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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