Could you give me the answer of the question 1? thanks!

Topic 5 Examples to be done in lectures document QUESTION 1 - Black and White Summary financial statements extracted from the account balances of Black Ltd and its subsidiary White Ltd at 30 June 2002 are listed below: Sales Opening inventory Purchases Closing inventory Cost of goods sold Gross profit Dividend income Management and administration fee income Black Ltd 963,400 29,700 717,938 42,400 705,238 White Ltd 742,200 43,200 504,285 27,800 519,685 258,162 22,500 21,500 302,162 208,362 93,800 30,954 62,846 40,000 22,846 222,515 __ 222,515 148,515 74,000 24,420 49,580 30,000 19,580 Paid -in capital Asset revaluation reserve Retained earnings Liabilities 270,000 67,170 56,624 393,794 150,000 50,000 102,780 146,996 449,776 Current assets Non current assets Investment in White Ltd 67,297 154,677 171,820 393794 77,175 372,601 ______ 449,776 Expenses Surplus before tax Taxation Surplus after taxation Dividends paid Profit retained for year Additional information (i) On 1 July 1996, Black Ltd acquired 75% of White Ltd. At that date the equity of White Ltd comprised: Paid-in capital $150,000 Retained earnings $ 36,760 Asset revaluation reserve $ 29,000 At the date of acquisition, all assets were considered to be fairly valued. The directors have decided to measure the NCI at FV. (ii) Included in White's expenses is an amount of $21,500 paid to Black Ltd for providing management and administrative services for the year. CONTINUED Topic 5 Examples to be done in lectures document (iii) (iv) During the year, White Ltd made sales to Black Ltd amounting to $84,500. White Ltd had always sold goods to Black Ltd at a mark-up of 25% on cost. Black Ltd sold the purchased inventory during the year. Any goodwill on acquisition is amortised on a straight-line basis over ten years. (v) Of the inventory Black had on hand at 30 June 2001, $12,600 had been purchased from White Ltd; it had cost White $10,080. Required (a) Prepare the notional journal entries that are necessary to prepare consolidated group accounts. NOTE: Bring a copy of Worksheet 6 to use in the lecture. (b) 'Post' the notional journal entries prepared in (a) to the consolidated worksheet attached and complete the worksheet. The consolidated worksheet attached has been adjusted. (c) Explain why the effects of all transactions between the entities in a group must be eliminated. Accounting 211 Semester 1 2011 Page 2 Topic 5 Examples to be done in lectures document Consolidation Worksheet as at 30 June 2002 Accounting 211 Semester 1 2011 Page 3 Topic 5 Examples to be done in lectures document Black Ltd $ 963,400 705,238 White Ltd $ 742,200 519,685 Expenses Surplus before tax Taxation Surplus after tax Retained profits b/f 258,162 22,500 21,500 302,162 208,362 93,800 30,954 62,846 44,324 222,515 222,515 148,515 74,000 24,420 49,580 83,200 Dividends declared 40,000 30,000 67,170 270,000 102,780 150,000 50,000 337,170 56,624 $393,794 302,780 146,996 $449,776 67,297 154,677 77,175 372,601 171,820 $393,794 $449,776 Sales COGS Gross profit Dividend income Management and admin fee income Balance Sheet Equity: Retained earnings Share capital ARS Total equity Liabilities Total equity and liabilities Current assets Noncurrent assets Investment in White Ltd Total assets Notional Adjustments Dr Cr QUESTION 2 - Little and Grow The following financial information of Little Ltd has been extracted from its financial records at 31 March 2005. $ Equity and liabilities Paid in capital Accounting 211 Semester 1 2011 $ 190,000 Page 4 Group $ +adj $685, $685, Topic 5 Examples to be done in lectures document Retained earnings -brought forward Profit after taxation Dividends Asset revaluation reserve Liabilities 150,000 40,000 (30,000) Assets Cash at bank Accounts receivable Inventory Investments Property, plant and equipment 160,000 50,000 110,600 $510,600 2,600 18,000 24,000 98,000 368,000 $510,600 