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ACT305-Corporate Accounting

Question

Answered

Section A

Question One   

When accounting for business combinations how would you decide which entity was the acquiring entity? 

Question Two

a)When a parent obtains control over a subsidiary, the carrying amounts of the subsidiary’s assets at the date of acquisition are compared to fair value. If there are differences between these values, adjustments are required to be made in the consolidation worksheets. Explain why.

b)Which asset that is acquired is not measured at fair value?

Question Three

Why are intragroup transactions adjusted for on the consolidation worksheet?

Question Four

There has been considerable publicity given to the damage caused to the land by mining operations which raises the issue of who is responsible for restoring the land after mining operations cease. If a company is not legally required to carry out the restoration but has decided that it will do so because as a global citizen in the Directors’ Report it states that it is the right thing to do, would the company recognise a liability in the financial statements? Give reasons for your answer.

Question Five 

When identifying the NCI share of equity explain how intragroup  transactions can influence the calculation. 

Section B

Question One

Kelly Mills Ltd was wound up on 22nd August 2020.

Kelly Mills Ltd

Trial Balance

as at 22nd August 2020

 

Debit

Credit

Cash

$46 800

 

Inventories

981 760

 

Plant and equipment

1 099 280

 

Land and buildings

312 000

 

Accumulated losses

420 160

 

Accounts payable

 

$832 000

Alliance Bank mortgage loan (secured on land and buildings)

 

208 000

Share capital: 1 820 000 ordinary shares issued for $1 each, fully paid

 

.                .

 

1 820 000

 

$2 860 000

$2 860 000

 

The following information is relevant

(a)The assets were sold and realised the following cash amounts:

Inventories $624 000

Plant and machinery $728 000

(b)The Alliance Bank took possession of the land and buildings, sold them for $468 000 and after the debt was cleared paid any excess funds to the liquidator.

(c)Liquidation costs were $98 800.

(d)The liquidator paid all liabilities.

Required

Prepare the JOURNAL ENTRIES to wind up the affairs of Kelly Mills Ltd and to calculate any deficiency and distribution to the shareholders.  

T accounts are NOT required.

Question Two

The Humpty Doo Rare Earths Mining Company started mining operations on 1 July 2019. In the year to the 30th June 2020 three areas were explored, Europium, Gadolinium, and Terbium. The following costs were incurred:

 

Exploration and evaluation costs

Exploration and evaluation costs

   Total site                                                    costs

  

Property, plant and equipment

Intangibles assets

 

 

$m

$m

$m

Europium

  9

18

27

Gadolinium

18

12

30

Terbium

  9

21

30

 

36

51

87


Rare earths were discovered at Europium on 17th January 2020. In April 2020 after a review of the prospects for the Gadolinium site it was decided to abandon operations there. Exploration was still a work in progress at the Terbium site, but no decision had been made about the commercial potential of that site. Development of the Europium site had continued during the year and at 30th June 2020 $36 million had been incurred. These costs are to be written off on a production basis.

This cost relates to the construction of plant and equipment. It is estimated that there are 150,000 tonnes of rare earth which has a current sale price of $3,500 per tonne. By the 30th June 2020 15,000 tonnes had been extracted at a production cost of $6 million of which 12,000 tonnes were sold. 

Required

Record this first year’s transactions by journal entry using the area of interest method. 

Question Three 

On 1 July 2019 Prometheus Ltd acquired 90% of the shares of Unbound Ltd for $326 430. At this date the equity of Unbound Ltd consisted of share capital of $225 000 and retained earnings of $90 000. All the identifiable asset and liabilities of Unbound Ltd were recorded at amounts equal to fair value except for:

 

Carrying amount

 Fair                                                                                                                                                    value

Land

$  60 000

$  67 500

Plant (cost $285 000)

  225 000

247 500

Inventory

    11 250

13 500


The plant was considered to have a further 10-year life. All the inventory was sold by 30 June 2020. The tax rate is 30%. Prometheus Ltd uses the partial goodwill method.

During the 2019–20 period Unbound Ltd recorded a profit of $22 500.

Required

Prepare the consolidation worksheet journal entries for the preparation of the consolidated financial statements of Prometheus Ltd at 30 June 2020. (round to the nearest dollar, worksheets are not required).

ACT305-Corporate Accounting

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ACCT-322 Management Accounting

Task At a recent meeting, a manager expressed the view that the term ‘cost’ seems to have so many meanings and nuances that managers faced with reporting and/or managing costs and/or budgets, and/or making financial decisions are invariably challenged to make sense of matters. Required ...

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