QUESTION 2 CONSOLIDATIONS

The following financial statements of Andy Ltd and its subsidiary Irons Ltd have been extracted from their financial records at 30 June 2012. Reconciliation of opening and closing retained earnings

Sales revenue

Cost of goods sold

Gross profit

Dividends received from Irons Ltd

Management fee revenue Gain on sale of plant Expenses

Administrative expenses Depreciation Management fee expense Other expenses

Profit before tax Tax expense Profit for the year

Retained earnings - 30 June 2011

Dividends paid

Retained earnings - 30 June 2012

Andy Ltd

$

862 500 (580 000)

282 500

93 000

33 125

43 750

(38 500) (30 625)

- (126 375)

256 875

76 875

180 000

399 250

579 250 (171 750)

Irons Ltd

$

725 000 (297 500)

427 500

-

(48 375) (71 000) (33 125)

(96 250)

178 750

52 750

126 000

299 000

425 000 (116 250)

407 500

308 750

QUESTION 2 CONSOLIDATIONS

The following financial statements of Andy Ltd and its subsidiary Irons Ltd have been extracted from their financial records at 30 June 2012. Reconciliation of opening and closing retained earnings Sales revenue Cost of goods sold Gross profit Dividends received from Irons Ltd Management fee revenue Gain on sale of plant Expenses Administrative expenses Depreciation Management fee expense Other expenses Profit before tax Tax expense Profit for the year Retained earnings - 30 June 2011 Dividends paid Retained earnings - 30 June 2012	Andy Ltd $ 862 500 (580 000) 282 500 93 000 33 125 43 750 (38 500) (30 625) - (126 375) 256 875 76 875 180 000 399 250 579 250 (171 750)	Irons Ltd $ 725 000 (297 500) 427 500 - (48 375) (71 000) (33 125) (96 250) 178 750 52 750 126 000 299 000 425 000 (116 250)
407 500	308 750

College of Business, Hospitality and Tourism Studies School of Accounting ACC601 CORPORATE ACCOUNTING MAJOR ASSIGNMENT (20%) Trimester 3, 2016 Instructions: This is an individual assignment. This assignment carries 20% towards your total coursework. All assignments should be typed (Font type: Times New Roman, font size: 12 and alignment: justified) and with proper referencing. Only original work is to be submitted. Copied assignments will get a zero mark. Plagiarism is a serious issue. Any student found plagiarizing their work will be given zero marks and will be subject to disciplinary actions. Late assignments will be penalized at a rate of 10% per day. Due Date : Novemeber 4th 2016. Page | 1 QUESTION 1 ACCOUNTING FOR REVENUE RECOGNITION Read the article by Garry West called 'Salomon claims $2.5m fee' and determine whether Salomon Smith Barney Australia Corporate Finance should recognize the $2.5million as revenue. Provide detailed explanation and reasons for your answer. Garry West The Australian Financial Review, 12 December 2000, p. 12 Salomon Smith Barney Australia Corporate Finance is claiming $2.5 million from Allgas for investment banking services provided in 1997 and 1998. Allgas was taken over the Queensland government-owned power supplier Energex for $250 million in August 1998. SSB's counsel, Mr. Peter Dunning told the Queensland Supreme Court that in June 1997, when Allgas engaged SSB to find a strategic investor, it set the bank's fee at 1% of the equity value. He said Allgas ideally sought an international utility to take a 40% to 50% stake to provide financial strength and technical expertise. Mr. Philip Morrison QC, who is representing Allgas, said the fee was not payable because the original contract with SSB ended when the Allgas board decided in January 1998 it wanted a 100% takeover. 'From that point of view it was a new transaction. The features of it were quite different,'Mr Morrison said. Energex outbid US group Texas Utilities and Boral Ltd. But Mr. Dunning said the decision was part of a 'seamless development' of the transaction and the fee was never revised. He said the board elected at meeting in July 1998 not to pay the $2.5 million because the Energex bid had 'come from the clouds'. It decided instead to negotiate a lower fee, but no payment was made. Source: Garry West, 'Salomon claims $2.5m fee', The Australian Financial Review, 12 December 2000, p. 12. Page | 2 QUESTION 2 CONSOLIDATIONS The following financial statements of Andy Ltd and its subsidiary Irons Ltd have been extracted from their financial records at 30 June 2012. Reconciliation of opening and closing retained earnings Sales revenue Cost of goods sold Gross profit Dividends received from Irons Ltd Management fee revenue Gain on sale of plant Expenses Administrative expenses Depreciation Management fee expense Other expenses Profit before tax Tax expense Profit for the year Retained earnings - 30 June 2011 Dividends paid Retained earnings - 30 June 2012 Page | 3 Andy Ltd $ Irons Ltd $ 862 500 (580 000) 282 500 93 000 33 125 43 750 725 000 (297 500) 427 500 - (38 500) (30 625) (126 375) 256 875 76 875 180 000 399 250 579 250 (171 750) 407 500 (48 375) (71 000) (33 125) (96 250) 178 750 52 750 126 000 299 000 425 000 (116 250) 308 750 Andy Ltd $ Statement of financial position Shareholders' equity Retained earnings Share capital Current liabilities Tax payable 407 500 437 500 Non-current liabilities Loans Current assets Accounts receivable Inventory Non-current assets Land and building Plant - at cost Accumulated depreciation Investment in Irons Ltd Irons Ltd $ 100 000 308 750 250 000 57 875 31 250 236 000 1 181 000 145 000 792 875 74 250 115 000 77 875 36 250 198 750 400 000 (107 000) 500 000 1 181 875 407 500 444 750 (173 500) 792 875 Other Information Andy Ltd acquired its 100 percent interest in Irons Ltd on 1 July 2005 that is seven years earlier. The cost of the investment was $500 000. At that date the capital and reserves of Iron Ltd were: Share capital $250 000 Retained earnings $200 000 $450 000 At the date of acquisition all assets were considered to be fairly valued. During the year Andy Ltd made total sales to Irons Ltd of $81 250, while Irons Ltd sold $65000 in inventory to Andy Ltd. The opening inventory in Andy Ltd as at 1 July 2011 included inventory acquired from Irons Ltd for $52 500 that cost Irons Ltd $43 750 to produce. Page | 4 The closing inventory in Andy Ltd includes inventory acquired from Irons Ltd at a cost of $42000. This cost Irons Ltd $35 000 to produce. The closing inventory of Irons Ltd includes inventory acquired from Andy Ltd at a cost of $15000. This cost Andy Ltd $12 000 to produce. The management of Andy Ltd believes that goodwill acquired was impaired by $3750 in the current financial year. Previous impairments of goodwill amounted to $20 000. On 1 July 2011 Andy Ltd sold an item of plant to Irons Ltd for $145 000 when its carrying value in Andy Ltd's accounts was $101 250 (cost $168 750, accumulated depreciation $67500). This plant is assessed as having a remaining useful life of six years. Irons Ltd paid $33 125 in management fees to Irons Ltd Ltd. The tax rate is 30 percent. Required: Prepare a consolidated statement of financial position and a consolidated statement of comprehensive income for Andy Ltd and Irons Ltd as at 30 June 2012, including a note reconciling opening and closing retained earnings. *The End* *Good luck!* Page | 5