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BUS356 Semester 1, 2017 Group Assignment 25% Instructions: This assignment is to be completed in a pair of 2 students only. The assignment is made up of two independent questions and both are to be completed. It is to be typed in Word and a Murdoch Cover page is to be included. You may submit a maximum of 3 files only and 1 of those files should include your cover page. Please submit your assignment by the due date through the submission link on the LMS portal. No email submissions will be accepted and only 1 person should submit the assignment on the group behalf. If both members submit you will be penalised due to the high Urkund score. The submission is due by Sunday 4th June 2017, 5:00pm. Question 1 (12 marks) On 1 July 2015, WC Ltd acquired all the shares in SC Ltd for $400,000. The equity and liability sections of SC Ltd's balance sheet showed the following: Share capital (300,000 shares) General reserve Retained earnings Dividend payable $300,000 $60,000 $10,000 $5,000 At acquisition date, all the identifiable assets and liabilities of SC Ltd were recorded at amounts equal to fair value except for: Inventory Machinery (cost $200,000) Carrying amount $120,000 $150,000 Fair value $130,000 $165,000 In June 2017, a $4,000 dividend was declared by SC Ltd from post-acquisition profits to be paid in August 2017. The inventory was all sold by 30 June 2016. The machinery had a further five year life and is depreciated on a straight line basis. This machinery was sold on 1 January 2017. At the acquisition date, SC Ltd had a contingent liability of $20,000 that WC Ltd considered to have a fair value of $12,000. This liability was settled in full at its fair value in June 2017. Goodwill was not impaired in any period. In the year ending 30 June 2016, SC Ltd transferred $2,000 from pre-acquisition retained earnings to general reserve. In the year ending 30 June 2017, SC Ltd transferred $5,000 to retained earnings from the general reserve pre-acquisition. (Please turn over for the continued question) On 30 June 2017, the trial balances of WC Ltd and SC Ltd were as follows: Shares in SC Ltd Inventory Other current assets Machinery Land Income tax expenses Goodwill Interim dividend paid Dividend declared Share capital General reserve Retained earnings (30/06/2017) Profit before tax Debentures Dividend payable Other current liabilities Accumulated depreciation - Machinery WC Ltd $390 000 174 000 54 000 572 500 166 200 25 000 10 000 10 000 1 401 700 SC Ltd $160 000 25 000 412 000 65 000 30 000 5 000 5 000 4 000 706 000 $800 000 150 000 15 000 80 000 100 000 10 000 34 700 212 000 1 401 700 $330 000 57 000 15 000 90 000 40 000 4 000 60 000 110 000 706 000 Additional information: a) On 1 January 2017, SC Ltd sold inventory costing $15,000 to WC Ltd for $25,000. Half of this inventory was sold by WC Ltd to external parties and the other half of the inventory was still on hand at 30 June 2017. b) On 31 March 2017, WC Ltd sold machinery to SC Ltd for $6,000 which was $1,000 below its carrying amount at that date. SC Ltd charged depreciation at the rate of 20% per annum on this machinery. c) The tax rate is 30%. REQUIREMENTS: Prepare the consolidation worksheet journal entries for the year ended 30 June 2017. Include narrations and show any relevant workings also in the narrations. (12 marks) Question 2 (13 marks) On 1 July 2016, Sierra Ltd acquired 80% of the share capital of Sahara Ltd for $264 800. On that date, the statement of financial position of Sahara Ltd consisted of: Share capital General reserve Asset revaluation surplus Retained earnings Liabilities $250 000 10 000 15 000 10 000 180 000 $465 000 $ 35 000 70 000 65 000 300 000 (130 000) 100 000 25 000 $ 465 000 Cash Inventories Land Plant and equipment Accumulated depreciation - plant and equipment Trademark Goodwill At 1 July 2016, all identifiable assets and liabilities of Sahara Ltd were recorded at fair value except for: Inventories Land Plant and equipment (cost $200 000) Trademark