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ACT305 Corporate Accounting For Northern Australian Global Investments

tag 0 Download 8 Pages / 1,856 Words tag 30-01-2020
  • Course Code: ACT305
  • University: Charles Darwin University
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  • Country: Australia

Questions:

Q1. Small Ltd bought a 30% interest in a joint venture, Fry Ltd, for $50 000, on 1 July 2017. The equity of Fry Ltd at the acquisition date was:
All the identifiable assets and liabilities of Fry Ltd were recorded at amounts equal to their fair values. Profits and dividends for the years ended 30 June 2018 to 2020 were as follows:
 
REQUIRED
 
(a) Prepare journal entries in the records of Small Ltd for each of the years ended 30 June 2018 to 2020 in relation to its investment in Fry Ltd. (Assume Small Ltd does not prepare consolidated financial statements.)
(b) Prepare the consolidation worksheet entries to account for Small Ltd’s interest in the joint venture, Fry Ltd. (Assume Small Ltd does prepare consolidated financial statements.)
 
Q2. A liquidator was appointed after Rock Bottom Pty Ltd was declared insolvent on 1 July 2018. The company’s assets realised $14,250,000. This came from the sale of the secured land and buildings for $7,500,000 and other assets which were sold for $6,750,000. The creditors totalled $16,350,000, and were made up of the following amounts:
 
Secured creditor $9,000,000, receiver’s costs when realising secured asset $150,000, liquidator’s expenses $600,000, unsecured trade payables $2,400,000, tax payable
$1,050,000, local government rates $300,000, staff wages payable $900,000, executive directors’ wages payable (5 directors) $450,000, staff leave entitlements $150,000, executive directors’ leave entitlements (5 directors) $150,000, unsecured bank overdraft $750,000, and dividends payable $450,000.
 
REQUIRED
 
You are required to rank the above creditors and then to calculate how much each creditor would be paid.
 
Q3. The following information has been extracted from the financial statements of Blake Ltd and its subsidiary Seven Ltd at 30 June 2019.
 
Blake Ltd ($) Seven Ltd ($)
Reconciliation of opening and closing
retained earnings
Sales revenue 593,400 498,800
Cost of goods sold (399,040) (204,680)
Gross profit 194,360 294,120
Dividends revenue from Seven Ltd 63,984 ---

Management fee revenue 22,790 ---
Profit on sale of plant 30,100 ---
Expenses
Administrative expenses (26,488) (33,282)
Depreciation (21,070) (48,848)
Management fee expense --- (22,790)
Other expenses (86,946) (66,220)
Profit before tax 176,730 122,980
Tax expense (52,890) (36,292)
Profit for the year 123,840 86,688
Retained earnings-30 June 2018 274,684 205,712
398,524 292,400
Dividends paid (118,164) (79,980)
Retained earnings-30 June 2019 280,360 212,420
Statements of financial position
Shareholders' equity
Retained earnings 280,360 212,420
Share capital 301,000 172,000
Current liabilities
Accounts payable 47,042 39,818
Tax payable 35,518 21,500
Non-current liabilities
Loans 149,210 99,760
813,130 545,498
Current assets
Accounts receivable 51,084 53,578
Inventory 79,120 24,940
Non-current assets
Land and buildings 192,640 280,360
Plant -at cost 257,871 305,988
Accumulated depreciation (73,745) (119,368)
Investment in Seven Ltd 306,160
--
813,130 545,498
Other information
1. Blake Ltd acquired its 80 per cent interest in Seven Ltd on 1 July 2010. At that date the capital and reserves of Seven Ltd were:
Share capital $172,000
Retained earnings $146,200
$318,200
At the date of acquisition all assets were considered to be fairly valued.
2. The management of Blake Ltd use the partial goodwill method.
3. During the year Blake Ltd made total sales to Seven Ltd of $55,900, while Seven Ltd sold $44,720 in inventory to Blake Ltd.
4. The opening inventory in Blake Ltd as at 1 July 2018 included inventory acquired from Seven Ltd for $36,120 that cost Seven Ltd $30,100 to produce.
5. The closing inventory in Blake Ltd includes inventory acquired from Seven Ltd at a cost of $28,896. This cost Seven Ltd $24,080 to produce.

