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For question 18.10, is there anyone to help?

ACCG 926 Self Study Solutions- Topic 4 MACQUARIE UNIVERSITY MASTER OF ACCOUNTING (Professional) ACCG926 CORPORATE ACCOUNTING TOPIC 4 SELF STUDY SOLUTIONS Page 1 of 31 ACCG 926 Self Study Solutions- Topic 4 5. How does the existence of an NCI affect the pre-acquisition entries? The pre-acquisition entry eliminates the investment account recorded by the parent and the pre-acquisition equity of the subsidiary, as well as recognising any gain on bargain purchase. The consideration transferred reflects the amount paid by the parent for its share of the equity of the subsidiary. The first effect then on the pre-acquisition entry is that the equity eliminated is only the parent's share. The second effect is that the gain on bargain purchase recognised is only that relating to the parent's share of the equity of the subsidiary. 8. Explain whether an NCI adjustment needs to be made for all intragroup transactions. An NCI adjustment does NOT need to be made for all intragroup transactions. An NCI adjustment only needs to be made where the adjustment is for unrealised profit recorded by the subsidiary. Hence the transaction must be an upstream - subsidiary to parent - transaction in order for an NCI adjustment to be made. Further the upstream transaction must relate to unrealised subsidiary profit Page 2 of 31 ACCG 926 Self Study Solutions- Topic 4 CASE STUDY QUESTIONS Case Study 1: WALLABY TRUCKS LTD 1. Prime users: There is nothing in either AASB 101 or AASB 10 that indicates who the prime users of the consolidated financial statements are. In the Statement of Profit and Loss and Other Comprehensive Income there is no preference given to the parent over the NCI, although in the balance sheet, the NCI is limited to a one-line disclosure. The Framework also gives no preference to either the parent or the NCI. 2. NCI as equity or liability: The main argument for the NCI being classified as equity is that it better fits the definition of equity. The subsidiary has no present obligation in relation to the NCI so the NCI does not meet the definition of a liability. Some people argue that the NCI should be disclosed separately from equity and liabilities -. This argument relates to the utility of financial statements in relation to the user group, the parent shareholders. It is argued that this form of presentation provides more relevant information to the parent shareholders. 3. Disclosure requirements: Statement of Profit or Loss and Other Comprehensive Income-AASB 101 para 83: Disclose both NCI and parent share of profit/loss for the period AND share of total comprehensive income for the period Statement of Financial PositionAASB 101 para 54 (q) and (r): NCI share of equity, and share capital and reserves attributable to parent Statement of Changes in EquityAASB 101 para 106 (a): total comprehensive income for the period, showing that attributable to the parent and that attributable to the NCI. If the NCI were classified as debt, any dividends would be disclosed as an expense, while the NCI would not receive a share of profit. In the statement of financial position the NCI would be shown under liabilities, while in the statement of changes in equity there would be no NCI information. Page 3 of 31 ACCG 926 Self Study Solutions- Topic 4 Case Study 2: WHALE SUBMARINE WORKS LTD 1. The need to adjust for the NCI share of equity in relation to intragroup transactions: If the NCI is classified as equity, it is entitled to consolidated equity. Note that consolidated equity is basically subsidiary equity adjusted for the effects of intragroup transactions - that is, realised subsidiary equity. If it were classified as a liability of the subsidiary then the calculation of the NCI would be based on the obligation held by the subsidiary. 