Assume that you are a team of graduate accountants working for independent consulting & accounting firm, situated at 100 Castlereagh Street, Sydney, NSW 2000. The Manager of your firm, Ms Olivia Dawson, has asked you to prepare the Statement of advice in response to an email received from a client, Mr. Julia Farm, the Managing Director of Sun Ltd, raising several accounting issues.  

 

Email Information  

One of your clients has emailed your firm with several queries. Make sure you reference any relevant sources relating to your advice, for example, AASBs, Corporations Act, and relevant websites. See the email below.  

 

Re: Accounting Issues: Year Ending 30 June 2024  

Dear Olivia,  

As discussed, our chief accountant is currently on leave. I need to understand the following transactions and events to present to the Board regarding the financial impacts of our consolidated statements. 
 

The chief accountant left me a note, but I am unsure of the effect of the below transactions. Can you please provide me with a more detailed explanation just in case the board request further information? Please remember the Board of directors have varying degrees of accounting knowledge, so please limit the use of technical accounting terms.  

 

Issue 1  

As you are aware Sun Ltd purchased 100% of issued shares in Star Ltd on 1 July 2022 on a cum- dividend basis, and at that time, Sun Ltd paid total $300,000 cash. Start Ltd provided the following financial information on acquisition date.  

 

	Carrying amount	Fair Value
Inventory	45,000	50,000
Land	100,000	140,000
Goodwill	8,000	8,000
Dividend payable	18,000	18,000
Share capital	200,000	200,000
Retained earnings	40,000	40,000

 

 

Our accountant prepared an acquisition analysis and calculated goodwill of $60,000 (being $300,000 less the subsidiary's equity acquired of $240,000) to be reported in the accounts. Is this correct?  

What journal entries (if any) do I need to make for 30 June 2024?  

Please show all workings and explain each journal entry, as I need to be able to respond to questions from the Board of Directors.  

 

Issue 2 

In addition, we want some advice on transactions made between Sun Ltd and Start Ltd. Please see below.  

During May 2024, Sun Ltd sold inventories to Star Ltd for $130,000 cash, the original cost for the inventory was $95,000. Our accountant informed me that this transaction must be adjusted for consolidated statements but it depends on the amount of inventory remaining in Star Ltd.  

Can you explain what this means? Please provide any necessary journal entries to explain this.  

 

Issue 3 

31 December 2022, Sun Ltd sold old equipment to Star Ltd for $190,000. The equipment originally cost Sun Ltd $270,000, and carrying amount was $100,000 at the date of the sale. The remaining useful life of the equipment was five years on 31 December 2022.  

We believe this entry is no longer required as the transaction was made in previous financial year. Is this correct? If not, please explain what needs to be done with the transaction and show any journal entries necessary as at 30 June 2024.  

Please provide us a statement of advice with above issues as I would like to present this to the Board. I look forward to hearing from you shortly.