Corporate Accounting Systems Consolidated Financial Statements with Non-Controlling Interests Homework Help
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THE FOLLOWING EVENTS OCCURRED:
During the year ended 30 June 2012
1. On 17 October 2011 Sydney Ltd created a group entity when it purchased 90% of the issued capital of Tower Ltd for $289,980 cash. On acquisition, Tower Ltd’s accounts showed: Share capital $200,000 and Retained earnings $58,000. All assets and liabilities appearing in Tower Ltd’s financial statements were fairly valued, except:
• One of their blocks of land was recorded at $100,000 when its fair value was judged by the group to be $130,000. During the following financial year this land was sold for $140,000 cash.
• An item of plant was undervalued by $50,000. At that time it had a remaining life of 5 years and accumulated depreciation of $36,000. The plant is still an asset of Tower Ltd at 30 June 2014.
• A contingent liability relating to an unsettled legal claim with a fair value of $50,000 was recorded in the notes to the financial statements. This amount will be tax deductible when paid. The court case is still in progress at 30 June 2014.
During the year ended 30 June 2013
2. On 1 July 2012 Tower Ltd sold an item of plant to Sydney Ltd for $59,000. This was financed by a short-term interest-free loan from Tower Ltd that was repaid 14 months later. The plant had cost $64,000 when purchased on 13 November 2011. It’s expected useful life was originally 5 years and this original estimate is still considered to be valid. The plant is still an asset of Sydney Ltd at 30 June 2014.
3. During the year Sydney Ltd made sales of inventory to Tower Ltd of $569,600. The inventory balance of Tower Ltd at the end of the year included stock of $84,000 acquired from Sydney Ltd. Sydney Ltd declared and paid dividends of $90,000 for the year. Tower Ltd did not declare or pay any dividends for the year.
During the year ended 30 June 2014
4. On 23 December 2013 Sydney Ltd sold an item of plant to Tower Ltd for $100,000 when its carrying value in Sydney’s books on that date was $170,000 (original cost $212,500 and original estimated life of 10 years). The plant is still an asset of Tower Ltd at 30 June 2014.
5. During the year Tower Ltd made sales of inventory to Sydney Ltd of $88,200. The inventory balance of Sydney Ltd at the end of the year included stock of $54,300 acquired from Tower Ltd.
6. The management of Sydney Ltd believes that the goodwill acquired on acquisition of Tower Ltd was impaired by $5,000 in the current year. This is in addition to a total of $8,000 of impairment in previous years.
7. Sydney Ltd charged management fees to Tower Ltd.
8. Dividends were declared/paid by both companies.
9. Non-controlling interests in Tower Ltd to be recognised. This is the only subsidiary in the group.
• The company tax rate is currently 30% and it has been this rate for many years.
• Sydney Ltd has the following accounting policies for the group:
(i) Revaluation adjustments on acquisition are to be made on consolidation only, not in the books of any subsidiary;
(ii) Non-controlling interests are measured at fair value;
(iii) Intragroup sales of inventory to be at a selling price of cost plus a mark-up of 50%;
(iv) Plant is depreciated using the straight-line method with no residual value. For part-years, depreciation is to be calculated on the number of days the asset is held in the relevant year, with the day of acquisition counting as one day while the day of disposal does not count; and
(v) All calculated amounts are to be rounded to the nearest whole dollar. Companies in the group do not show cents in any journals, worksheets, or financial statements.
|AT 30 JUNE 2014||SYDNEY LTD||TOWER LTD|
|Cost of goods sold||692,000||618,500|
|Management fee revenue||12,900||–|
|Management fee expense||–||(12,900)|
|Loss on sale of asset||(70,000)||–|
|Profit before tax||144,660||138,400|
|Income tax expense||(17,010)||(41,520)|
|Profit for the year after tax||127,650||96,880|
|Retained earnings at start of year||159,220||134,320|
|Retained earnings at end of year||211,870||134,800|
|Income tax payable||10,910||42,420|
|Provision for employee benefits||29,100||14,300|
|Deferred tax liability||6,100||–|
|Allowance for doubtful debts||(22,100)||(9,500)|
|Land and buildings||790,000||910,800|
|Plant – at cost||449,700||301,200|
|Accumulated depreciation – plant||(169,400)||(185,400)|
|Deferred tax asset||–||900|
|Shares in The Rocks Pty Ltd||8,500||–|
|Investment in Tower Ltd||289,980||–|
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Using the information below and on the next two pages, prepare the following as at 30th June 2014
PART A: Consolidation adjustment/elimination journal entries that are required at the above financial year end date (i.e. for one year only); and
PART B: A detailed calculation of non-controlling interest balance and consolidation worksheet; and
PART C: Consolidated financial statements and statements of changes in equity for both the the group and parent.
• You MUST number your journal entries and present them in the order as they relate to the number given for each “event”. Where more than one journal is needed for an “event” to be completely accounted for add the letters a,b,c,…etc to them as necessary. [For example, if three separate journal entries are required to fully record the information detailed in point number 1, then the first journal will be 1a and the second is to be 1b and the third 1c.] Short narrations are expected for each journal entry.
• The required statements for both the group and the parent company are: the statement of comprehensive income, statement of financial position, and statement of changes in equity.
Product Code: ACC390
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