Assignment 1
Value: 10%
Due Date: 13-Aug-2018
Return Date: 03-Sep-2018
Length:
Submission method options: Alternative submission method
Task
You are required to complete the following question. A total of 55 marks are allocated to these questions, which will be converted to a final mark out of 10%.
All workings, when appropriate, must be shown to substantiate your answers.
Question 1 [20 marks]
Topic 1: Consolidation: Principles, accounting requirements
On 1 July 2017, Panda Ltd acquired all the issued shares of Smarty Ltd. Panda Ltd paid $250,000 more than the equity it acquired in the fair value of Smarty Ltd’s net assets. At the date of acquisition, the shareholder’s equity of Smarty Ltd was as follows.
| $ | |
| Share capital | 100,000 |
| Retained earnings | 175,000 |
| Total | 275,000 |
All the assets and liabilities of Smarty Ltd were recorded at amounts equal to their fair values at the acquisition date, except for some assets detailed below.
| Remaining useful life | Cost | Carrying amount | Fair value | |
| $ | $ | $ | ||
| Plant | 5 years | 180,000 | 90,000 | 120,000 |
| Computer equipment | 5 years | 90,000 | 40,000 | 60,000 |
Required:
Prepare the acquisition analysis at 1 July 2017.
Prepare the consolidation worksheet entries for Panda Ltd’s group at 1 July 2017.
Prepare the consolidation worksheet entries for Panda Ltd’s group at 30 June 2018.
| Question 1 | Max. marks allocated |
| Acquisition analysis | 3 |
| Consolidation entries at 1 July 2017 | 6 |
| Consolidation entries at 30 June 2018 | 10 |
| Presentation | 1 |
| Total | 20 |
Question 2 [35 marks]
Topic 2: Consolidation: Intra-group transactions
On 1 July 2015, Ping Pong Ltd acquired all the issued shares of Sing Song Ltd. At the date of acquisition, the shareholders’ equity of Sing Song Ltd consisted of share capital $120,000; general reserve $25,000 and retained earnings $55,000. The identifiable net assets of Sing Song Ltd were recorded at amounts equal to their fair values, except for the following assets:
| Carrying amount | Fair value | |
| $ | $ | |
| Land | 100,000 | 130,000 |
| Inventories | 78,500 | 86,100 |
| Machinery (cost $86,000) | 52,000 | 56,000 |
| Vehicles (cost $58,000) | 47,000 | 53,000 |
The assets of Sing Song Ltd at acquisition date included goodwill recorded at $15,000 arising from a business combination transaction in 2011. As at the date of acquisition, the vehicles and machinery were expected to have a further useful life of 6 and 8 years respectively, with benefits to be received evenly over those periods. Inventories on hand on 1 July 2015 was all sold by 31 January 2016. The land owned at 1 July 2015 was sold in September 2016 for $150,000. The machinery on hand at 1 July 2015 was sold on 1 January 2018 for $38,000.
Adjustments for the differences between carrying amount and fair values of assets and liabilities on hand at acquisition date are recognised on consolidation. When assets are sold or derecognised, any related valuation reserves are transferred to retained earnings.
At 1 July 2015, Sing Song Ltd owned but had not recorded an internally generated brand name, an identifiable asset included as part of the business combination transaction. This brand name was considered by Ping Pong Ltd to have a fair value of $29,000 and an indefinite useful life. An impairment test conducted with respect to the brand name on 30 June 2018 concluded that its recoverable amount at that date was $2,000 less than its carrying amount.
In June 2017, Sing Song Ltd paid a share dividend worth $20,000 from the general reserve on hand at 1 July 2015.
The trial balances of both companies at 30 June 2018 showed the following balances:
| Ping Pong Ltd | Sing Song Ltd | |||
| Dr ($) | Cr ($) | Dr ($) | Cr ($) | |
| Sales revenue | 450,000 | 320,000 | ||
| Dividend revenue | 17,000 | – | ||
| Other income | 11,400 | 17,000 | ||
| Proceeds on sale of equipment | 18,000 | – | ||
| Proceeds on sale of machinery | – | 38,000 | ||
| Cost of sales | 210,000 | 192,550 | ||
| Income tax expense | 30,000 | 32,000 | ||
| Depreciation and other expenses | 39,000 | 36,000 | ||
| Carrying amount of equipment sold | 21,000 | – | ||
| Carrying amount of machinery sold | – | 30,500 | ||
| Dividend paid | 10,000 | 5,000 | ||
| Dividend declared | 20,000 | 12,000 | ||
| Transfer to general reserve | 10,000 | 5,000 | ||
| Share capital | 200,000 | 140,000 | ||
| General reserve | 35,000 | 10,000 | ||
| Retained earnings (1 July 2017) | 51,300 | 67,500 | ||
| Accounts payable | 69,500 | 36,000 | ||
| Loan payable (due 30 June 2022) | 25,000 | 15,000 | ||
| Dividend payable | 20,000 | 12,000 | ||
| Provisions | 12,500 | 9,300 | ||
| Current tax liability | 43,000 | 34,000 | ||
| Deferred tax liability | 11,800 | 5,000 | ||
| Accumulated depreciation-vehicles | 16,400 | 60,000 | ||
| Accumulated depreciation-equipment | – | 34,500 | ||
| 8%Debentures (matures 30 June 2021) | 25,000 | – | ||
| Cash | 2,500 | 1,250 | ||
| Receivables | 27,000 | 13,000 | ||
| Inventories | 39,700 | 24,500 | ||
| Other current assets | 15,200 | 8,200 | ||
| Deferred tax assets | 7,500 | 3,500 | ||
| Vehicles | 88,000 | 158,000 | ||
| Equipment | – | 42,000 | ||
| Land | 140,000 | 180,000 | ||
| Financial assets | 68,000 | 14,800 | ||
| Goodwill | 28,000 | 15,000 | ||
| Shares in Sing Song Ltd | 250,000 | – | ||
| Debentures in Ping Pong Ltd | – | 25,000 | ||
| 1,005,900 | 1,005,900 | 798,300 | 798,300 | |
Additional information:
On 1 January 2018, Ping Pong Ltd sold an item of equipment to Sing Song Ltd for $18,000. The equipment had a carrying amount at the date of sale of $21,000. Both companies depreciate equipment at 20% on a straight line basis.
