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Accounting 12


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BUACC5932 CORPORATE ACCOUNTING
ASSIGNMENT SEMESTER 2  2014
 
On 1 July 2008 Max Ltd acquired 100% of the issued shares of Millie Ltd at a cost of $550,000. At this date the capital of Millie Ltd was as follows:
 
Share Capital      $300,000
General Reserve     10,000
Retained Earnings  70,000
 
At 1 July 2008 all the identifiable net assets of Millie Ltd were recorded at fair value with the exception of :
                                    Carrying Amount          Fair Value
Plant and Equipment *         $83,000                    $100,000
Inventory**                            32,500                        35,000
Contingent Liability                -                                10,000
 
*At acquisition date Plant and Equipment had a further 5 years of useful life
 
**Sold during year ended 30 June 2009
 
                        
Additional Information:
 
a)      Inventory
-          Closing inventory of Max Ltd at 30 June 2009 included goods purchased from Millie Ltd for $2,100. Max Ltd purchases inventory from Millie Ltd at cost plus 25%
-          Total purchases by Max Ltd from Milly Ltd for year ended 30 June 2010 was $9,000.
-          At 30 June 2010 Max Ltd held $6,000 inventory purchased from Millie Ltd.
-          During the year ended 30 June 2010 Max Ltd sold inventory to Millie Ltd for $12,000. All this inventory had been sold outside the group by 30 June 2010.
        
b)      Non current asset transfers
-          A Motor Vehicle was sold by Millie Ltd to Max Ltd on 1 July 2008. The before tax gain on this sale was $4,800. Details of asset sold:
 
Original Cost                                     $29,000
Carrying Amount at 1 July 2008        19,000
Remaining useful life at 1 July 2008      4 years
 
 
-          An item of Plant and Equipment was sold by Max Ltd to Millie Ltd on 31 December 2009 for $47,000
 
Original Cost                                                            $49,500
Accumulated Depreciation at 31 December 2009      $7,700
Depreciation Rate                           25% per annum Straight Line
 
c)      Intra group dividends
 
All dividends paid/declared were from post acquisition profits with the exception of the interim dividend paid by Millie Ltd of $43,000
Dividends from other group entities are recognised as revenue at the time the dividend is declared
 
d)     Interest on Loan
Interest of $3,000 was paid on the intra group loan during the year ended 30 June 2010
 
e)      Impairment of goodwill
The directors of Max Ltd believe that an impairment charge of $10,000 should be recorded on goodwill at 30 June 2010
 
 
Trial balances of each entity at 30 June 2010 are as shown below
 
                                                Trial Balances as at 30 June 2010
                                                                      Max Ltd                          Millie Ltd
                                                                Dr                  Cr              Dr                  Cr
Share Capital                                                            500000                              300000
Retained Earnings (1 July 2009)                              200000                                95000
General Reserve                                                         50000                                15000
Current Tax Liability                                                 37500                                19000
Deferred Tax Liability                                               19000                                18000
Dividend Payable                                                       35000                                37500
Loan from Max Ltd                                                                                              53000
Payables                                                                     85000                                72000
Land                                                  100000                               170000
Plant and Equipment                         105000                               185000
Accumulated Depreciation Plant                              38050                                102000 
Motor Vehicles                                  52000                                  72500
Accum. Deprec MV                                                  24800                                 34000
Loan to Millie                                     53000                                     -
Dividends Receivable                         37500                                   2500
Other Receivable                                28530                                  43970 
Shares in Millie  Ltd                         550000
Accum Impairment Losses                                        43000                                    
Inventory                                             35000                                32500   
Cash                                                     50000                              120000
Other Investments                                   -                                     30000
Sales Revenue                                                          140000                               110000
Interest Revenue                                                          3180                                    -
Service Fee Revenue - Millie                                   12200                                     -
Dividend Revenue                                                     80500                                  10000
Other Income                                                              8800                                    9400
Cost of Sales                                      70000                                55000
Interest Expense                                    -                                        3230
Service Fee Expense                             -                                      12200
Impairment Loss Investment in Millie 43000                                 -
Other  Expenses                                    55000                             47500
Income Tax Expense                            30000                              20000
Dividend Paid                                       33000                              43000
Final Dividend Declared                      35000                              37500
 
                                                          1277030         1277030      874900         874900
 
 
 
 
Required:
Using the information provided:
 
A
Prepare the consolidated financial statements for the year ended 30 June 2010 for Max Ltd. including:
-          Acquisition analysis
-          Consolidation journal entries for year ended 30 June 2010
-          Consolidation worksheet at 30 June 2010
-          Consolidated statement of comprehensive income for year ended 30 June 2010
-          Consolidated statement of changes in equity for year ended 30 June 2010
-          Consolidated statement of financial position at 30 June 2010
 
1 + 10 + 4 + 3  = 18 marks
 
Note:
-          Income tax rate is 30%
-          Max Ltd share capital consists of 500,000 x $1 shares fully paid
 
 
B
Discuss the issues arising from the choice between making asset revaluation (BCVR) adjustments on consolidation or in the records of the subsidiary
 
(Maximum 500 words)
 
2 marks
 
 
 
Key assignment details and assessment criteria:
 
1.     Group assignment with no more than three students in each group
2.     Submission due date:  Week 11
 
 
Assessment Criteria
 
The criteria used to assess the submitted assignment will be:
·        Ability to work collegially in a group environment for shared success.
·        Evidence of relevant research and demonstrated understanding of research materials. As a minimum students should consult the references listed under additional resources in the Unit Description
·        The structure, coherence and logic of arguments and analysis presented.
·        Demonstrated understanding of the subject matter that is the focus of the assignment topic.