2. Vehicles & services: Profit is realised when the group transacts with an entity external to the group.The point of realisation depends then on identifying when the external entity is involved. With inventory (and other sales) transactions the point of realisation is easily identified as it is the point of sale when the external entity is involved. It is at this point that the group recognises profit on sale, being the excess of the sale proceeds over the cost to the group of the item being sold. With assets used by the group such as depreciable assets, the group does not interact with an external entity. It is then impossible to determine a point of realisation based on direct involvement of the group with an external entity. The point of realisation is then based on indirect involvement. The depreciable asset is used by the group to assist in its interaction with external entities eg by making inventories for sale to external entities. The depreciation charge measures the extent of that involvement in any one year as the depreciation charge is based on para 60 of AASB 116 which notes that the depreciation charge reflects the pattern of benefits consumed by the entity. Realisation of profit then occurs as the asset is used up or consumed by the entity. Realisation is then achieved in proportion to the depreciation charge made on the asset. With transactions such as services, the subsidiary records revenue, which increases subsidiary profit. This profit is not recognised by the group. However, no adjustment is made to the NCI share of equity as a result of this transaction. This is because of the difficulty of determining a point of realisation as no external entity is ever involved in this transaction. Page 4 of 31 ACCG 926 Self Study Solutions- Topic 4 Case Study 3: FROG LTD - KOVROV LTD The 3 steps are: 1. Share of equity at acquisition date. 2. Share of the change in equity between the acquisition date and the beginning of the current period. 3. Share of change in equity in the current period. In preparing the consolidated financial statements at, say, 30 June 2008, the consolidation worksheet prepared at 30 June 2007 will contain Steps 1 and 2 for the 2008 worksheet: - Step 1 journal entry never changes - Step 2 for 2008 is the combination of Steps 2 and 3 for 2007. Hence in 2008, the only new calculations relate to Step 3, namely the share of changes in equity for the 2007-08 period. Page 5 of 31 ACCG 926 Self Study Solutions- Topic 4 QUESTION 18.6 Consolidation worksheet entries, dividends, equity transfers Required Prepare the worksheet entries for the preparation of the consolidated financial statements of Crocodile Ltd and its subsidiary, Turtle Ltd at 30 June 2013. CROCODILE LTD - TURTLE LTD 80% Crocodile Ltd Turtle Ltd Crocodile Ltd 80% NCI 20% At 1 July 2010: Net fair value of identifiable assets, liabilities and contingent liabilities of Turtle Ltd = Net fair value acquired Consideration transferred Goodwill acquired Unrecorded goodwill acquired = = = = = = = = ($100 000 +$40 000 + $50 000) (equity) + $20 000 (1 - 30%) (land) + $5 000 (1 - 30%) (plant) + $50 000 (1 - 30%) (patent) - $5 000 (goodwill) $237 500 80% x $237 500 $190 000 $202 000 - (80% x $5 000) (dividend receviable) $198 000 $8 000 $8 000 - (80% x $5 000) $4 000 A. CONSOLIDATION WORKSHEET ENTRIES 1. Business combination valuation entries At 30 June 2013: Land Deferred Tax Liability Business Combination Valuation Reserve One Line Method Depreciation Expense Cost of Plant Sold Income Tax Expense Retained Earnings (1/7/12) Transfer from BCVR Page 6 of 31 Dr Cr Cr 20 000 Dr Dr Cr Dr Cr 500 2 500 6 000 14 000 900 1 400 3 500 ACCG 926 Self Study Solutions- Topic 4 Or Line by Line Method Accumulated Depreciation Plant Deferred Tax Liability Business Combination Valuation Reserve Dr Cr Cr Cr 20 000 Retained Earnings (1/7/12) Depreciation Accumulated Depreciation Dr Dr Cr 2 000 500 DTL Retained Earnings (1/7/12) Income Tax Expense Dr Cr Cr 750 Plant Carrying Value of Plant sold ( or gain on