Carrying amount $ 70 000 65 000 70 000 Fair value $ 80 000 85 000 90 000 100 000 110 000 During the year ended 30 June 2017, all inventories on hand at the beginning of the year were sold, and the land was sold on 28 February 2017 to Oasis Ltd for $80 000. The plant and equipment had a further 5-year life beyond 1 July 2016 and was expected to be used evenly over that time. The trademark was considered to have an indefinite life. Any adjustments for differences at acquisition date between carrying amounts and fair values are made in the consolidation worksheet. Sierra Ltd uses the partial goodwill method. The tax rate is assumed to be 30%. Financial information for Sierra Ltd and Sahara Ltd for the year ended 30 June 2017 is shown below. Sales revenue Other income Cost of sales Other expenses Profit from trading Gains/(losses) on sale of non-current Sierra Ltd Sahara Ltd $200 000 $172 000 75 000 30 000 275 000 202 000 162 000 128 000 53 000 31 000 215 000 159 000 60 000 43 000 10 000 5 000 assets Profit before tax Income tax expense Profit for the period Retained earnings (1/7/16) Transfer from general reserve Interim dividend paid Final dividend declared Retained earnings (30/6/17) Asset revaluation surplus (1/7/16) Gain on revaluation of specialised plant Asset revaluation surplus (30/6/17) 70 000 20 000 50 000 30 000 80 000 12 000 6 000 18 000 $ 62 000 48 000 18 000 30 000 10 000 8 000 48 000 10 000 4 000 14 000 $ 34 000 $ 15 000 5 000 $ 20 000 During the year ended 30 June 2017, Sahara Ltd sold inventories to Sierra Ltd for $8000. The original cost of these items to Sahara Ltd was $5000. One-third of these inventories were still on hand at the end of the year. On 31 March 2017, Sahara Ltd transferred an item of plant with a carrying amount of $10 000 to Sierra Ltd for $15 000. The item was still on hand at the end of the year. Sahara Ltd applied a 20% depreciation rate to this type of plant. Required: 1. Prepare the acquisition analysis and all consolidation worksheet entries (narrations not required) necessary for preparation of the consolidated financial statements for Sierra Ltd and its subsidiary for the year ended 30 June 2017. (10 marks) 2. Prepare the Statement of Changes in Shareholders Equity at 30 June 2017. (3 marks) QUESTION 1 Acquirer is WC Acquisition date 1st Jul 2015 Fair value of the acquire Assets acquired and liabilities assumed Carrying amount Fair value Inventory $120,000 $130,000 Machinery (cost $200,000) $150,000 $165,000 Contingent liability Share capital shares) General reserve $ 20,000 DR (300,000 $300,000 $ 12,000 CR $6,000 Retained earnings $10,000 Dividend payable $ 5,000 A.P.I.C(400000 - 375000) $ 25,000 Investment in SC $ 400,000 Non-controlling interests $ 111,000 Balance sheet adjustments to $106,000 FV Goodwill Calculations $ 5,000 Rate of depreciation = 1/5 100 Rate of depreciation = 20% Depreciation per annum = (200000 - 165000)20% Depreciation = 7000 Total assets at FV = 130,000 + 165,000 + 65,000 + 30,000 + 5000 + 4000 Total Assets FV = 399,000 Goodwill = 5000 Total LIABLITIES = 40,000 + 4,000 + 60,000 +110,000 + 7,000 + 12,000 = 221,000 Net Assets = 339,000 - 221,000 Net Assets = 106,000 QUESTION 2 Part 1) the acquisition analysis is given as below: Equity account Total amount Parent Company's Share (80%) Non Controlling Interest (20%) Capital 250,000 200,000 50,000 General Reserve 10,000 8,000 2,000 Asset Revaluation Surplus 15,000 12,000 3,000 Retained Earnings 10,000 8,000 2,000 Less Subsidiary Goodwill -25,000 -20,000 0 BCVR - Inventory 7,000 5,600 1,400 BCVR - Land 14,000 11,200 2,800 BCVR - Plant and Equipment 14,000 11,200 2,800 BCVR - Trade mark 7,000 5,600 1,400 Total Identifiable Net Assets 302,000 241,600 65,400 Less Consideration Paid 264,800 Goodwill 23,200 Goodwil Already Recognized 20,000 Goodwill to be Recognized (23,200 - 20,000) $3,200 _____ The journal entries are prepared as below: Date Account Titles Debit 30th June 2017 - Business Combination Valuation Entries at 30th June 2017 Cost of Sales $10,00 0 Income Tax Expense [(10,000*(1-30%)] Transfer from Business Combination Valuation Credit $3,000 $7,000 Reserve Carrying Amount of Land Sold $20,00 0 Income Tax Expense [(20,000*(1-30%)] $6,000 Transfer from Business Combination Valuation Reserve $14,00 0 Trademark $10,00 0 Deferred Tax Liability [(10,000*(1-30%)] $3,000 Business Combination Valuation Reserve $7,000 Accumulated Depreciation Plant and Equipment $130,0 00 Plant and Equipment $110,0 00 Deferred Tax Liability $6,000 Business Combination Valuation Reserve $14,00 0 Depreciation Expense - Plant and Equipment (20,000/5) $4,000 Accumulated Depreciation Plant and Equipment Deferred Tax Liability $4,000 $1,200 Income Tax Expense $1,200 ______ Date Account Titles Debit 30th June 2017 - Pre-acquisition Entry at 30th June 2017 Retained Earnings $8,000 Credit Share Capital $200,0 00 General Reserve $8,000 Asset Revaluation Surplus $12,00 0 Business Combination Valuation Reserve $33,60 0 Goodwill $3,200 $264,8 00 Shares in Squirrel Ltd Transfer from General Reserve (8,000*80%) $6,400 General Reserve Transfer from Business Combination Valuation Reserve $6,400 $5,600 Business Combination Valuation Reserve (for sale of inventory) Transfer from Business Combination Valuation Reserve $5,600 $11,20 0 Business Combination Valuation Reserve (for sale of land) $11,20 0 ______ Date Account Titles Debit NCI Share of Equity at 1 July 2016 Retained Earnings $2,000 Share Capital $50,00 0 General Reserve $2,000 Asset Revaluation Surplus $3,000 Business Combination Valuation $8,400 Credit Reserve $65,40 0 NCI ______ Date Account Titles Debit NCI Share of Equity at 1 July 2016 to 30th June 2017 NCI Share of Profit [20%*(30,000 - (10,000 30,000) - (20,000 - 6,000) - (4,000 - 1,200))] $1,2 40 Credi t $1,2 40 NCI Transfer from General Reserve $1,6 00 $1,6 00 General Reserve Transfer from Business Combination Valuation Reserve to Retained Earnings $4,2 00 Business Combination Valuation Reserve [20%*(70.000 + 14,000)] Gains/Losses: Asset Revluation Surplus (5,000*20%) $4,2 00 $1,0 00 $1,0 00 NCI $2,0 00 NCI $2,0 00 Interim Dividend Paid NCI $800 Final Dividend Paid $800 ______ Date Account Titles Debit Credit Elimination of Intra-Group Transactions e) Dividend Revenue $8,00 0 Interim Dividend Paid (10,000*80%) f) Dividend Payable $8,00 0 $3,20 0 $3,20 0 FInal Dividend Declared Dividend Revenue $3,20 0 $3,20 0 Dividend Receivable g) Sales $8,00 0 Cost of Goods Sold $7,00 0 Inventory $1,00 0 Deferred Tax Asset $300 Income Tax Expense h) NCI (700*20%) $300 $140 NCI Share of Profit i) Gain on Sale of Plant $140 $5,00 0 $5,00 0 Inventory Deferred Tax Asset Income Tax Expense $1,50 0 $1,50 0 j) NCI [20*(5,000 - 3,500)] $140 NCI Share of Profit $140 Part- 2) Consolidation Worksheet: particulars Parent Subsidia Consolid ry ate Sales Revenue 200000 172000 37200 0 Other Income 75000 30000 10500 0 275000 202000 47700 0 Cost Of sales 162000 128000 29000 0 Other Expenses 53000 31000 84000 215000 159000 37400 0 Profit from Trading 60000 43000 10300 0 Gain/Loss on sale of Non current asset 10000 5000 15000 Profit Before Tax 70000 48000 11800 0 Income Tax 20000 18000 38000 Profit for the Period 50000 30000 80000 QUESTION 1 Acquirer is WC Acquisition date 1st Jul 2015 Fair value of the acquire Assets acquired and liabilities assumed Carrying amount Fair value Inventory $120,000 $130,000 Machinery (cost $200,000) $150,000 $165,000 Contingent liability Share capital shares) General reserve $ 20,000 DR (300,000 $300,000 $ 12,000 CR $6,000 Retained earnings $10,000 Dividend payable $ 5,000 A.P.I.C(400000 - 375000) $ 25,000 Investment in SC $ 400,000 Non-controlling interests $ 111,000 Balance sheet adjustments to $106,000 FV Goodwill Calculations $ 5,000 Rate of depreciation = 1/5 100 Rate of depreciation = 20% Depreciation per annum = (200000 - 165000)20% Depreciation = 7000 Total assets at FV = 130,000 + 165,000 + 65,000 + 30,000 + 5000 + 4000 Total Assets FV = 399,000 Goodwill = 5000 Total LIABLITIES = 40,000 + 4,000 + 60,000 +110,000 + 7,000 + 12,000 = 221,000 Net Assets = 339,000 - 221,000 