Phase 1 Required:

Prepare the consolidated group financial statements for Parts Palace and Smashed as at 31 December 2019, using the Phase 1 tab on the Excel template provided

EXCEL TEMPLATE SC

PART A ASSIGNMENT BRIEF Parts Palace Group Consolidated financial statements Parts Palace Ltd is a retailer of new car parts. The company has a subsidiary called Smashed Ltd, which complements the parent business by retailing used car parts sourced mainly from scrapped vehicles. Al Bruno (Group Accountant) has asked you to assist him by drafting the company's group accounts in two separate phases. As you are about to graduate and have only recently joined the group, Al has emphasised that the company has a staff code of conduct, which requires staff to treat all company information as strictly confidential. The code permits reviewing reference material, conducting research, and discussing and seeking advice about accounting procedures with others but does not allow sharing financial information with anyone except authorised staff. You observed that this sounds similar to the ethics required of you in the past for your university assignments. Al smiled and warned that breaches of this code lead to disciplinary action and immediate dismissal. PHASE 1 Al Bruno provides you with the following information: Consolidation accounting policies The consolidated financial statements incorporate the financial statements of the subsidiary (Smashed Limited) of Parts Palace Limited ("Parent") as at the reporting date. Parts Palace Limited and its subsidiary together are referred to in these financial statements as the "Group" or the consolidated entity The subsidiary is an entity over which the Parent has control. The Parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The subsidiary is included in the consolidated financial statements using the acquisition method of consolidation. It is fully consolidated from the date on which control is transferred to the Parent. The Group recognises non-controlling interest at its proportionate share of subsidiary net identifiable assets. The Subsidiary, Smashed On 31 December 2016, Parts Palace Limited acquired 80% of the shares in Smashed Limited. On that date, the equity of Smashed Limited comprised: $ 000 Share capital 700 Retained earnings 400 Equity $1,100 At acquisition, the book value of the assets and liabilities of Smashed Limited were considered to be at fair value, except for some non-depreciable assets (included under 'Other non-current assets and considered to be part of net identifiable assets) that had a book value of zero and where Parts Palace assessed their fair value to be $190,000. There has been no change to assessed value of these assets since acquisition. Goodwill impairment At the most recent balance date (31 December 2019), the returns from Smashed were not as high as expected. The directors of Parts Palace considered that acquired goodwill had been impaired by $100,000. Tax and Deferred Tax Assume a tax rate of 30% wherever relevant (i.e., for both Phase 1 and Phase 2). Breakdown of Cost of Sales figures supplied below for 31 December 2019 Parts Smashed Palace $000s $000s Opening inventory 450 400 Purchases 1250 Closing inventory Cost of sales 1400 600 550 300 Smashed Financial statements Income statement for year end 31 December & Balance sheet as at 31 December 2019 Parts Palace $000s Sales 4,200 Cost of sales 1,400 Gross profit 2,800 Operating expenses (incl. Interest, Depn & Impairment) 300 Other income (incl. Dividends & Interest) 400 Operating profit before tax 2,900 Income tax 500 Net Profit 2,400 S000s 1,600 600 1,000 400 100 700 300 400 Opening Retained earnings 500 900 1,500 3,900 800 3,100 Dividends paid Closing retained earnings 200 700 700 Share capital Total equity 2,200 5,300 1,400 Accounts Payable Deferred tax Other non-current liabilities Total liabilities 800 600 700 2,100 200 130 800 1,130 Total liabilities and equity 7,400 2,530 80 100 200 Cash Accounts Receivable Inventory Current assets 300 100 350 530 600 Investment in Smashed (at Cost) Plant (net) Other non-current assets Non-current assets 2,000 3,700 1,100 6,800 1,300 700 2,000 Total assets 7,400 2,530 8 Consolidated ($000s) Marks Allocated 2.0 10 Sales 11 12 Beginning inventory 13 Purchases 14 Ending inventory 15 Cost of sales 16 17 Gross profit 18 Operating expenses (incl. Interest, Depn & Impairment) 19 Other income (incl. Dividends & Interest) 20 Operating profit before tax 21 Income Tax 22 Net Profit 23 Non controlling interest in profits 24 Opening Retained earnings 25 26 Dividends paid 27 Closing retained earnings 28 29 Share capital 30 Non-controlling interest 31 Total equity 32 33 Accounts Payable 34 Deferred tax 35 Other non-current liabilities 36 Total liabilities 37 38 Total liabilities and equity 39 40 Cash 41 Accounts Receivable 42 Inventory 43 Current assets 44 45 Investment in Smashed (at Cost) 46 Plant (net) 47 Goodwill (net) 48 Other non-current assets 49 Non-current assets 50 51 Total assets 52 76.0 PART A ASSIGNMENT BRIEF Parts Palace Group Consolidated financial statements Parts Palace Ltd is a retailer of new car parts. The company has a subsidiary called Smashed Ltd, which complements the parent business by retailing used car parts sourced mainly from scrapped vehicles. Al Bruno (Group Accountant) has asked you to assist him by drafting the company's group accounts in two separate phases. As you are about to graduate and have only recently joined the group, Al has emphasised that the company has a staff code of conduct, which requires staff to treat all company information as strictly confidential. The code permits reviewing reference material, conducting research, and discussing and seeking advice about accounting procedures with others but does not allow sharing financial information with anyone except authorised staff. You observed that this sounds similar to the ethics required of you in the past for your university assignments. Al smiled and warned that breaches of this code lead to disciplinary action and immediate dismissal. PHASE 1 Al Bruno provides you with the following information: Consolidation accounting policies The consolidated financial statements incorporate the financial statements of the subsidiary (Smashed Limited) of Parts Palace Limited ("Parent") as at the reporting date. Parts Palace Limited and its subsidiary together are referred to in these financial statements as the "Group" or the consolidated entity The subsidiary is an entity over which the Parent has control. The Parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The subsidiary is included in the consolidated financial statements using the acquisition method of consolidation. It is fully consolidated from the date on which control is transferred to the Parent. The Group recognises non-controlling interest at its proportionate share of subsidiary net identifiable assets. The Subsidiary, Smashed On 31 December 2016, Parts Palace Limited acquired 80% of the shares in Smashed Limited. On that date, the equity of Smashed Limited comprised: $ 000 Share capital 700 Retained earnings 400 Equity $1,100 At acquisition, the book value of the assets and liabilities of Smashed Limited were considered to be at fair value, except for some non-depreciable assets (included under 'Other non-current assets and considered to be part of net identifiable assets) that had a book value of zero and where Parts Palace assessed their fair value to be $190,000. There has been no change to assessed value of these assets since acquisition. Goodwill impairment At the most recent balance date (31 December 2019), the returns from Smashed were not as high as expected. The directors of Parts Palace considered that acquired goodwill had been impaired by $100,000. Tax and Deferred Tax Assume a tax rate of 30% wherever relevant (i.e., for both Phase 1 and Phase 2). Breakdown of Cost of Sales figures supplied below for 31 December 2019 Parts Smashed Palace $000s $000s Opening inventory 450 400 Purchases 1250 Closing inventory Cost of sales 1400 600 550 300 Smashed Financial statements Income statement for year end 31 December & Balance sheet as at 31 December 2019 Parts Palace $000s Sales 4,200 Cost of sales 1,400 Gross profit 2,800 Operating expenses (incl. Interest, Depn & Impairment) 300 Other income (incl. Dividends & Interest) 400 Operating profit before tax 2,900 Income tax 500 Net Profit 2,400 S000s 1,600 600 1,000 400 100 700 300 400 Opening Retained earnings 500 900 1,500 3,900 800 3,100 Dividends paid Closing retained earnings 200 700 700 Share capital Total equity 2,200 5,300 1,400 Accounts Payable Deferred tax Other non-current liabilities Total liabilities 800 600 700 2,100 200 130 800 1,130 Total liabilities and equity 7,400 2,530 80 100 200 Cash Accounts Receivable Inventory Current assets 300 100 350 530 600 Investment in Smashed (at Cost) Plant (net) Other non-current assets Non-current assets 2,000 3,700 1,100 6,800 1,300 700 2,000 Total assets 7,400 2,530 8 Consolidated ($000s) Marks Allocated 2.0 10 Sales 11 12 Beginning inventory 13 Purchases 14 Ending inventory 15 Cost of sales 16 17 Gross profit 18 Operating expenses (incl. Interest, Depn & Impairment) 19 Other income (incl. Dividends & Interest) 20 Operating profit before tax 21 Income Tax 22 Net Profit 23 Non controlling interest in profits 24 Opening Retained earnings 25 26 Dividends paid 27 Closing retained earnings 28 29 Share capital 30 Non-controlling interest 31 Total equity 32 33 Accounts Payable 34 Deferred tax 35 Other non-current liabilities 36 Total liabilities 37 38 Total liabilities and equity 39 40 Cash 41 Accounts Receivable 42 Inventory 43 Current assets 44 45 Investment in Smashed (at Cost) 46 Plant (net) 47 Goodwill (net) 48 Other non-current assets 49 Non-current assets 50 51 Total assets 52 76.0