sale) Accumulated Depreciation Dr Dr Cr 15 000 2 500 DTL Income Tax Expense Dr Cr 750 BCVR Transfer from BVCR Dr Cr 3 500 15 000 1 500 3 500 2 500 600 150 17 500 750 3 500 Accumulated Depreciation -Fittings Fittings Dr Cr 20 000 Patent Deferred Tax Liability Business Combination Valuation Reserve Dr Cr Cr 50 000 Page 7 of 31 20 000 15 000 35 000 ACCG 926 Self Study Solutions- Topic 4 2. Pre-acquisition entries Retained Earnings (1/7/12)* Share Capital General Reserve Business Combination Valuation Reserve Goodwill Shares in Turtle Ltd ** Dr Dr Dr Dr Dr Cr 40 000 80 000 32 000 42 000 4 000 Transfer from BCVR BCVR (80% x 70% x $5 000) Dr Cr 2 800 Dr Cr 4 000 Dr Cr 6 400 Dr 6 400 198 000 2 800 3. Dividend paid Dividend Revenue Dividend Paid (80% x $5 000) 4 000 4. Dividend declared Dividend Payable Dividend Declared (80% x $8 000) Dividend Revenue Dividend Receivable 6 400 Cr 6 400 5. NCI share of equity at 1/7/10 Retained Earnings (1/7/12) Share Capital General Reserve Business Combination Valuation Reserve NCI Page 8 of 31 Dr Dr Dr Dr Cr 10 000 20 000 8 000 10 500 48 500 ACCG 926 Self Study Solutions- Topic 4 6. NCI share of equity: 1/7/10 - 30/6/12 Retained Earnings (1/7/12) NCI Dr Cr 4 920 4 920 Opening retained earnings *76 000 Less: pre-acquisition retained earnings (50,000) Post acquisition retained earnings 26,000 Fair value related adjustments to post acquisition retained earnings Less: after tax red'n in ret. earnings due to inc. depreciation exp (1 400) Adjusted retained earnings 26 000 NCI share at 20% 4 920 * =(50 000+20 000 +25 000- 5000- 6 000 - 8 000) General Reserve NCI (20% x $5 000) Dr Cr 1 000 Dr Cr 5 580 1 000 5. NCI share of equity: 1/7/12 - 30/6/13 NCI Share of Profit NCI 5 580 Current year profit 30 000 Fair value related adjustments to post acquisition retained earnings Less: after tax reduction in profit due to depn of plant ( jnl no1) (350) Less: after tax reduction in profit due to sale of plant (jnl no1) (1750) Adjusted profit 27 900 NCI Share @20% 5 580 General Reserve Transfer to General Reserve (20% x $6 000) Dr Cr 1 200 Transfer from BCVR BCVR (20% x 70% x $5 000) Dr Cr 700 NCI Dr Cr 1 000 Dr Cr 1 600 Dividend Paid (20% x $5 000) NCI Dividend Declared (20% x $8 000) Page 9 of 31 1 200 700 1 000 1 600 ACCG 926 Self Study Solutions- Topic 4 QUESTION 18.6 (cont'd) B: FULL GOODWILL METHOD At 1 July 2010: Net fair value of Turtle Ltd = ($100 000 +$40 000 + $50 000) (equity) + $20 000 (1 - 30%) (land) + $5 000 (1 - 30%) (plant) + $50 000 (1 - 30%) (patent) - $5 000 (goodwill) = $237 500 (a) Consideration transferred = $202 000 - (80% x $5 000) (divs rec) = $198 000 (b) Non-controlling interest = $49 250 Aggregate of (a) and (b) = $247 250 Goodwill = $9 750 Recorded goodwill = $5 000 Unrecorded goodwill = 4 750 Net fair value acquired by parent = 80% x $237 500 = $190 000 Goodwill acquired by parent = $8 000 Unrecorded goodwill - parent = $8 000 - (80% x $5 000) = $4 000 Goodwill - NCI = $1 750 Unrecorded = $1 750 - (20% x $5 000) = $750 Business combination valuation entries Goodwill Dr 4 750 BCVR Cr 4 750 Pre-acquisition entry Retained earnings (1/7/09)* Share capital General reserve BCVR Shares in Turtle Ltd Dr Dr Dr Dr Cr 40 000 80 000 32 000 46 000 198 000 3. NCI share of equity at 1/7/10 Retained earnings (1/7/12) Share capital Dr Dr 10 000 20 000 Page 10 of 31 ACCG 926 Self Study Solutions- Topic 4 General reserve BCVR NCI Dr Dr 1 Cr 8 000 1 250 49 250 QUESTION 18.8 Consolidation worksheet, unrecorded intangible, dividends Required Prepare the consolidated financial statements of Fox Ltd as at 30 June 2012. Fox LTD - Goanna LTD 70% Fox Ltd Goanna Ltd Fox Ltd 70% NCI 30% Acquisition analysis 1 July 2009: Net fair value of identifiable assets, liabilities and contingent liabilities of Goanna Ltd = Net fair value acquired (a)Consideration transferred (b) Non controlling interest Aggregate of (a) & (b) Goodwill acquired ($100 000 + $31 000 + $25 000 + $9 000) (equity) + $15 