Net Assets = 106,000 QUESTION 2 Part 1) the acquisition analysis is given as below: Equity account Total amount Parent Company's Share (80%) Non Controlling Interest (20%) Capital 250,000 200,000 50,000 General Reserve 10,000 8,000 2,000 Asset Revaluation Surplus 15,000 12,000 3,000 Retained Earnings 10,000 8,000 2,000 Less Subsidiary Goodwill -25,000 -20,000 0 BCVR - Inventory 7,000 5,600 1,400 BCVR - Land 14,000 11,200 2,800 BCVR - Plant and Equipment 14,000 11,200 2,800 BCVR - Trade mark 7,000 5,600 1,400 Total Identifiable Net Assets 302,000 241,600 65,400 Less Consideration Paid 264,800 Goodwill 23,200 Goodwil Already Recognized 20,000 Goodwill to be Recognized (23,200 - 20,000) $3,200 _____ The journal entries are prepared as below: Date Account Titles Debit 30th June 2017 - Business Combination Valuation Entries at 30th June 2017 Cost of Sales $10,00 0 Income Tax Expense [(10,000*(1-30%)] Transfer from Business Combination Valuation Credit $3,000 $7,000 Reserve Carrying Amount of Land Sold $20,00 0 Income Tax Expense [(20,000*(1-30%)] $6,000 Transfer from Business Combination Valuation Reserve $14,00 0 Trademark $10,00 0 Deferred Tax Liability [(10,000*(1-30%)] $3,000 Business Combination Valuation Reserve $7,000 Accumulated Depreciation Plant and Equipment $130,0 00 Plant and Equipment $110,0 00 Deferred Tax Liability $6,000 Business Combination Valuation Reserve $14,00 0 Depreciation Expense - Plant and Equipment (20,000/5) $4,000 Accumulated Depreciation Plant and Equipment Deferred Tax Liability $4,000 $1,200 Income Tax Expense $1,200 ______ Date Account Titles Debit 30th June 2017 - Pre-acquisition Entry at 30th June 2017 Retained Earnings $8,000 Credit Share Capital $200,0 00 General Reserve $8,000 Asset Revaluation Surplus $12,00 0 Business Combination Valuation Reserve $33,60 0 Goodwill $3,200 $264,8 00 Shares in Squirrel Ltd Transfer from General Reserve (8,000*80%) $6,400 General Reserve Transfer from Business Combination Valuation Reserve $6,400 $5,600 Business Combination Valuation Reserve (for sale of inventory) Transfer from Business Combination Valuation Reserve $5,600 $11,20 0 Business Combination Valuation Reserve (for sale of land) $11,20 0 ______ Date Account Titles Debit NCI Share of Equity at 1 July 2016 Retained Earnings $2,000 Share Capital $50,00 0 General Reserve $2,000 Asset Revaluation Surplus $3,000 Business Combination Valuation $8,400 Credit Reserve $65,40 0 NCI ______ Date Account Titles Debit NCI Share of Equity at 1 July 2016 to 30th June 2017 NCI Share of Profit [20%*(30,000 - (10,000 30,000) - (20,000 - 6,000) - (4,000 - 1,200))] $1,2 40 Credi t $1,2 40 NCI Transfer from General Reserve $1,6 00 $1,6 00 General Reserve Transfer from Business Combination Valuation Reserve to Retained Earnings $4,2 00 Business Combination Valuation Reserve [20%*(70.000 + 14,000)] Gains/Losses: Asset Revluation Surplus (5,000*20%) $4,2 00 $1,0 00 $1,0 00 NCI $2,0 00 NCI $2,0 00 Interim Dividend Paid NCI $800 Final Dividend Paid $800 ______ Date Account Titles Debit Credit Elimination of Intra-Group Transactions e) Dividend Revenue $8,00 0 Interim Dividend Paid (10,000*80%) f) Dividend Payable $8,00 0 $3,20 0 $3,20 0 FInal Dividend Declared Dividend Revenue $3,20 0 $3,20 0 Dividend Receivable g) Sales $8,00 0 Cost of Goods Sold $7,00 0 Inventory $1,00 0 Deferred Tax Asset $300 Income Tax Expense h) NCI (700*20%) $300 $140 NCI Share of Profit i) Gain on Sale of Plant $140 $5,00 0 $5,00 0 Inventory Deferred Tax Asset Income Tax Expense $1,50 0 $1,50 0 j) NCI [20*(5,000 - 3,500)] $140 NCI Share of Profit $140 Part- 2) Consolidation Worksheet: particulars Parent Subsidia Consolid ry ate Sales Revenue 200000 172000 37200 0 Other Income 75000 30000 10500 0 275000 202000 47700 0 Cost Of sales 162000 128000 29000 0 Other Expenses 53000 31000 84000 215000 159000 37400 0 Profit from Trading 60000 43000 10300 0 Gain/Loss on sale of Non current asset 10000 5000 15000 Profit Before Tax 70000 48000 11800 0 Income Tax 20000 18000 38000 Profit for the Period 50000 30000 80000