On 1 July 2016, Cena Ltd acquired 80% of the shares of Lesnar Ltd for $40 000. The following balances appeared in the records of Lesnar Ltd at this date: Share Capital $20 000 General Reserve     2 000 Retained Earnings   10 000 At 1 July 2016, all the identifiable assets and liabilities of Lesnar Ltd were recorded at fair value except for the following: Carrying amount Fair value Machinery (cost $36 000)  $30 000 $40 000 Inventory 16 000  20 000 Receivables  20 000  18 000 The machinery, which had a remaining useful life of 5 years, was adjusted to fair value after the acquisition date in the consolidation worksheet. The machinery was sold by Lesnar Ltd on 1…

Question You have $50,000 saving and are considering a 30-year investment which is offered in two phases:   Phase 1: Investing that $50,000 as a lump sum in an investment in the securities market for 20 years. Your securities broker recommends two alternative options: Option A pays interest rate of 11.87%, compounding daily. Option B pays interest rate of 12%, compounding quarterly.   Phase 2:  At the end of 20 years, putting the total amount accumulated in the first phase into another investment, which will pay you an equal income at the end of each year for 10 years.   Required:   a) Identify which option should you choose in Phase 1 by computing the effective annual interest rate (EAR)?  …

Question You are an experienced investor in the securities market and you have established an investment portfolio of two blue chips five years ago:  Diamond shares with current market value of $235,000 and Platinum shares with current market value of $355,000.   Required:   a) If your portfolio has provided you with returns of 10.5%, 12.6%, - 11.5%, 14.5% and 15.2% over the past five years, respectively. Calculate geometric average return of the portfolio for this period. b) Assume that data in the table below is available for your portfolio performance, calculate the expected return, variance and standard deviation of the portfolio? Diamond Platinum Expected return 16.5% 23.5% Standard Deviation of return 7% 11% Correlation of coefficient (p) 0.45   c)…

Question 1  Mac Ltd. provides legal advice to customers for fees. On 30 June 2020, Mac Ltd. completed its first year of operations. Some of the ledger account balances of the business, before any financial year end (30 June) adjustments, are provided below:   $ Fees Revenue 442,500 Rent Expense 21,960 Electricity Expense 8,460 Wages Expense 163,200 Advertising Prepaid 2,700   No adjusting entries have been made to these accounts at any time during the year. An analysis of the business records reveals the following.   The total Fees Revenue recorded includes $2,250 that was prepaid by a client as a deposit for legal advice to be provided in July 2020. The balance in Advertising Prepaid represents the amount paid for…

Treasure Island Ltd. currently has the following capital structure:   Debt:  $3,500,000 par value of outstanding non-callable bond that pays annually 10% coupon rate with an annual before-tax yield to maturity of 8.5%. The bond issue has face value of $1,000/bond and will mature in 20 years.   Ordinary shares: 70,000 outstanding ordinary shares. The firm plans to pay a $4.50 dividend per share in the next financial year. The firm is maintaining 5% annual growth rate in dividend, which is expected to continue indefinitely.   Preferred shares: 45 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 13%.   Company tax rate is 30%.   Required: Complete the following tasks: Calculate the current price of…

You are working as a finance manager for Fire Fox Transport Ltd. The company is considering to invest in one of the two following projects to buy a new equipment for their storage which is expected to boost the company’s revenue. Each equipment will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9.5%. The cash flows of the projects are provided below.     Equipment 1 Equipment 2 Cost $157,000 $182,000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5   67 000 82 000 78 000 64 000 56 000   83 000 94 000 80 000 77 000 73 000  …

Question 1 ABC Ltd acquired a Machine from BAN Ltd for the following consideration: Cash    $70 000, Land in the books of ABC Ltd the land is recorded at its cost of $700 000. It has a fair value of $750 000. ABC Ltd also agrees to assume the liability of BAN Ltd bank loan of $95 000 as part of the Machine acquisition.   REQUIRED  (a) Calculate the acquisition cost of the Machine (b) Provide the journal entries that would appear in ABC Ltd’s books to account for the acquisition of the Machine   Question 2 An item of depreciable machinery is acquired on 1 July 2015 for $280 000. It is expected to have a useful life of 10…

Question 1 An asset having a cost of $200 000 and accumulated depreciation of $40 000 is revalued to $240 000 at the beginning of the year. Depreciation for the year is based on the revalued amount and the remaining useful life of eight years. Shareholders’ equity, before adjusting for the above revaluation and subsequent depreciation, is as follows:   Share capital 600 000 Revaluation surplus 90 000 Capital profits reserve 170 000 Retained earnings 140 000 Total 1 000 000   Required: Prepare journal entries to reflect the revaluation of the asset and the subsequent depreciation of the revalued asset. Which of the equity accounts would be affected directly or indirectly by the revaluation?     Question 2 ABC Ltd…

Berry Ltd acquired 70% of the shares of James Ltd on 1st July 2016 for $540,000. The James Ltd equity consisted of the following items at acquisition date   Share Capital                                                    $500,000 General Reserve                                                   80,000 Retained Earnings                                                 50,000 Asset revaluation reserve                                         20,000   All identifiable assets and liabilities of James Ltd are recorded at fair value at this date except for inventory for which the fair value was $10,000 greater than carrying amount and plant which had a carrying amount of $150,000 (Accumulated depreciation net of $40,000) and a fair value was $170,000. The plant has a further 5 years life. The Financial information for…