Question 3

Octans Ltd owns all of the share capital of Cetus Ltd. In relation to the following intragroup transactions, all parts of which are independent unless specified, prepared the consolidation work-sheet adjusting entries for preparation of the consolidated financial statements as at 30 June 2011.

Assume an income tax rate of 30% and that all income on sale of assets is taxable and expenses are deductible.

In January 2011, Octans Ltd sells inventory to Cetus Ltd for $15 000. This inventory had previously cost Octants Ltd $10 000, and it remains unsold by Cetus Ltd at the end of the period.All the inventory in (a) above is sold to Hydra Ltd, and external party, for $20 000 on 2 February 2011.Half the inventory in (a) above is sold to Grus Ltd, an external party, for $9000 on 22 February 2011. The remainder is still unsold at the end of the period.Octans Ltd, in March 2011, sold inventory for $10 000 that was transferred from Cetus Ltd 3 years ago. It had originally cost Cetus Ltd $6000, and was sold to Octans Ltd for $12 000.Cetus Ltd sold some land to Octans Ltd in December 2010. The land had originally cost Cetus Ltd $25 000, but was sold to OctansLtd for only 20 000. To help Octants Ltd pay for the land, Cetus Ltd gave Octans Ltd an interest-free loan of $12 000, and the balance was paid in cash. Octans Ltd has as yet made no repayments on the loan.On 1 July 2010, Octans Ltd sold a depreciable asset costing $10 000 to Cetus Ltd for $12 000. Octans Ltd had not charged any depreciation on the asset before the sale. Both entities depresiate assets at 10% p.a on cost.On 1 July 2010, Octans Ltd sold an item of machinery to Cetus Ltd for $6000. This item had cost Octants Ltd $4000. Octans Ltd regarded this item as inventory whereas Cetus Ltd intended to use it as a no-current asset. Cetus Ltd charges depreciation at the rate of 10% p.a on cost.

Question 1 On 1 January 2011, Arezzo Ltd acquired all the issued shares of Ascoli Ltd. At this date the equity of Ascoli Ltd consisted of: Share capital - 100000 share issued at $5 per share General reserve Asset revaluation surplus Retained earnings $500 000 200 000 100 000 50 000 In exchange for these shares, Arezzo Ltd agreed to pay the former shareholders of Ascoli Ltd two share in Arezzo Ltd, these having a fair value of $4 per share, plus $1.50 cash for each share held in Ascoli Ltd. The costs of issuing the shares were $800. Required: Prepare the journal entries in the records of Arezzo Ltd to record these events. Question 2 Blue Ltd has two divisions, Jade and White. Each of these is regarded as a separated cash-generating unit. At 31 December 2009, the carrying amounts of the assets of the two divisions were: Plant Accumulated depreciation Patent Inventory Receivables Goodwill Jade $1 500 (650) 240 54 75 25 White $1 200 (375) 75 82 20 The receivable were regarded as collectable, and the inventory's fair value less costs to sell was equal to its carrying amount. The patent had a fair value less costs to sell of $220. The plant at Jade was depreciated at $300 p.a., and that a White was depreciated at $250 p.a. Blue Ltd undertook impairment testing at 31 December 2009, and determined the value in use of the two divisions to be: Jade White $1 044 990 As a result, management increased the depreciation of the Jade plant from $300 to $350 p.a. for the year 2009. By 31 December 2010, the performance in both divisions had improved, and carrying amounts of the assets of both divisions and their recoverable amounts were as follows: Carrying amount Recoverable Jade $1322 1 502 White $1 433 1 520 Required: Determine how Blue Ltd should account for the results of the impairment tests at both 31 December 2009 and 31 December 2010. Question 3 Octans Ltd owns all of the share capital of Cetus Ltd. In relation to the following intragroup transactions, all parts of which are independent unless specified, prepared the consolidation work-sheet adjusting entries for preparation of the consolidated financial statements as at 30 June 2011. Assume an income tax rate of 30% and that all income on sale of assets is taxable and expenses are deductible. (a) In January 2011, Octans Ltd sells inventory to Cetus Ltd for $15 000. This inventory had previously cost Octants Ltd $10 000, and it remains unsold by Cetus Ltd at the end of the period. (b) All the inventory in (a) above is sold to Hydra Ltd, and external party, for $20 000 on 2 February 2011. (c) Half the inventory in (a) above is sold to Grus Ltd, an external party, for $9000 on 22 February 2011. The remainder is still unsold at the end of the period. (d) Octans Ltd, in March 2011, sold inventory for $10 000 that was transferred from Cetus Ltd 3 years ago. It had originally cost Cetus Ltd $6000, and was sold to Octans Ltd for $12 000. (e) Cetus Ltd sold some land to Octans Ltd in December 2010. The land had originally cost Cetus Ltd $25 000, but was sold to OctansLtd for only 20 000. To help Octants Ltd pay for the land, Cetus Ltd gave Octans Ltd an interest-free loan of $12 000, and the balance was paid in cash. Octans Ltd has as yet made no repayments on the loan. (f) On 1 July 2010, Octans Ltd sold a depreciable asset costing $10 000 to Cetus Ltd for $12 000. Octans Ltd had not charged any depreciation on the asset before the sale. Both entities depresiate assets at 10% p.a on cost. (g) On 1 July 2010, Octans Ltd sold an item of machinery to Cetus Ltd for $6000. This item had cost Octants Ltd $4000. Octans Ltd regarded this item as inventory whereas Cetus Ltd intended to use it as a no-current asset. Cetus Ltd charges depreciation at the rate of 10% p.a on cost. Question 4 On 1 July 2009, Jura Ltd acquired 90% of the capital of Fribourg Ltd for $290 160. The equity of Fribourg Ltd at this date consisted of : Share capital Retained earnings $200 000 80 000 The carrying amounts and fair values of the assets and liabilities recorded by Fribourg Ltd at 1 July 2009 were as follows: Fittings Land Inventory Machinery (net) Liabilities Carrying amount $ 20 000 90 000 10 000 200 000 40 000 Fair value $20 000 100 000 12 000 220 000 40 000 The machinery and fitting have a further 10-year life, benefits to be received evenly over this period. Differences between carrying amounts and fair values are recognized on consolidation. Jura Ltd uses the partial goodwill method. The tax rate is 30%. All inventory on hand at 1 July 2009 is sold by 30 June 2010. Required 1. What are the entries for the consolidation worksheet if prepared immediately after 1 July 2009? 2. What are the entries for the consolidation worksheet if prepared at 30 June 2010? Assume a profit for Fribourg Ltd for the 2009 - 10 period of $20 000 3. If the non-controlling interest had a fair value of $31 800 on 1 July 2009, and full good will method had been used, what entries in Parts 1 and 2 above would change? Prepare the changed entries. Reference Alfredson, et. al. (2009) Applying International Financial Reporting Standards, John Wiley & Sons. Students are encouraged to use this text as reference while completing the assignment. THE END