Question 1

Topic 3: Consolidation: Non-controlling interests


On 1 July 2016, Peaceful Ltd acquired 80% of the shares of Serene Ltd on an ex div basis for $305,600.

All the identifiable assets and liabilities of Serene Ltd were recorded at amounts equal to their fair values except for:

Carrying amount Fair value
$ $
Inventories 120,000 130,000
Machinery (cost $200,000) 160,000 165,000


At 30 June 2016, Serene Ltd had recorded a dividend payable of $10,000. The inventory on hand at 1 July 2016 was all sold by 30 November 2016. The machinery had a further 5-year life, but was sold on 1 April 2019. At acquisition date, Serene Ltd reported a contingent liability of $15,000 that Peaceful Ltd considered to have a fair value of $7,000. This liability was settled in June 2017 for $10,000. At acquisition date, Serene Ltd had not recorded an asset relating to equipment design as the asset was still in the research phase. Peaceful Ltd placed a fair value on the asset of $12,000, reflecting expected benefits existing at acquisition date. The asset was considered to have a further 10-year life. On 1 January 2018, the asset met the requirements of AASB 138 Intangible Assets and subsequent expenditure by Serene Ltd on the asset was capitalised.

Peaceful Ltd uses the full goodwill method. At 1 July 2016, the fair value of the non-controlling interest was $75,000.

On 30 June 2019 the trial balances of Peaceful Ltd and Serene Ltd were as follows


Peaceful Ltd Serene Ltd
Debit balances $ $
Shares in Serene Ltd 305,600
Inventories 180,000 60,000
Financial assets 229,000 215,000
Other current assets 10,000 2,000
Deferred tax assets 15,800 8,000
Plant 452,100 303,000
Land 144,200 42,000
Equipment design 18,000
Goodwill 20,000 22,000
Cost of sales 120,000 70,000
Other expenses 50,000 10,000
Income tax expense 35,000 40,000
Dividend paid 14,000 6,000
Dividend declared 20,000 4,000
1,595,700 800,000
Credit balances
Share capital 800,000 330,000
Other components of equity 100,000 80,000


Other reserves 50,000 1,000
Retained earnings (1/7/18) 45,000 16,000
Transfer from other reserves 2,000
Sales 200,000 140,000
Other revenue 40,000 25,000
Gains/losses on sale of non-current assets 10,000 5,000
Debentures 70,000 20,000
Deferred tax liability 20,000 12,000
Other current liabilities 38,700 35,000
Dividend payable 10,000 4,000
Accumulated amortisation – equipment design 4,000
Accumulated impairment losses – goodwill 16,000
Accumulated depreciation – plant 212,000 110,000
1,595,700 800,000


Additional information


  1. On 1 July 2017, Serene Ltd sold an item of plant to Peaceful Ltd at a profit before tax of $4,000. Peaceful Ltd depreciates this class of plant at a rate of 10% p.a. on cost while Serene Ltd applies a rate of 20% p.a. on cost.
  2. At 30 June 2018, Peaceful Ltd had on hand some items of inventory purchased from Serene Ltd in June 2018 at a profit before tax of $500. These were all sold by 30 June 2019.
  3. During the financial year ending 30 June 2019, Peaceful Ltd recorded a sales of inventory to Serene Ltd at $12,000, after adding a mark-up of 20% on cost. $3,000 of this inventory remains unsold by 30 June 2019.
  4. The other components of equity relate to financial assets. These assets are measured at fair value with movements in fair value being recognised in other comprehensive income.
  5. The parent and the subsidiary are considered to be separate cash generating units. Management have analysed the impairment indicators on an annual basis and conducted an impairment test on the subsidiary cash generating unit in the financial year ending 30 June 2018, which resulted in the writing down of goodwill in the records of the subsidiary by $4,000. There have been no other business combinations involving these entities since 1 July 2016.
  6. The tax rate is 30%.
  7. Extracts from the statement of changes in equity for Serene Ltd were as follows:


30 June 2017 30 June 2018 30 June 2019
$ $ $
Retained earnings (opening balance) 20,000 19,000 16,000
Profit for the year 20,000 20,000 50,000
Dividends paid (3,000) (6,000) (6,000)
Dividends declared (15,000) (17,000) (4,000)
Transfers to/from other reserves* (3,000) 2,000
Retained earnings (closing balance) 19,000 16,000 58,000
Other reserves (opening balance) 30,000 33,000 33,000
Transfers to/from retained earnings* 3,000 (2,000)
Bonus issue* (30,000)
Other reserves (closing balance) 33,000 33,000 1,000
Other components of equity (opening balance) 10,000 42,000 72,000
Movements in fair value 32,000 30,000 8,000
Other components of equity (closing balance) 42,000 72,000 80,000
Share capital (opening balance) 300,000 300,000 300,000
Bonus issue* 30,000
Share capital (closing balance) 300,000 300,000 330,000


*These items were from equity earned prior to 1 July 2016.


  1. Prepare an acquisition analysis.
  2. Prepare the consolidation worksheet entries for the year ended 30 June 2019.

Note: you are not required to prepare the consolidation worksheet and the consolidated financial statements.


Question 2

Topic 4: Investment in associates


Abby Ltd acquired 30% of the issued ordinary shares of Binny Ltd for $160,000 on 1 July 2018.

The equity of Binny Ltd at that date was as follows. All assets were recorded at fair value.


Ordinary shares 250,000
Retained earnings 175,000


At 30 June 2019, Abby Ltd had inventories costing $60,000 on hand which had been purchased from Binny Ltd. Binny Ltd had recognised a profit before tax of $25,000 on the sales.

At 30 June 2019, Binny Ltd had inventories costing $20,000 on hand which had been purchased from Abby Ltd. Abby Ltd had recognised a profit before tax of $5,000 on the sales.

For the year ended 30 June 2019, the income and changes in equity of Binny Ltd are as follows:


Profit before income tax 175,000
Income tax expense (55,000)
Profit after income tax 120,000
Retained earnings at 1 July 2018 175,000
Dividends paid (30,000)
Dividends declared (20,000)
Retained earnings at 30 June 2019 245,000


Additional information:


  • All dividends are paid/declared out of the current year profit.
  • Abby Ltd recognises dividends as revenue when they are declared by the investee.
  • The tax rate is 30%.



  1. Prepare an acquisition analysis in relation to the acquisition made by Abby Ltd.
  2. Prepare the equity journal entries to account for Abby Ltd’s investment in Binny Ltd for the year ended 30 June 2019, assuming that Abby Ltd prepares consolidated financial statements. Show all workings.


Question 3

Topic 5: Accounting for foreign currency transactions

MyBeauty Ltd is an Australian company which specialises in manufacturing and distributing health and beauty products to both local and international clients. The company has a reporting period which ends on 30 June and the Australian dollar is the functional and presentation currency.

For the financial year ending 30 June 2019, MyBeauty LTd has entered into two independent transactions denominated in foreign currency as follows.

Transaction A

MyBeauty Ltd sells some goods on credit to Bristol Industries, a British company. The contract, dated 3 January 2019, is denominated in United Kingdom pounds and the contract amounts to £150,000. Bristol Industries settles the contract on 29 January 2019.

The relevant exchange rates are as follows:

3 January 2019 A$1.00 = £0.5684
29 January 2019 A$1.00 = £0.5892


Transaction B

On 1 July 2017, MyBeauty Ltd entered into a loan denominated in Euros, borrowing €300,000 from a European Bank. The following summarises the bank loan statements over the period 1 July 2017 to 30 June 2019.

Date Details Amount Balances
1 July 2017 Loan contract – principal 300,000 300,000 DR
30 June 2018 Interest 33,000 333,000 DR
30 June 2019 Interest 37,000 370,000 DR


The relevant exchange rates are as follows:

1 July 2017 A$1.00 = €0.6545
30 June 2018 A$1.00 = €0.6045
30 June 2019 A$1.00 = €0.6419


* It has been assumed that the interest is accrued and will be paid at the end of the loan tenure.


In accordance with AASB 121, prepare all relevant journal entries of MyBeauty Ltd to account for the above transactions for the financial years ending 30 June 2018 and 2019, where relevant.

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