000 (1 - 30%) (plant) +$20 000 (1 - 30%) (brand) - $10 000 (goodwill) = $179 500 = 70% x $179 500 = $125 650 = $141,950 - (70% x $10 000) = $134 950 = $57,000 = 191,950 =$12,450 Net fair value acquired = 70% x $179 500 = $125 650 Goodwill acquired - parent = $9 300 Adjustment to recorded goodwill = $9 300 - [$10 000 x 70%] = $2 300 Goodwill - NCI Unrecorded goodwill = $3 150 = $3 150 - (30% x $10 000) = $150 Page 11 of 31 ACCG 926 Self Study Solutions- Topic 4 Page 12 of 31 ACCG 926 Self Study Solutions- Topic 4 1. Business combination valuation entries 30 June 2012 One Line Method Carrying Amount of Plant Sold ( or gain ) Dr Depreciation Expense Dr Income Tax Expense Cr Retained Earnings (1/7/11) Dr Transfer from BCVR Cr Line by Line Method Accumulated Depreciation Plant Deferred Tax Liability Business Combination Valuation Reserve 6 000 3 000 2 700 4 200 10 500 Dr Cr Cr Cr 30 000 Retained Earnings (1/7/11) Depreciation Accumulated Depreciation Dr Dr Cr 6 000 3 000 DTL Retained Earnings (1/7/11 Income Tax Expense Dr Cr Cr 2 700 Plant Carrying Value of Plant sold ( or gain on sale) Accumulated Depreciation Dr Dr Cr 15 000 6 000 DTL Income Tax Expense Dr Cr 1 800 BCVR Transfer from BVCR Dr Cr 10 500 15 000 4 500 10 500 9 000 1 800 900 21 000 1 800 10 500 Brand Name Dr Deferred Tax Liability Cr Business Combination Valuation Reserve Cr 20 000 Accumulated Depreciation - Vehicles Vehicles Dr Cr 17 000 Goodwill Dr Cr 2 450 BCVR Page 13 of 31 6 000 14 000 17 000 2 450 ACCG 926 Self Study Solutions- Topic 4 2. Pre-acquisition entries Retained Earnings (1/7/11) Share Capital General Reserve Other Components of Equity Business Combination Valuation Reserve Shares in Goanna Ltd Dr Dr Dr Dr Dr 17 500 70 000 21 700 6 300 19,450 Cr Retained Earnings (1/7/11) General Reserve Dr Cr Transfer from BCVR BCVR (70% x $10 500 - plant) Dr Cr 134 950 14 000 14 000 7 350 7 350 3. Dividend paid Dividend Revenue Dividend Paid (70% x $8 000) Dr Cr Page 14 of 31 5 600 5 600 ACCG 926 Self Study Solutions- Topic 4 4. NCI share of equity at 1 July 2009 Share Capital Retained Earnings (1/7/11) General Reserve Other Components of Equity Business Combination Valuation Reserve NCI Dr Dr Dr Dr Dr Cr 30 000 7 500 9 300 2 700 7 500 Dr Dr Cr Cr 10 740 600 57 000 5. NCI share of equity: 1 July 2010 - 30 June 2011 Retained Earnings (1/7/11) Other Components of Equity (1/7/11) General Reserve NCI 6 000 5 340 Opening retained earnings *65 000 Less: pre-acquisition retained earnings (25,000) Post acquisition retained earnings 40 000 Fair value related adjustments to post acquisition retained earnings Less: after tax red'n in ret. earnings due to inc. depreciation exp (4 200) Adjusted retained earnings 35,800 NCI share at 30% 10,740 GR: 30% ($11 000 - $31 000) OCE: 30% ($11 000 - $9 000) 6. NCI share of equity: 1 July 2011 - 30 June 2013 NCI Share of Profit NCI Dr Cr 8 910 8 910 Current year profit 36 000 Fair value related adjustments to post acquisition retained earnings Less: after tax reduction in profit due to depn of plant (2 100) Less: after tax reduction in profit due to sale of plant (4 200) Adjusted profit 29 700 NCI Share @30% 8 910 NCI Dr Cr 600 Transfer from BCVR BCVR (30% x $10 500) Dr Cr 3 150 NCI Dr Cr 2 400 Losses on Other Components of Equity (30% [$9 000 - $11 000]) Dividend Paid (30% x $8 000) Page 15 of 31 600 3 150 2 400 ACCG 926 Self Study Solutions- Topic 4 Financial Statements Revenues Expenses Profit before tax Tax expense Profit for period Retained earnings (1/7/11) Transfer from BCVR FOX Ltd 280 000 220 000 60 000 GOANN A Ltd 190 000 6 140 000 1 1 50 000 Adjustments Dr Cr 14 000 36 000 464 400 369 000 2 700 76 000 65 000 1 2 4 200 31 500 -- -- 2 7 350 100 000 2 70 000 190 000 4 000 193 000 11 000 2 6 300 General reserve BCV reserve 101 000 8 000 93 000 1 10 500 1 5 600 3 202 000 11 000 2 7 700 -- -- 2 19 450 8 910 49 190 105 300 4 5 7 500 10 740 87 060 3 150 6 3 150 -- 166 550 22 400 144,150 274 