 | million | ||
| Retained Earnings | $2 | million | ||
| $10 million | ||||
Required:
- What amount will be shown in the consolidated statement of financial position for goodwill pursuant to AASB 3 assuming that any non-controlling interest in the acquirer is measured at fair value?
- What amount will be shown in the consolidated statement of financial position for goodwill pursuant to AASB 3, assuming that any non-controlling interest in the acquirer is measured at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets?
Question 5 (Marks 40)
The following financial statements of FinalHeadache Ltd and its subsidiary Solutions Ltd have been extracted from their financial records at 30 June 2019.
| Reconciliation of opening and closing retained earnings | ||||||||
| FinalHeadache Ltd | Solutions Ltd | |||||||
| ($000) | ($000) | |||||||
| Sales revenue | 671.4 | 540 | ||||||
| Costs of goods sold | (464) | (238) | ||||||
| Gross Profit | 207.4 | 302 | ||||||
| Dividends received from Solutions Ltd | 93 | – | ||||||
| Management fee revenue | 26.5 | – | ||||||
| Gain on sale of plant | 40 | 35 | ||||||
| Expenses | ||||||||
| Administrative expenses | (30.8) | (38.7) | ||||||
| Depreciation | (29.5) | (56.8) | ||||||
| Management fee expenses | – | (26.5) | ||||||
| Other expenses | (101.1) | (72) | ||||||
| Profit before tax | 205.5 | 143 | ||||||
| Tax expense | (61.5) | (42.2) | ||||||
| Profit for the year | 144 | 100.8 | ||||||
| Retained earning — 30 June 2018 | 319.4 | 239.2 | ||||||
| 463.4 | 340 | |||||||
| Dividends paid | (137.4) | (93) | ||||||
| Retained earnings at 30 June 2019 | 326 | 247 | ||||||
| Statements of financial position | ||||||||
| FinalHeadache Ltd | Solutions Ltd | |||||||
| ($000) | ($000) | |||||||
| Shareholders’ equity | ||||||||
| Retained earnings | 326 | 247 | ||||||
| Share capital | 350 | 200 | ||||||
| Current liabilities | ||||||||
| Accounts payable | 54.7 | 46.3 | ||||||
| Tax payable | 41.3 | 25 | ||||||
| Non-current liabilities | ||||||||
| Loans | 173.5 | 116 | ||||||
| 945.5 | 634.3 | |||||||
| Current assets | ||||||||
| Accounts receivable | 59.4 | 62.3 | ||||||
| Inventory | 92 | 29 | ||||||
| Non-current assets | ||||||||
| Land & Buildings | 224 | 326 | ||||||
| Plant – at cost | 299.85 | 355.8 | ||||||
| Accumulated depreciation – plant | (85.75) | (138.80) | ||||||
| Investment in Solutions Ltd | 356 | – | ||||||
| 945.5 | 634.3 | |||||||
Other Information:
- FinalHeadache Ltd acquired its 100 per cent interest in Solutions Ltd on 1 July 2014, that is five years earlier. At that date the capital and reserves of Solutions Ltd were:
| Share Capital | $200 000 | |||
| Retained Earnings | $180 000 | |||
| $380 000 | ||||
At the date of acquisition all assets were considered to be fairly valued (Thank goodness!)
- During the year FinalHeadache Ltd made a total sales to Solutions Ltd of $60 000, while Solutions Ltd sold $50 000 in inventory to FinalHeadache Ltd.
- The opening inventory in FinalHeadache Ltd as at 1 July 2018 included inventory acquired from Solutions Ltd for $40 000 that costs Solutions Ltd $30 000 to produce.
- The closing inventory in FinalHeadache Ltd includes inventory acquired from Solutions Ltd at a cost of $33 000. This cost Solutions Ltd $28 000 to produce
- Closing inventory of Solutions Ltd includes inventory acquired from FinalHeadache Ltd at a cost of $12 000. This cost FinalHeadache Ltd $10 000 to produce.
- On 1 July 2018 Solutions Ltd sold an item of plant to FinalHeadache Ltd for $116 000 when its carrying value in Solutions Ltd’s account was $81 000 (cost $135 000, accumulated depreciation $54 000). This plant is assessed as having a remaining useful life of six years. The Group has a policy of measuring its property, plant and equipment using the ‘cost model’.
- Solutions Ltd paid $26 500 in management fee to FinalHeadache Ltd.
- The tax rate is 30 per cent
Required:
Prepare the following for FinalHeadache Ltd and Solutions Ltd as at 30 June 2019:
- Acquisition analysis to recognise Goodwill or Gain from Bargain Purchase show supporting calculations
- All relevant worksheet entries
- Pre-acquisition eliminating entries
- Intercompany eliminating entries
- Consolidated worksheet for FinalHeadache Ltd and its controlled entity for the period ending 30 June 2019 showing columns of Eliminations and adjustments and consolidated amounts
- Consolidated statement of profit or loss of FinalHeadache Group
- Consolidated statement of financial position of FinalHeadache Group.
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