Question 23 Accounting for Intra-Group Transactions 15 marks

Spend about 35 minutes on this question. Enter your answers in the Excel Workbook provided.

Part A

Wonderland Ltd distributes an exclusive range of fashion including clothing, cosmetics, jewellery, bags and shoes. It operates ten stores in towns and resorts around the country. Alice Ltd is an investing company which owns shares in several industries including tourism, manufacturing and retail. Alice Ltd owns 42% of the shares in Wonderland Ltd. Hatter Ltd owns 18% of the shares in Wonderland Ltd. The board of Wonderland Ltd has five directors, including two directors appointed by Alice Ltd and one director appointed by Hatter Ltd.

The accountants of Alice Ltd and Hatter Ltd are discussing how to account for their respective investments in Wonderland Ltd.

Required

i

Advise the accountant of Alice Ltd how to account for the investment in Wonderland Ltd, clearly outlining relevant assumptions and considerations

3 marks

ii

Suggest two scenarios in which Hatter Ltd may be required to consolidate Wonderland Ltd

Part B

On 1 January 2020, Aqua Ltd purchased all the shares of Marine Ltd for $2,000,000. The following extract provides information about Marine Ltd's financial position on that date.

$

$

Share Capital

1,500,000

Buildings

800,000

Retained Earnings

300,000

Accumulated Depreciation

(500,000)

Reserves

200,000

Additional Information

The fair value of the buildings is $400,000. They have a remaining useful life of 25 years.

On 30 September 2020, Aqua sold a vehicle to Marine Ltd for $20,000. The vehicle was originally acquired for $40,000 and had been depreciated by $15,000. It has remaining useful life of 3 years.

i

Calculate the goodwill on acquisition, clearly indicating whether it is positive or negative.

4 marks

ii

Prepare the pre-acquisition elimination entries on 31 December 2021

4 marks

iii

Prepare any other elimination entries required on 31 December 2020

2 marks