150 8 700 4 5 0 8 700 14 000 2 450 7 350 1 2 2 6 30 000 136 250 20 000 116 250 100 000 216 250 5 400 2 700 600 600 6 600 6 000 282 850 47 300 4 9 300 6 000 5 222 250 44 000 4 350 4 7 500 3 150 6 -- 266 250 6 6 240 000 213 000 -- -- 20 000 20 000 Total equity & 260 000 liabilities 12 000 12 000 225 000 Deferred tax liabilities Payables 2 400 130 000 4 (2 000) 9 000 196 000 44 000 37 300 58 100 6 Total equity: parent Total equity: NCI Total equity Parent Cr 95 400 26 000 34 000 2 000 6 000 NCI Dr 5 600 6 000 3 000 110 000 Dividend paid 20 000 Retained 90 000 earnings (30/6/12) Share capital 100 000 Other comps of equity (op) Gains/losses Other comps of equity (cl) Group 334 500 6 000 1 6 000 32 000 38 000 372 500 Page 16 of 31 2 400 600 83 250 57 000 5 340 8 910 83 250 4 5 6 68,250 334,500 ACCG 926 Self Study Solutions- Topic 4 Financial assets Cash Vehicles Accumulated depreciation Plant & equipment Accumulated depreciation Land Trade marks Brand name Shares in Goanna Ltd Goodwill Accumulated impairment 20 000 30 000 22 050 35 000 (12 000) 43 000 50 000 (30 000) 1 80 000 120 000 (50 000) (75 000) 30 000 --134 950 -80 000 -- 1 -- --- 10 000 1 (3 000) 260 000 225 000 50 000 17 000 1 17 000 65,050 68 000 (25 000) 200 000 (125 000) 20 000 134,950 2 2,450 187 050 30 000 80 000 20 000 -12,450 (3000) 187 050 Page 17 of 31 372,500 ACCG 926 Self Study Solutions- Topic 4 FOX LTD Consolidated Statement of Profit or Loss and Other Comprehensive Income for the financial year ended 30 June 2012 Revenues Expenses Profit before income tax Income tax expense Profit for the period Comprehensive income for the period Profit for the period attributable to: Parent interest Non-controlling interest $464 400 369 000 95 400 37 300 $58 100 $ 58 100 $49 190 8 910 $58 100 Comprehensive income for the period attributable to: Parent interest Non-controlling interest Page 18 of 31 $49 790 $8 310 $58 100 ACCG 926 Self Study Solutions- Topic 4 FOX LTD Consolidated Statement of Financial Position as at 30 June 2012 ASSETS Current Assets Cash Financial assets Total Current Assets Non-current Assets Property, plant and equipment: Vehicles less Accumulated depreciation Plant and equipment Accumulated depreciation Land Intangible assets: Trade marks Brand name Goodwill Accumulated impairment Total Non-current Assets Total Assets 65 050 50 000 $115 050 $68 000 25 000 200 000 125 000 75 000 30 000 148 000 80 000 20 000 9 300 (2 300) Equity and Liabilities Equity attributable to equity holders of the parent Share capital Reserves: General reserve Other components of equity Retained earnings Parent Entity Interest NCI Total Equity Current Liabilities Payables Non-current Liabilities Tax liabilities: Deferred tax liability Total Liabilities Total Equity and Liabilities Page 19 of 31 $43 000 7 000 107 000 257 450 $372 500 $100 000 44 000 6 000 116 250 266 250 68 250 334 500 32 000 6 000 38 000 $372 500 ACCG 926 Self Study Solutions- Topic 4 QUESTION 18.10 Consolidated worksheet, consolidated financial statements Required A. Prepare the consolidation worksheet entries necessary for preparation of the consolidated financial statements for LIZARD Ltd and its subsidiary for the year ended 30 June 2013. B. Prepare the consolidated income statement and statement of changes in equity for LIZARD Ltd and its subsidiary at 30 June 2013. LIZARD LTD - HONEYEATER LTD 80% LIZARD Ltd HONEYEATER Ltd LIZARD Ltd 80% NCI 20% A. Consolidation worksheet entries Acquisition analysis At 1 July 2012: Net fair value of identifiable assets, liabilities and contingent liabilities of HONEYEATER Ltd = = = = = = = = Net fair value acquired Consideration transferred Goodwill acquired Unrecorded goodwill ($250 000 + $10 000 + $10 000 + $15 000) (equity) + $10 000 (1 - 30%) (inventory) + $20 000 (1 -30%) (land) + $20 000 (1 - 30%) (plant) + $10 000 (1 - 30% ) (patent) - $25 000 (goodwill) $302 000 80% x $302 000 $241 600 $264 800 $23 200 $23 200 - (80% x $25 000) $3 