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2103AFE Company Accounting

Practice-Based Assignment

Trimester 2, 2020

TOTAL MARKS: 100

TOTAL WEIGHTING: 30%

DUE DATES: 5.00pm Friday 25 September 2020.

This assignment requires students to apply appropriate Australian Accounting Standards and Corporate Legislation in the preparation of accounting reports for related companies. Students are required to complete the case study individually.

REQUIREMENTS:

Complete the specified questions (see below).
All answers must use proper English expression and grammar.
The assignment is to be submitted on-line by the due date.

SUBMISSION:

The submission point will be made available in the ‘Assessment’ > ‘A2: Practice-based Assignment’ folder on Learning@Griffith. Two attempts are allowed.
The assignment must be word-processed using Microsoft Word or Excel, Times New Roman, 12 point font, double-spaced.
An Assignment Coversheet, with Academic Integrity Declaration (in electronic form), must be completed and submitted via a link on learning site.

Case Study

Financial information at 30 June 2020 of Great Ltd and its subsidiary company, Wall Ltd, is shown below.

At 1 July 2017, the date Great Ltd acquired its 80% shareholding in Wall Ltd, all the identifiable assets and liabilities of Wall Ltd were at fair value except for the following assets:

	Carrying amount	Fair value
Plant (cost $75,000)	$49,000	$55,000
Land	29,000	37,000

The plant has an expected life of 10 years, with benefits being received evenly over that period. Differences between carrying amounts and fair values are adjusted on consolidation. The land on hand at 1 July 2017 was sold on 1 February 2018 for $40,000. Any valuation reserve in relation to the land is transferred on consolidation to retained earnings.

Great Ltd uses the full goodwill method. The fair value of the non-controlling interest at 1 July 2017 was $31,500.

	Great Ltd			Wall Ltd
Sales revenue	$	316,000		$	220,000
Other revenue:
Debenture interest		5,000			—
Management and consulting fees		5,000			—
Dividend from Wall Ltd		12,000			—
Total revenues		338,000			220,000
Cost of sales		130,000			85,000
Manufacturing expenses		90,000			60,000
Depreciation on plant		15,000			15,000
Administrative		15,000			8,000
Financial		11,000			5,000
Other expenses		14,000			12,000
Total expenses		275,000			185,000
Profit before tax		63,000			35,000
Income tax expense		(25,000	)		(17,000	)
Profit		38,000			18,000
Retained earnings (1/7/19)		50,000			45,000
		88,000			63,000
Transfer to general reserve		3,000			—
Interim dividend paid		10,000			10,000
Final dividend declared		10,000			5,000
		23,000			15,000
Retained earnings (30/6/20)		65,000			48,000
General reserve		50,000			10,000
Other components of equity		13,000			10,000
Share capital		300,000			100,000
Debentures		200,000			100,000
Current tax liability		25,000			17,000
Dividend payable		10,000			5,000
Deferred tax liability		—			7,000
Other liabilities		90,000			12,000
	$	753,000		$	309,000
Financial assets	$	50,000		$	60,000
Debentures in Wall Ltd		100,000			—
Shares in Wall Ltd		131,600			—
Plant (cost)		120,000			102,000
Accumulated depreciation – plant		(65,000	)		(55,000	)
Other depreciable assets		76,000			55,000
Accumulated depreciation		(40,000	)		(25,000	)
Inventory		90,000			85,000
Deferred tax asset		85,400			30,000
Land		201,000			57,000
Dividend receivable		4,000			—
	$	753,000		$	309,000

Additional information

At the acquisition date of 80% of its issued shares by Great Ltd, the equity of Wall Ltd was:

Share capital (100,000 shares)		$100,000
General reserve		3,000
Retained earnings		37,000

Inventory on hand of Wall Ltd at 1 July 2019 included a quantity priced at $10,000 that had been sold to Wall Ltd by its parent. This inventory had cost Great Ltd $7,500. It was all sold by Wall Ltd during the year.
In Great Ltd’s inventory at 30 June 2020 were various items sold to it by Wall Ltd at $5,000 above cost.
During the year, intragroup sales by Wall Ltd to Great Ltd were $60,000. It was also learned that Wall Ltd had sold to Great Ltd an item from its inventory for $20,000 on 1 January 2019. Great Ltd had treated this item as an addition to its plant and machinery. The item was put into service as soon as received by Great Ltd and depreciation charged at 20% p.a. The item had been fully imported by Wall Ltd at a landed cost of $15,000.
Management and consulting fees derived by Great Ltd were all from Wall Ltd and represented charges made for administration $2,200 and technical services $2,800. The latter were charged by Wall Ltd to manufacturing expenses.
All debentures issued by Wall Ltd are held by Great Ltd.
Other components of equity relate to movements in the fair values of the financial assets. The balance of this account at 1 July 2019 was $10,000 (Great Ltd) and $8,000 (Wall Ltd).
The tax rate is 30%.

Required:

Section 1 (Total 70 marks):

Conduct the acquisition analysis. (10 marks)
Prepare the consolidation journals as at 30 June 2020. (48 marks)
What is the total amount of non-controlling interests? (5 marks)
What is the total amount of Business Combination Revaluation Reserve (BCVR) shown in the group account? (4 marks)
What is the total amount of Goodwill shown in the group account? (3 marks)

(Note: You must show all workings. The calculation figures will be marked.)

Section 2 (Total 15 marks):

Jenny Chan is the accountant for Great Ltd. She is required to prepare a set of consolidated financial statements for the group. Jenny is concerned about the calculation of the NCI share of equity, particularly where there are intragroup transactions. The auditors have advised Jenny that when adjustments are made for intragroup transaction the effects of these transactions on the NCI should also be adjusted for.

Jenny reports to Mr Frank Finn, the Chief Financial Officer of the company. He has asked Jenny to report to him on these issues raised by the auditor. In her report, Jenny will need to clarify how the adjustment to NCI is made and why. She has also been asked to explain why she has measured NCI in the subsidiary at fair value and to report on any alternative method that is available.

From the above information, discuss the issues that Jenny must address in her report to Mr Finn. In your discussions please include references to applicable accounting standards and the amounts used in your consolidation workings (at least two examples for each argument are to be provided).

Section 3 (Total 15 marks):

In making consolidation worksheet adjustments, sometimes tax-effect entries are made. Why? Make reference to applicable accounting standards and the amounts used in your consolidation workings (at least two examples for each argument are to be provided).