6. The closing inventory of Seven Ltd includes inventory acquired from Blake Ltd at a cost of $10,320. This cost Blake Ltd $8,256 to produce.
7. The management of Blake Ltd believe that goodwill acquired was impaired by $2,580 in the year to 30th June 2019. The balance on the accumulated impairments of goodwill account brought forward was $19,350.
8. On 1 July 2018 Blake Ltd sold an item of plant to Seven Ltd for $99,760 when its carrying value in Blake Ltd's accounts was $69,660 (cost $116,100, accumulated depreciation $46,440). This plant is assessed as having a remaining useful life of six years.
9. Seven Ltd paid $22,790 in management fees to Blake Ltd.
10. The tax rate is 30 per cent.
REQUIRED
Prepare the consolidation worksheet JOURNAL ENTRIES for the preparation of consolidated financial statements by Blake Ltd at 30 June 2019.
NOTE a consolidation worksheet is NOT required. Your answer should include an acquisition analysis with a calculation of goodwill, preacquisition entries, dividend adjustments, intragroup sales and transfers, and a calculation of the non-controlling interest.

Q4. Bill Handy, The finance director of Northern Australia Global Investments Ltd (NAGIL), is unsure whether he should consolidate some of the investments that the company owns. He has asked your advice as business adviser to NAGIL. The details of the investments are as follows:
(a) NAGIL had provided a loan to Struggle Ltd (SL) some years ago. When it looked as if SL would be unable to repay the loan it was converted into equity which gave NAGIL a 70% holding in SL. SL continues to have a substantial accumulated losses balance and the company’s results have been consolidated with NAGIL for some time. NAGIL does not take an active role in the day to day operations of SL as it has no directors on the board and it takes no part in the operating or financing decisions of the company.
(b) NAGIL has also provided a loan to the Very Big Company Ltd (VBCL). Unfortunately due to an industrial economic downturn the VBCL has failed to meet its loan repayments as required by the loan contract. The board of NAGIL is concerned that not only would the VBCL continue to have problems but also that the whole of the loan would become unrecoverable. The board of VBCL has agreed, as part of a bailout package, that NAGIL would take charge of VBCL’s finances for the next four years. The NAGIL deputy chief finance officer would control all payments made by VBCL and no payments would be made without prior approval. NAGIL does not have board representation on VBCL which is appointed by the VBCL shareholders.
(c) The Medium Sized Company Ltd (MSCL) is part funded by NAGIL, which owns 50% of the shares, and by Sharp Players Ltd (SPL) which owns the other 50%. The votes of the ordinary shares in the annual general meetings and the board representation are shared equally between NAGIL and SPL. SPL and NAGIL have agreed that NAGIL will provide the finance on a standard commercial basis with the loan being secured by a mortgage on MSCL’s property. The agreement also stipulates that SPL will provide the necessary managerial and entrepreneurial expertise in return for a management fee. The management fee will be paid out of ASCL’s net profits after providing for all NAGIL’s loan interest payments. Where MSCL does not make a profit the interest payments will still take place but no management fee will be paid.
(d) Tom and Marjory Legless are founders of CrocsRUs an adventure travel company. They both sit on the board and own 60 per cent of the shares. They have recently retired from actively running the company and have sold the other 40 per cent of the shares to NAGIL who manages the company on their behalf, holding the other three seats on the board. Although Tom and Marjory keep a close eye on the business they let NAGIL make the major decisions.

REQUIRED
Write a report to Bill, advising him how the control requirements of AASB 10 apply in each of the above investments. State, for each investment, where the control rests, citing and explaining how the relevant paragraphs of AASB10 apply, and whether Bill should include the results of the investments within the consolidated accounts explaining the reasons for your decision.

The report should take the format of a formal business report, written by your firm with yourself as lead author. Marks will be awarded for presentation style and an appropriate business format.

 
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