Additional information: The directors had decided that any acquired goodwill is to be amortised on a straight-line basis over six years. At the end of the 31 March 2004 financial year Little Ltd had made sales to Grow Ltd amounting to $40,000. The inventory sold had cost Little Ltd $30,000. Grow Ltd sold none of this purchase in the year ended 31 March 2004. At the end of the 31 March 2005 financial year Little Ltd had made sales to Grow Ltd amounting to $20,000. The inventory sold had cost Little Ltd $15,000. This purchase was included in Grow Ltd's inventory held at 31 March 2005. Last year Grow Ltd had made sales to Little Ltd amounting to $25,000. The inventory had cost Grow Ltd $20,000. Little Ltd's inventory as at 31 March 2004 held none of this purchase. Inventory of Grow Ltd held at 1 April 2004 included $1,000 that had been purchased from Little Ltd and inventory of Grow Ltd held at 31 March 2005 included $8,000 that had been purchased from Little Ltd. Inventory of Little Ltd held at 1 April 2004 included $5,000 that had been purchased from Grow Ltd. QUESTION 2 continued Part A: Assume that Grow Ltd acquired 40% of the issued capital of Little Ltd on the 1 April 1998 and Grow Ltd paid a cash sum of $100,000 for the acquisition. All assets were considered to be fairly valued at the date of acquisition. Accounting 211 Semester 1 2011 Page 5 Topic 5 Examples to be done in lectures document On 1 April 1998 the equity of Little Ltd comprised the following: Paid in capital Retained earnings $190,000 $45,000 Required: Prepare the notional journal entry for Grow Ltd for the year ended 31 March 2005 to account for its investment in Little Ltd. Part B: Assume that Grow Ltd acquired 80% of the issued capital of Little Ltd on the 1 April 2000 and Grow Ltd paid a cash sum of $264,000 for the acquisition. All assets were considered to be fairly valued at the date of acquisition. On 1 April 2000 the equity of Little Ltd comprised the following: Paid in capital Retained earnings Asset revaluation reserve $190,000 $90,000 $20,000 The directors decided to measure the NCI @ fair value. Required: Prepare the notional journal entries required to consolidate the financial statements of Grow Ltd and Little Ltd for the year ended 31 March 2005. NOTE: Bring a Worksheet 6 to use in the lecture. Part C: (a) Calculate the amount at which the 'Investment in Little Ltd' asset would be reported at in the relevant financial statements as at 31 March 2005 for both Part A and Part B of this question. Explain your answer. (b) Calculate the amount at which 'Dividend Income-Little Ltd' would be reported at in the relevant financial statements as at 31 March 2005 for both Part A and Part B of this question. Explain your answer. (c) Explain why adjustments in the form of notional journal entries are necessary when preparing financial statements for a group. Accounting 211 Semester 1 2011 Page 6 Topic 5 Examples to be done in lectures document QUESTION 3 - Investor and Investee Investor Ltd acquired a 40% interest in Investee Ltd on the 31 March 2003 when the equity of Investee Ltd was: Share capital Retained profits b/f Profit after tax (for the nine month period) Asset revaluation surplus $200,000 450,000 65,000 45,000 Investor Ltd paid a cash sum of $300,000 for the 40% interest in Investee Ltd and incurred legal fees of $10,000 in relation to the acquisition. Investor Ltd has the power to participate in the financial and operating policy decisions of Investee Ltd but does not have control over those policies. As at the 30 June 2008 the equity balances of Investee Ltd were: Share capital Retained profits b/f Profit after tax Asset revaluation surplus Dividend paid $200,000 650,000 78,000 55,000 10,000 During the year ended 30 June 2007 Investee Ltd sold inventory to Investor Ltd resulting in a profit of $900 to Investee Ltd. The purchase remained in Investor Ltd's closing inventory as at 30 June 