260 The financial position statements of GUAVA-7 Ltd and Son Ltd at Mar. 31, 2021 are as follows: GUAVA-7 Ltd Son Ltd $000 $000 $000 $000 ASSETS Non-current assets Cost 5,000 3,400 Accumulated depreciation 1,340 870 3,660 2,530 12% debentures in Son Ltd 330 Investment in Son Ltd 870,000 ordinary shares 1,200 220,000 preference shares 1,460 5,450 Current assets Inventory 600 Accounts receivable 171 301 Current account with Son Ltd 590 Cash 130 140 1,171 1,041 Current liabilities Accounts payable 61 140 Debenture interest payable Interim dividend payable - ordinary 101 200 - preference Tax payable 50 Current account with GUAVA-7Ltd 100 212 662 959 379 6,409 2,909 12% debentures (742) Total Net assets 6,409 2,167 62 70 90 5,100 EQUITY Share capital Ordinary shares (1,600,000 issued shares) 9% preference shares (422,000 issued shares) Retained earnings Total equity 1,600 422 145 2,167 1,309 6,409 March 31, 2021. The following information is also available: March 31, 2018 (vii) During the year ended March 31, 2021, GUAVA-7 Ltd sold goods, which cost $200,000, to Son Ltd for $300,000. At March 31, 2021, Son Ltd still had 40% of this inventory in hand. ) GUAVA-7 Ltd acquired the ordinary and preference shares in Son Ltd on March 31, 2018 when the retained earnings of Son Ltd were $ 100,000 At March 31, 2018, all identifiable assets and liabilities of Son Ltd were recorded at amounts equal to fair value, except for: Carrying amount Fair value Inventory $ 280,000 340,000 Machinery (cost $ 1400,000) $ 600,000 $ 650,000 (viii) GUAVA-7 Ltd has also not recorded the interim dividends receivable from Son Ltd for the year ended March 31, 2021. (ix) On March 31, 2021, Son Ltd sent a cheque to GUAVA-7 Ltd for $10,000. This was not received by GUAVA-7 Ltd until April 2, 2021. The machinery had a further 10 year life. The inventory remained at March 31, 2021 (x) GUAVA-7 Ltd proposed a final ordinary dividend of 8 cents per share on March 31, 2021. (xi) Assume Son Ltd followed the policy of GUAVA-7 Ltd on change of useful life in machinery REQUIRED (iii) On March 31, 2018, Momo Ltd one of Son Ltd's major customers took a legal action against it for faulty products. Legal proceedings have been started seeking damages from Son Ltd but it disputes liability. Up to the balance sheet date, the Son Ltd's legal advices received were that it is probable that Son Ltd would be found liable. But they have also advised that it is almost impossible to estimate the amount of damages the court might award against Son Ltd or how long it might take to exhaust all the legal avenues before a final court decision is reached in this case. Son Ltd had not raised a liability in relation to the legal sue. Being prudent, GUAVA-7 Ltd valued the contingent liability at $60,000. On May 1, 2019 Momo Ltd dropped the legal case against Son Ltd for lack of evidence. (iv) Son Ltd had also invented special equipment and patented the process. No asset was raised by Son Ltd but GUAVA-7 Ltd valued the patent at $120,000, with an expected life of 10 years. 1) Prepare schedules and worksheet (copy and paste from your excel .xsl file into the document.doc file) for: a) the relevant adjustment journals in the books of two companies b) the relevant consolidation adjustment journals c) non-controlling interests on acquisition date and reporting date 2) Prepare the consolidated statement of financial position of GUAVA-7 Ltd for the year ended March 31, 2021. 3) Fill in the following table the amount of listed items: March 31, 2020 S000 (v) $30,000 of the goodwill on ordinary share capital of Son Ltd was written off as the result of an impairment test on March 31, 2020. April 1, 2020 (vi) On April 1, 2020, Son Ltd sold plant, with a cost of $800,000 and accumulated depreciation of $80,000, to GUAVA-7 Ltd for $1300,000. GUAVA-7 Ltd charges depreciation at the rate of 10% per annum on cost. On acquisition date March 31, 2018 Goodwill on consolidation Non-controlling interests On reporting date March 31, 2021 Goodwill on consolidation Non-controlling interests Consolidated Retained Earnings Consolidated Net Asset (vii) The debentures were issued by Son Ltd on April 1, 2020, and are redeemable on March 31, 2022. The debenture interests are payable half yearly. GUAVA-7 Ltd had acquired a holding of these debentures worth a nominal value of $371,000 on the same day. Besides, GUAVA-7 Ltd has not recorded the debenture interest receivable as at March 31, 2021 4) For situation (iii), ignore GUAVA-7 Ltd's accounting policy, you are to separately assess the situation where Momo Ltd had not dropped the legal case against Son Ltd on May 1, 2019. Explain whether a provision should be recognised, a contingent liability should be disclosed, or nothing should be accounted for. Also, you are required show journal entries where a provision is required, or to prepare a note to the financial statements for disclosure. 