Advanced Financial Accounting

Q1

On 1 July 2019, Aus Ltd acquired all the issued shares of Amer Ltd. Aus Ltd is an Australian company whose functional and presentation currency is Australian dollars. Amer Ltd is an overseas subsidiary which operates in the United States and whose functional currency is the U.S. dollars. The net assets of Amer Ltd as at 1 July 2019 were:

Amer Ltd recorded an after-tax profit of US$99 000 and did not pay any dividend for the year ended 30 June 2020. Amer Ltd’s revenues were earned and expenses were incurred evenly over the financial year.

Required:

What is the amount of retained earnings translated in Australian dollars at 30 June 2020? Enter the value in the box below. The number should be entered without any dollar sign ($), punctuation, or space. For example, if you think the answer is $1,000,000, you must enter 1000000 into the box. Incorrectly formatted answers will not be awarded any marks.

Q2

On 1 July 2019, Aus Ltd acquired all the issued shares of Amer Ltd. Aus Ltd is an Australian company whose functional and presentation currency is Australian dollars. Amer Ltd is an overseas subsidiary which operates in the United States and whose functional currency is the U.S. dollars. The net assets of Amer Ltd as at 30 June 2020 were:

Required：

What is the amount of share capital translated in Australian dollars at 30 June 2020? Enter the value in the box below. The number should be entered without any dollar sign ($), punctuation, or space. For example, if you think the answer is $1,000,000, you must enter 1000000 into the box. Incorrectly formatted answers will not be awarded any marks.

Q3

On 1 July 2019, Aus Ltd acquired all the issued shares of Amer Ltd. Aus Ltd is an Australian company whose functional and presentation currency is Australian dollars. Amer Ltd is an overseas subsidiary which operates in the United States and whose functional currency is the U.S. dollars. The net assets of Amer Ltd as at 1 July 2019 were:

Amer Ltd recorded an after-tax profit of US$46 000 and did not pay any dividend for the year ended 30 June 2020. Amer Ltd’s revenues were earned and expenses were incurred evenly over the financial year. Required: What is the balance of Foreign Currency Translation Reserve (in Australian dollars) at 30 June 2020? Enter the value in the box below. The number should be entered without any dollar sign ($), punctuation, or space. For example, if you think the answer is $1,000,000, you must enter 1000000 into the box. You must provide a negative sign (-) if the balance of Foreign Currency Translation Reserve is negative. Incorrectly formatted answers will not be awarded any marks.

Q4

On July 1 2019, Beauty Ltd acquired 70% of the share capital of Beast Ltd for $498 000. At the date of acquisition, the total shareholders’ equity in Beast Ltd was made up as follows:

At the date of acquisition, all the identifiable assets and liabilities of Beast Ltd were recorded at amounts equal to fair value except for inventories. The carrying amount of inventories in the financial records of Beast Ltd was $89 000. The fair value of inventories was $120 000. The tax rate is 30%.

Required:

What is the amount of Goodwill or Gain on Bargain Purchase involved in the business combination? Please enter a positive number to indicate Goodwill or a negative number to indicate Gain on Bargain Purchase. (Please enter a numerical value without any dollar sign ($), punctuation, or space.)

Q5

On July 1 2019, Beauty Ltd acquired 70% of the share capital of Beast Ltd for $470 000. At the date of acquisition, the total shareholders’ equity in Beast Ltd was made up as follows:

At the date of acquisition, all the identifiable assets and liabilities of Beast Ltd were recorded at amounts equal to fair value except for inventories. The carrying amount of inventories in the financial records of Beast Ltd was $100 000. The fair value of inventories was $114 000. The tax rate is 30%. Required: What is the amount of the non-controlling interest in Beast Ltd as at 1 July 2019? Enter the value in the box below. The number should be entered without any dollar sign ($), punctuation, or space. For example, if you think the answer is $1,000,000, you must enter 1000000 into the box. Incorrectly formatted answers will not be awarded any marks.

Q6

On July 1 2019, Beauty Ltd acquired 70% of the share capital of Beast Ltd for $492 000. At the date of acquisition, the total shareholders’ equity in Beast Ltd was made up as follows:

At the date of acquisition, all the identifiable assets and liabilities of Beast Ltd were recorded at amounts equal to fair value. The following information is relevant to preparing the consolidated financial statements for the year ended 30 June 2020:

During the year ended 30 June 2020, Beast Ltd recorded an after-tax profit of $109 000.

On 1 January 2020, Beast Ltd sold a motor vehicle to Beauty Ltd for $88 000. This had a carrying amount to Beast Ltd of $21 000. Both entities depreciate motor vehicles at a rate of 20% per annum on cost.

On 30 November 2019, Beauty Ltd sold inventories to Beast Ltd at a before-tax profit of $42 000. All these inventories were sold to external entities during July 2020.

The tax rate is 30%.

Required:

What is the non-controlling interest in the profit after tax of Beast Ltd for the year ended 30 June 2020? Enter the value in the box below. The number should be entered without any dollar sign ($), punctuation, or space. For example, if you think the answer is $1,000,000, you must enter 1000000 into the box. Incorrectly formatted answers will not be awarded any marks.