On 1 May 2017, Sing Song Ltd sold a machine to Ping Pong Ltd for $7,800. The machine had a carrying amount of $7,000 at the date of sale. Ping Pong Ltd recorded the machine as inventories. The inventories item was sold to an external party in November 2017 for $8,200.
All interests on the 8% debentures has been paid and brought to account in the records of both companies.
During the 2017-2018 financial year, Ping Pong Ltd sold inventories to Sing Song Ltd for $75,000. The cost of these inventories to ping pong Ltd was $70,000. Of these inventories, 25% is still on hand at 30 June 2018.
The transfer to the general reserve recorded by Sing Song Ltd in the current year was from retained earnings recorded at 1 July 2015.
The tax rate is 30%.
Required:
Prepare an acquisition analysis.
Prepare the consolidation worksheet entries necessary to prepare the consolidated financial statements for the year ending 30 June 2018 for the group comprising Ping Pong Ltd and Sing Song Ltd.
Note: you are not required to prepare the consolidation worksheet and the consolidated financial statements.
| Question 2 | Max. marks allocated |
| Acquisition analysis | 5 |
| Consolidation entries for part (1) | 28 |
| Presentation | 2 |
| Total | 35 |
Rationale
This assessment task will assess the following learning outcome/s:
be able to explain the relationships that exist between a parent company and its subsidiary(ies), an investor and its investee, a company and its overseas subsidiaries.
be able to prepare accounts for each of the above-mentioned business combinations in accordance with relevant professional and statutory reporting requirements.
Marking criteria and standards
The marking guide for this task is provided below. The detailed allocation of marks for relevant questions has been provided above for your information.
| Criteria | High distinction | Distinction | Credit | Pass |
| For both Question 1 & 2:
Prepare acquisition analysis and consolidation journal entries, consolidation worksheets and consolidated financial statements for group structures, in accordance with relevant professional and statutory reporting requirements. |
Acquisition analysis and determination of goodwill or gain on bargain purchase is computed accurately.
At least 85% of the consolidation journal entries are prepared accurately in accordance with relevant statutory reporting requirements. Consolidation worksheet presented with all entries entered correctly and appropriate cross referencing provided for all adjustments made. Financial statements are presented in publishable format without flaw and in accordance with relevant accounting standards. |
Acquisition analysis and determination of goodwill or gain on bargain purchase is computed with very few minor errors.
At least 75% of the consolidation journal entries are prepared accurately in accordance with relevant statutory reporting requirements. Consolidation worksheet presented with almost all entries entered correctly. Appropriate cross referencing provided for all adjustments made. Financial statements are presented in publishable format with minor flaws and in accordance with relevant accounting standards. |
Acquisition analysis and determination of goodwill or gain on bargain purchase is computed correctly with some minor errors.
At least 65% of the consolidation journal entries are prepared accurately in accordance with relevant statutory reporting requirements. Consolidation worksheet presented with a number of minor errors made. Appropriate cross referencing provided for all adjustments made. Financial statements are presented in publishable format with minor flaws. |
Acquisition analysis and determination of goodwill or gain on bargain purchase is computed with a limited number of errors.
At least half of the consolidation journal entries are prepared accurately in accordance with relevant statutory reporting requirements. Consolidation worksheet presented with a number of errors made. Appropriate cross referencing provided for all adjustments made. Financial statements are presented in publishable format with a few flaws. |
Presentation
Physical presentation of assignments:
All answers must be presented in minimum font size of 11, Arial or Times New Roman font style. If you have prepared your work in excel and copied and pasted your work into word or pdf (see requirements below), you must ensure that all work presented follow this presentation font size and format.
It is essential that presentation of assignments adheres to accepted standards in relation to neatness and layout, as you are practising to present material in a work situation.
You should submit a bibliography (using APA referencing style) with your assignment.
For practical questions:
All journal entries must include narrations unless otherwise specified and presented in accordance to the format used in your key text;
Any ledger accounts should preferably be shown in ‘T’ account format and dates and descriptions are included;
Journal entries and ledger accounts must reflect the strict order of sequence of events; financial statements (including extracts) should include proper headings and accord with presentation standards.
Requirements
This assignment must be submitted through Turnitin.
It is recommended that your name, student ID and page number are included in the header or footer of every page of the assignment.
Further details about submission in Turnitin are provided in On-line submission.
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