260 The financial position statements of GUAVA-7 Ltd and Son Ltd at Mar. 31, 2021 are as follows: GUAVA-7 Ltd Son Ltd $000 $000 $000 $000 ASSETS Non-current assets Cost 5,000 3,400 Accumulated depreciation 1,340 870 3,660 2,530 12% debentures in Son Ltd 330 Investment in Son Ltd 870,000 ordinary shares 1,200 220,000 preference shares 1,460 5,450 Current assets Inventory 600 Accounts receivable 171 301 Current account with Son Ltd 590 Cash 130 140 1,171 1,041 Current liabilities Accounts payable 61 140 Debenture interest payable Interim dividend payable - ordinary 101 200 - preference Tax payable 50 Current account with GUAVA-7Ltd 100 212 662 959 379 6,409 2,909 12% debentures (742) Total Net assets 6,409 2,167 62 70 90 5,100 EQUITY Share capital Ordinary shares (1,600,000 issued shares) 9% preference shares (422,000 issued shares) Retained earnings Total equity 1,600 422 145 2,167 1,309 6,409 March 31, 2021. The following information is also available: March 31, 2018 (vii) During the year ended March 31, 2021, GUAVA-7 Ltd sold goods, which cost $200,000, to Son Ltd for $300,000. At March 31, 2021, Son Ltd still had 40% of this inventory in hand. ) GUAVA-7 Ltd acquired the ordinary and preference shares in Son Ltd on March 31, 2018 when the retained earnings of Son Ltd were $ 100,000 At March 31, 2018, all identifiable assets and liabilities of Son Ltd were recorded at amounts equal to fair value, except for: Carrying amount Fair value Inventory $ 280,000 340,000 Machinery (cost $ 1400,000) $ 600,000 $ 650,000 (viii) GUAVA-7 Ltd has also not recorded the interim dividends receivable from Son Ltd for the year ended March 31, 2021. (ix) On March 31, 2021, Son Ltd sent a cheque to GUAVA-7 Ltd for $10,000. This was not received by GUAVA-7 Ltd until April 2, 2021. The machinery had a further 10 year life. The inventory remained at March 31, 2021 (x) GUAVA-7 Ltd proposed a final ordinary dividend of 8 cents per share on March 31, 2021. (xi) Assume Son Ltd followed the policy of GUAVA-7 Ltd on change of useful life in machinery REQUIRED (iii) On March 31, 2018, Momo Ltd one of Son Ltd's major customers took a legal action against it for faulty products. Legal proceedings have been started seeking damages from Son Ltd but it disputes liability. Up to the balance sheet date, the Son Ltd's legal advices received were that it is probable that Son Ltd would be found liable. But they have also advised that it is almost impossible to estimate the amount of damages the court might award against Son Ltd or how long it might take to exhaust all the legal avenues before a final court decision is reached in this case. Son Ltd had not raised a liability in relation to the legal sue. Being prudent, GUAVA-7 Ltd valued the contingent liability at $60,000. On May 1, 2019 Momo Ltd dropped the legal case against Son Ltd for lack of evidence. (iv) Son Ltd had also invented special equipment and patented the process. No asset was raised by Son Ltd but GUAVA-7 Ltd valued the patent at $120,000, with an expected life of 10 years. 1) Prepare schedules and worksheet (copy and paste from your excel .xsl file into the document.doc file) for: a) the relevant adjustment journals in the books of two companies b) the relevant consolidation adjustment journals c) non-controlling interests on acquisition date and reporting date 2) Prepare the consolidated statement of financial position of GUAVA-7 Ltd for the year ended March 31, 2021. 3) Fill in the following table the amount of listed items: March 31, 2020 S000 (v) $30,000 of the goodwill on ordinary share capital of Son Ltd was written off as the result of an impairment test on March 31, 2020. April 1, 2020 (vi) On April 1, 2020, Son Ltd sold plant, with a cost of $800,000 and accumulated depreciation of $80,000, to GUAVA-7 Ltd for $1300,000. GUAVA-7 Ltd charges depreciation at the rate of 10% per annum on cost. On acquisition date March 31, 2018 Goodwill on consolidation Non-controlling interests On reporting date March 31, 2021 Goodwill on consolidation Non-controlling interests Consolidated Retained Earnings Consolidated Net Asset (vii) The debentures were issued by Son Ltd on April 1, 2020, and are redeemable on March 31, 2022. The debenture interests are payable half yearly. GUAVA-7 Ltd had acquired a holding of these debentures worth a nominal value of $371,000 on the same day. Besides, GUAVA-7 Ltd has not recorded the debenture interest receivable as at March 31, 2021 4) For situation (iii), ignore GUAVA-7 Ltd's accounting policy, you are to separately assess the situation where Momo Ltd had not dropped the legal case against Son Ltd on May 1, 2019. Explain whether a provision should be recognised, a contingent liability should be disclosed, or nothing should be accounted for. Also, you are required show journal entries where a provision is required, or to prepare a note to the financial statements for disclosure