200 1. Business combination valuation entries at 30 June 2013 Cost of Sales Income Tax Expense Transfer from Business Combination Valuation Reserve Cr Carrying Amount of Land Sold Income Tax Expense Transfer from BCVR Dr Cr Cr Page 20 of 31 Dr Cr 10 000 3 000 7 000 20 000 6 000 14 000 ACCG 926 Self Study Solutions- Topic 4 Trademark Deferred Tax Liability Business Combination Valuation Reserve Dr Cr Cr 10 000 Accumulated Depreciation - P&E Plant and Equipment Deferred Tax Liability Business Combination Valuation Reserve Dr Cr Cr Cr 130 000 Depreciation Expense - P&E Accumulated Depreciation - P&E ($20 000 /5) Dr Cr 4 000 Deferred Tax Liability Income Tax Expense Dr Cr 1 200 3 000 7 000 110 000 6 000 14 000 4 000 1 200 2. Pre-acquisition entry 30/6/13 Retained Earnings (1/7/12) Share Capital General Reserve Asset Revaluation Reserve Business Combination Valuation Reserve Goodwill Shares in Honeyeater Ltd Dr Dr Dr Dr Dr Dr Cr 8 000 200 000 8 000 12 000 33 600 3 200 Transfer from General Reserve General Reserve (80% x $8 000) Dr Cr 6 400 Transfer from BCVR BCVR (Sale of inventory: 80% x $7 000) Dr Cr 5 600 Transfer from BVCVR BCVR (Sale of land: 80% x $14 000) Dr Cr 11 200 Page 21 of 31 264 800 6 400 5 600 11 200 ACCG 926 Self Study Solutions- Topic 4 3. Interim dividend paid Dividend Revenue Interim Dividend Paid (80% x $10 000) Dr Cr 8 000 Dividend Payable Final Dividend Declared (80% x $4 000) Dr Cr 3 200 Dividend Revenue Dividend Receivable Dr Cr 3 200 8 000 4. Final dividend declared 3 200 3 200 5. Inter-entity sales of inventory: Honeyeater Ltd - Lizard Ltd Sales Cost of Goods Sold Inventory Dr Cr Cr 8 000 Deferred Tax Asset Income Tax Expense Dr Cr 300 7 000 1 000 300 6. Transfer of plant to inventory: Honeyeater Ltd - Lizard Ltd Proceeds on Sale of Plant Carrying Amount of Plant Sold Inventory Dr Cr Cr 15 000 Deferred Tax Asset Income Tax Expense Dr Cr 1 500 Page 22 of 31 10 000 5 000 1 500 ACCG 926 Self Study Solutions- Topic 4 7. NCI share of equity at 1 July 2012 Retained Earnings (1/7/07) Share Capital General Reserve Asset Revaluation Reserve Business Combination Valuation Reserve NCI Dr Dr Dr Dr Dr Cr 2 000 50 000 2 000 3 000 8 400 Dr Cr 400 65 400 8. NCI share of equity: 1/7/12 - 30/6/13 NCI Share of Profit NCI 400 Current year profit 30 000 Fair value related adjustments to post acquisition retained earnings Less:After tax effect of adjustments related to Inventory (jnl 1) Less:After tax effect of adjustments related to Land (jnl 1) Less: After tax effect of adjustments related to p&e (jnl1) (7 000) (14 000) (2 800) Adjustments to post acquisition retained earnings related to interentity transactions Less: After tax effect of adj - unrealised profit in clos inv(jnl 5) Less: After tax effect of adj - Gain on transfer of plant (jnl 6) Adjusted profit NCI Share @20% (700) (3 500) 2 000 400 Transfer from General Reserve General Reserve (NCI share of reserve transfer - 8 000* .2) Dr Cr 1 600 Transfer from BCVR BCVR (20% ($7 000 + $14 000)) Dr Cr 4 200 Gains/Losses: Asset Revaluation Reserve NCI (20% x $5 000) Dr Cr 1 000 NCI Dr Cr 2 000 Dividend Paid (20% x $10 000) NCI 1 600 4 200 1 000 2 000 Dr Final Dividend Declared (20% x $4 000) Cr B. Page 23 of 31 800 800 ACCG 926 Self Study Solutions- Topic 4 Financial Statements Lizard Honeye Ltd ater Ltd Sales revenue 200 000 172 000 Other income 85 000 35 000 Cost of sales Other expenses Profit before tax Tax expense Profit Retained earnings (1/7/12) Transfer from BCV reserve Transfer from general reserve Dividend paid Dividend provided Retained earnings (30/6/12) ARR (1/7/12) Gains/Losses ARR (30/6/12) 285 000 207 000 162 000 128 000 53 000 31 000 Adjustments Dr Cr 5 3 4 6 8 000 8 000 3 200 15 000 1 1 1 10 000 20 000 4 000 Group 18 000 50 000 30 000 30 000 10 000 -- -- -- 8 000 80 000 12 000 48 000 10 000 6 000 4 000 18 000 62 000 14 000 34 000 0 0 0 15 000 5 000 20 000 Parent Cr 364 000 93 800 7 000 10 000 5 6 215 000 159 000 70 000 