2007. During the year ended 30 June 2008 Investee Ltd sold inventory to Investor Ltd resulting in a profit of $750 to Investee Ltd. Investor Ltd sold this inventory to XYZ Ltd on the 25 May 2008 resulting in a profit of $250 to Investor Ltd. Required: (a) Explain briefly the equity method of accounting. (b) Prepare the necessary notional journal entry to equity account Investor Ltd's interest in Investee Ltd as at 30 June 2008. (c) Calculate the final amount at which the investment in Investee Ltd would be shown at in the consolidation worksheet prepared by Investor Ltd as at 30 June 2008. Accounting 211 Semester 1 2011 Page 7 Topic 5 Examples to be done in lectures document QUESTION 4 - Greater and Lesser Greater Ltd acquired 100 percent of the issued capital of Lesser Ltd on April 1 2006. Lesser Ltd's equity at the date of acquisition was; Contributed equity Retained earnings Total equity 2,500 1,500 4,000 At the date of acquisition Lesser Ltd had: unrecorded internally generated intangibles with a fair value of $400 contingent liabilities of $90 The summarised financial statements of the two companies at 31 March 2007 are included in the attached worksheet. Note: The directors believe that the goodwill arising on consolidation has been impaired by 20% at 31 March 2007. Adjustments for intangible and contingencies should be made on consolidation. Required Fill out the attached worksheet. NOTE: Bring a Worksheet 6 to use in the lecture. Accounting 211 Semester 1 2011 Page 8 Topic 5 Examples to be done in lectures document Consolidation Worksheet for Question 4 Adjustments Greater Ltd Lesser Ltd Income statement Revenues $ 1,700 $ 1,200 Less expenses Profit before tax Less taxation Profit after tax Opening retained earnings 1,200 500 125 375 4,000 4,375 175 700 500 200 300 1,500 1,800 250 4,200 1,550 1,250 5,450 2,500 4,050 2,500 175 500 250 8,125 4,800 150 100 250 500 2,125 5,000 350 650 800 3,000 8,125 4,800 Less: dividends paid Balance Sheet Equity Retained earnings Contributed capital Liabilities Accounts payable Short & long term debt Assets Cash Accounts receivable Loan to Lesser Ltd Inventory Plant and equipment Investment in Lesser Ltd QUESTION 5 - Accounting for Associates Accounting 211 Semester 1 2011 Page 9 Dr $ Cr $ Consolidated Statement i.e. Group $ Topic 5 Examples to be done in lectures document On 1 July 2000, Andy Ltd acquired a 30% interest in one of its suppliers, Capp Ltd, at a cost of $13,650. The directors of Andy Ltd believe they exert 'significant influence' over Capp Ltd. The shareholder's equity of Capp Ltd at acquisition date was: Share capital $20,000 Retained profits $10,000 All the identifiable net assets of Capp Ltd at 1 July 2000 were recorded at fair values. Goodwill, if acquired, is to be amortised evenly over a 10-year period. N/A Additional information: (i) At 30 June 2002, Andy Ltd had inventory costing $100,000 (2001-$60,000) on hand that had been purchased from Capp Ltd. The unrealized profit in Capp Ltd in relation to the inventory held by Andy Ltd as at 30 June was $30,000 (2001$10,000). (ii) The summarized profit details of Capp Ltd as at 30 June 2002 are: Profit before tax $360,000 Income tax expense 180,000 Profit after tax 180,000 Retained profits at 1/7/01 50,000 230,000 Dividends paid 100,000 Retained profits at 30/6/02 130,000 (iii) The dividends paid may be assumed to be out of the profit for the current year. (iv) The shareholder's equity of Capp Ltd at 30 June 2002 was: Share capital $20,000 Asset revaluation reserve 30,000 Retained profits 130,000 The asset revaluation reserve arose from a revaluation of freehold land made at 30 June 2002. Required: Prepare the necessary notional journal entry to equity account Andy Ltd's interest in Capp Ltd. Calculate the final amount at which the investment in the associate would be shown in the worksheet prepared by Andy Ltd as at 30 June 2002. Accounting 211 Semester 1 2011 Page 10