Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Pumpkin Ltd is a large successful agricultural company based in Morrinsville. You are the assistant accountant with the company and have been asked to draft

Pumpkin Ltd is a large successful agricultural company based in Morrinsville. You are the assistant accountant with the company and have been asked to draft the company’s group accounts. Tom Ato, head of group accounting briefed you as follows and followed up with emailed information for you to work with.

Tom has stressed that the company has a staff code of conduct, which requires staff to treat all company information as strictly confidential. The code permits reviewing reference material, conducting research, and discussing and seeking advice about accounting procedures with others but does not allow sharing any financial information with anyone including unauthorised staff. He suggests that similar ethics apply, to those you would have experienced with regard to your university assignments. The emailed information should not be shared with your ex-classmates, the press or on social media. He warned that breaches of this code lead to disciplinary action and immediate dismissal.

PHASE 1

Tom Ato emailed the following information:

------------------------------------------------------------------------------------------------------------------------

From: Tom Ato

Subject: Company financial information for group accounts

Date: 4 March 2019

Kia ora,

I hope you enjoy this new challenge of drafting the group accounts, Here is all the information you need.

Consolidation accounting policies

The consolidated financial statements incorporate the financial statements of the subsidiary (Squash Limited) of Pumpkin Limited (“Parent”) as at the reporting date. Pumpkin Limited and its subsidiary together are referred to in these financial statements as the “Group” or the consolidated entity.

The subsidiary is an entity over which the Parent has control. The Parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

The subsidiary is included in the consolidated financial statements using the acquisition method of consolidation. It is fully consolidated from the date on which control is transferred to the Parent.

The Group recognises non-controlling interest at its proportionate share of subsidiary net identifiable assets.

The Subsidiary, Squash

On 31 December 2014, Pumpkin Limited acquired 70% of the shares in Squash Limited.

On that date, the equity of Squash Limited comprised:


$

Share capital

640,000

Retained earnings

300,000

Equity

$940,000

At acquisition, the book value of the assets and liabilities of Squash Limited were considered to be at fair value, except that there were brand names (considered to be part of net identifiable assets) that had a book value of zero and where Pumpkin assessed the fair value to be $120,000. There has been no change to assessed value of these brand names since acquisition.

Goodwill impairment

At the most recent balance date (31 December 2018), the returns from Squash were not as high as expected. The directors of Pumpkin considered that acquired goodwill had been impaired by $65,000.

Tax and Deferred Tax

Assume a tax rate of 30% wherever relevant (i.e., for both Phase 1 and Phase 2).

Financial statements

Income statement for year end 31 December & Balance sheet as at 31 December 2018



Pumpkin

Squash

Sales


(3,200,000)

(1,040,000)

Cost of goods sold


1,600,000

480,000

Operating expenses (incl. Interest & Impairment)


320,000

160,000

Operating profit


(1,280,000)

(400,000)

Other income (incl. Dividends and Interest)


(232,000)

(16,000)

Income Tax


480,000

160,000

Net Income


(1,032,000)

(256,000)





Opening Retained earnings


(1,440,000)

(320,000)



(2,472,000)

(576,000)

Dividends paid


800,000

144,000

Closing retained earnings


(1,672,000)

(432,000)





Share capital


(1,600,000)

(640,000)

Total equity


(3,272,000)

(1,072,000)





Accounts Payable


(800,000)

(360,000)

Non-current liabilities


(800,000)

(650,000)

Deferred tax


(760,000)

(30,000)

Total liabilities


(2,360,000)

(1,040,000)





Total liabilities and equity


(5,632,000)

(2,112,000)





Cash


80,000

96,000

Accounts Receivable


160,000

240,000

Inventory


160,000

240,000





Other investments


640,000


Investment in Squash (at Cost)


1400,000


Plant (net)


3,192,000

1,536,000

Total assets


5,632,000

2,112,000





Kind regards,

TA

------------------------------------------------------------------------------------------------------------------------

Required:

Prepare the consolidated group financial statements for Pumpkin and Squash as at 31 December 2018, using the “Phase 1” tab on the Excel template provided.

Step by Step Solution

3.54 Rating (147 Votes )

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Information Technology For Managers

Authors: George Reynolds

2nd Edition

1305482492, 1305389832, 9781305482494, 978-1305389830

More Books

Students also viewed these Accounting questions