48 000 20 000 NCI Dr 457 800 293 000 98 000 391 000 66 800 3 000 6 000 1 200 300 1 500 2 8 000 2 2 2 5 600 11 200 6 400 7 000 14 000 4 000 4 000 3 200 1 1 1 5 6 1 1 2 3 4 26 000 40 800 8 32 000 7 400 2 000 40 400 30 000 4 200 8 4 200 -- 1 600 8 1 600 -- 78 600 14 000 2 000 8 70 400 12 000 6 800 800 8 6 000 20 800 57 800 2 3 000 7 5 000 8 8 000 12 000 Page 24 of 31 18 000 52 400 3 000 1 000 0 4 000 4 000 ACCG 926 Self Study Solutions- Topic 4 LIZARD LTD Consolidated Statement of Profit or Loss and Other Comprehensive Income for financial year ended 30 June 2013 Income: Sales revenue Other income $364 000 93 800 457 800 Expenses: Cost of sales Other Profit before income tax Income tax expense Profit for the period Other comprehensive income: Asset revaluation surplus: gains Comprehensive income for the period Profit for the period attributable to: Parent interest Non-controlling interest Comprehensive income for the period attributable to: Parent interest Non-controlling interest Page 25 of 31 293 000 98 000 391 000 66 800 26 000 $40 800 5 000 $45 800 $40 400 400 $40 800 $44 400 1 400 $45 800 ACCG 926 Self Study Solutions- Topic 4 LIZARD LTD Consolidated Statement of Changes in Equity for the financial year ended 30 June 2013 Comprehensive income for the period Group $45 800 Parent $44 400 Retained earnings: Balance at 1 July 2012 Profit for the period Transfer from general reserve Transfer from business combination valuation reserve Dividend paid Dividend declared Balance at 30 June 2013 $32 000 40 800 1 600 4 200 (14 000) (6 800) $57 800 $30 000 40 400 (12 000) (6 000) $52 400 General reserve: [Assumes no balances in parent entity's accounts] Balance at 1 July 2012 $2 000 Transfer to retained earnings 1 600 Balance at 30 June 2013 $400 - Business combination valuation reserve: Balance at 1 July 2012 Transfer to retained earnings Balance at 30 June 2013 $8 400 4 200 $4 200 - Asset revaluation surplus: Balance at 1 July 2012 Gains/losses Balance at 30 June 2013 $3 000 5 000 $8 000 $0 4 000 $4 000 Page 26 of 31 ACCG 926 Self Study Solutions- Topic 4 QUESTION 18.11 A: PARTIAL GOODWILL METHOD Acquisition analysis At 1 July 2008: Net fair value of identifiable assets and liabilities of Wombat Ltd = ($20 000 + $2 000 + $10 000) (equity) + $10 000 (1 - 30%)(machinery) + $4 000 (1 - 30%) (inventory) - $2 000 (1 - 30%) (receivables) = $40 400 Net fair value acquired = 75% x $40 400 = $30 300 Consideration transferred = $40 000 Goodwill = $9 700 1. Business combination valuation entries at 30/6/13 Depreciation expense Dr 1 000 Carrying amount of machinery sold Dr 1 000 Retained earnings (1/7/12) Dr 5 600 Income tax expense Cr Transfer from BCVR Cr (Depreciation is 20% x $10 000 per annum) Or Line by Line Method Accumulated Depreciation Machinery- Cost BCVR 000 DTL Dr Dr 600 7 000 6 000 4 000 Cr Cr 7 3 000 Depreciation Expense Dr Retained Earnings (1/7/12) Dr Accumulated Depreciation Cr 1 000 8 000 DTL Dr Income Tax Expense 300 Retained Earnings (1/7/12) 2 700 Cr Cr 9 000 Accumulated Depreciation Dr 3 000 * Cost of Machinery Sold (SOCI) Dr 1 000 Machinery- Cost Cr This account could also be the gain on sale DTL Dr 300 Income Tax Expense Cr Page 27 of 31 2 400 4 000 300 ACCG 926 Self Study Solutions- Topic 4 BCVR Tsf from BCVR ( RE) Dr Cr 7 000 7 000 2. Pre-acquisition entries at 30/6/13 Retained Earnings (1/7/12) Share Capital Business Combination Valuation Reserve General Reserve Goodwill Shares in Wombat Ltd Dr Dr Dr Dr Dr Cr 7 500 15 000 6 300 1 500 9 700 Retained Earnings (1/7/12) Dr BVCR Cr (Inventory sold in prior year - 4 000 *.7 *.75) 2 100 40 000 2 100 BVCR Dr 1 050 Retained Earnings (1/7/12) Cr 1 050 (Receivables settled in prior year - 2 000 *.7 *.75) Transfer from BCVR Dr 5 250 BCVR Cr 5 250 (machinery sold in the current year -75% x $7 000) Intra Group Dividends 3. Interim dividend paid Dividend Revenue Interim Dividend Paid (75% x $8 000) Dr Cr 6 000 4. Final dividend declared Dividend