Q7

On 1 July 2018, Bruce Ltd acquired all the share capital of Young Ltd for $310 000 when the equity of Young Ltd consisted of:

The recorded amounts of the identifiable assets and liabilities of Young Ltd at acquisition date were equal to their fair values except for:

At 1 July 2018, it was calculated that the plant had a further life of 10 years, and was depreciated on a straight-line basis. Young Ltd was involved in a court case with an entity that was claiming damages from it. Young Ltd had not raised a liability in relation to any expected damages. At 1 July 2018, Bruce Ltd measured the fair value of the liability for damages at $30 000.

Additional Information:

The inventory held by Young Ltd at acquisition date was sold to parties outside the group during the year ended 30 June 2019.

The contingent liability at acquisition date was settled during the year ended 30 June 2020. A payment of $40 000 was made to settle the case.

On 1 January 2019, Young Ltd sold some plant to Bruce Ltd for $50 000. At that date, the plant had a carrying amount of $20 000 in the records of Young Ltd. Bruce Ltd depreciates plant at 20% per annum on a straight-line basis.

On 1 August 2019, Bruce Ltd sold inventory to Young Ltd for $38 000. This inventory previously cost Bruce Ltd $20 000. Half of this inventory was sold to an external party on 31 May 2020 and the rest was sold outside the group in February 2021.

On 1 April 2020, Bruce Ltd issued 100 5% debentures of $1000 at nominal value. Young Ltd acquired 30 of these. Interest is payable half-yearly on 30 September and 31 March.

Assume that the tax rate is 30%.

Required:

1. Perform an acquisition analysis to determine whether there is any goodwill or gain on bargain purchase. Show all calculations. (4 marks)

2. Prepare the consolidation worksheet entries as at 30 June 2020. Show all calculations. (41 marks)

Q8

Nature Ltd and Sky Ltd own 35% and 40% respectively of the ordinary shares that carry voting rights at the general meetings of shareholders of House Ltd. The remaining 25% is owned by various small shareholders. Nature Ltd, Sky Ltd and most of the small shareholders have attended and voted at past general meetings. At House Ltd’s most recent general meeting, Sky Ltd did not vote and Nature Ltd had sufficient votes to elect three directors to the board of nine. All other matters put to a vote of the shareholders were for routine business and the proposals of the executive management were carried.

Required:

Using each component of the definition of control in AASB 10 Consolidated Financial Statements, explain whether House Ltd is a subsidiary of any of the other entities and why you reached this decision. Your answer must evaluate each component of the definition of “control” under the relevant accounting standards.

Q9

Parent Ltd owns all the share capital of Subsidiary Ltd. On 30 June 2019, Parent Ltd sold an item of inventory to Subsidiary Ltd. The inventory had cost Parent Ltd $30 000 and was sold to Subsidiary Ltd for $100 000. The inventory is used by Subsidiary Ltd as Equipment which has a useful life of 7 years and is depreciated on a straight-line method. The tax rate is 30% The journal entry recorded in the worksheet for the preparation of consolidated financial statements for the year ended 30 June 2020 was:

Dr Retained Earnings (Opening Balance) 49 000

Dr Accumulated Depreciation 10 000

Dr Income Tax Expense 3 000

Dr Deferred tax asset 18 000

Cr Depreciation Expense 10 000

Cr Equipment 70 000

Required:

Explain the rationale for the above worksheet adjusting entry that was required for the preparation of the consolidated financial statements for the year ended 30 June 2020. Please make sure that you explain your rationale in your own words. Simply showing your calculation or stating the numbers used in your calculation will not attract any marks.

Q10

On 1 July 2018, Happy Ltd acquired 40% of the shares of its associate, Dogs Ltd. The following information relates to the investment in the associate.

The investment originally cost $490,000. The fair value of the net assets of Dogs Ltd at the date of acquisition was $1,300,000.

From the date of the investment and up to 30 June 2019, Dogs Ltd paid $40 000 of dividend and earned $250,000 after-tax profit.

At 1 July 2018, Dogs Ltd sold Happy Ltd an item of plant at a profit before tax of $50,000. Happy Ltd applies a 20% per annum straight-line method of depreciation.

The profit after tax of Dogs Ltd for the year ended 30 June 2020 was $150,000.

During the year ended 30 June 2020, Dogs Ltd paid a dividend of $20,000.

During the year ended 30 June 2020, Happy Ltd sold Dogs Ltd inventory at a profit before tax of $24,000. A quarter of this inventory is still on hand at 30 June 2020.

The tax rate is 30%.

Required:

1. Perform the acquisition analysis. (2 marks)

2. Assuming that Happy Ltd prepares consolidated financial statements, prepare the consolidated worksheet entries for the year ended 30 June 2020 for inclusion of the equity-accounted results of Dogs Ltd. Show all calculations. (11 marks)

3. Using the equity method, determine the amount of Happy Ltd’s investment in Dogs Ltd at 30 June 2020. Show all calculations. (4 marks)