Payable Final Dividend Declared (75% x $4 000) Dr Cr 3 000 Dividend Revenue Dividend Receivable Dr Cr 3 000 6 000 3 000 Page 28 of 31 3 000 ACCG 926 Self Study Solutions- Topic 4 Intra- group Transactions 5. Profit in closing inventory: Wombat Ltd - Playtpus Ltd Sales Dr 40 000 Cost of Sales Cr 39 600 Inventory Cr 400 Deferred Tax Asset ITE Dr Cr 120 120 6. Sale of non-current asset to inventory in prior period: Yingchaun Ltd- Kaifeng Ltd Retained Earnings (1/7/12) Dr 140 Income Tax Expense Dr 60 Cost of Sales Cr 200 (No depreciation adjustment required) 7. Sale of non-current asset: Yinchaun Ltd - Kaifeng Ltd Other revenue Dr 2 000 Carrying Amount of Assets Sold Cr 1 200 Plant Cr 800 Deferred Tax Asset Dr 240 Income Tax Expense Cr 240 Accumulated Depreciation Dr 10 Depreciation Expense Cr 10 (1/2 x 2.5% x $800) Income Tax Expense Dr 3 Deferred Tax Asset Cr 3 8. NCI share of equity at 1/7/08 Retained earnings (1/7/12) Dr 2 500 Share capital Dr 5 000 Business combination valuation reserve Dr 2 100 General reserve Dr 500 NCI Cr 10 100 9. NCI share of equity: 1/7/08 - 30/612- From acquisition to the beginning of the current reporting period Retained Earnings (1/7/12) Dr 1 065 Asset Revaluation Reserve (1/7/12) Dr 500 Business Combination Valuation Reserve Cr 350 ** NCI Cr 1 215 Opening retained earnings 20,000 Less: pre-acquisition retained earnings (10,000) Post acquisition retained earnings 10,000 Less: Sale of non current asset (jnl 6) (140) Less: after tax red'n in ret. earnings due to inc. depreciation exp(jnl 1)(5 600) Adjusted retained earnings 4 260 NCI share at 25% 1 065 * Note there was no ARR at acquisition- NCI gets a share of the opening balance of the ARR Page 29 of 31 ACCG 926 Self Study Solutions- Topic 4 ** Inventory (4 000*.7-.25) Less Accounts Receivable ( 2 000 *.7*.25) = 350 Exercise 25.11 (cont'd) 10. NCI share of equity: 1/7/12 - 30/6/13- Current period NCI Share of Profit Dr 3 377 NCI Cr 3 377 (25% * 13 507) Current year profit 15 600 Less: after tax reduction in profit due to depn on machinery (jnl 1) (700) Less: after tax reduction in profit due to sale of machinery (jnl 1) (700) Less: unrealised profit in closing inventory (jnl 5) (280) Add: Realised profit for sale of non current asset (jnl 6) 140 Less: Tsf of non current asset - profit on sale (jnl 7) (560) Add: Depreciation adjustment on tsf of non current asset (jnl 7) 7 Adjusted profit 13 507 NCI Share @25% 3 377 General Reserve Dr 250 Transfer to General Reserve (RE) Cr 250 (25% x $1 000) Asset Revaluation Reserve Dr 125 NCI Cr 125 (25% x $500- share of current year movement) Tsf from BVCR Dr 1 750 Business Combination Val'n Reserve Cr 1 750 (Sale of machinery: 25% x $7 000) NCI Dr 2 000 Interim Dividend Paid Cr 2 000 (25% x $8 000) NCI Dr 1 000 Final Dividend Declared Cr 1 000 (25% x $4 000) Page 30 of 31 ACCG 926 Self Study Solutions- Topic 4 B: FULL GOODWILL METHOD Acquisition analysis At 1 July 2008: Net fair value of identifiable assets and liabilities of Womabt Ltd = ($20 000 + $2 000 + $10 000) (equity) + $10 000 (1 - 30%)(machinery) + $4 000 (1 - 30%) (inventory) - $2 000 (1 - 30%) (receivables) = $40 400 (a) consideration transferred = $40 000 (b) Non-controlling interest = $12 900 Aggregate of (a) and (b) = $52 900 Goodwill = $12 500 Net fair value acquired = 75% x $40 400 = $30 300 Goodwill - parent = $9 700 Goodwill - NCI = $2 800 1. Business combination valuation entries at 30/6/13 Goodwill Dr 12 500 Business combination valuation reserve Cr 12 500 2. Pre-acquisition entry at 30/6/13: Retained earnings (1/7/12) * Dr 8 550 Share capital Dr 15 000 Business combination valuation reserve Dr 14 950 General reserve Dr 1 500 Shares in Wombat Ltd Cr 40 000 * 75%[$10 000 + $2 800 (inventory) - $1 400 (receivables)] 3. NCI share of equity at 1/7/05 Retained earnings (1/7/09) Dr 2 500 Share capital Dr 5 000 Business combination valuation reserve * Dr 4 900 General reserve Dr 500 NCI Cr 12 900 Page 31 of 31