200109 - Corporate Accounting Systems - Super Retail Ltd - Accounting Assessment Answer

Assessment Task:

200109: Corporate Accounting Systems Assessment Answer

Part A
Super Retail Ltd (Super Retail) acquired 100% of the shares of New World Retail Ltd (New World Retail) on 1 July 2017. The cost of investment was $620 000. At that date the capital and reserves of New World Retail were:

Share capital           $260 000
Retained earnings  $200 000

At the date of acquisition all assets of New World Retail were considered to be fairly valued, except for a plant that had a fair value $20 000 greater than its carrying amount. The cost of the plant was $100 000 and it had accumulated depreciation of $60 000. The plant had original estimated useful life of 10 years.

During financial year 01/07/2017-30/06/2018, New World Retail sold $30 000 in inventory to Super Retail for on-sale to external parties. The inventory had originally cost New World Retail $22,000. At the year end, Super Retail still had half of the inventory on hand. On-hand inventory was expected to be sold in the subsequent period. There were no other intro-group transactions between Super Retail and New World Retail for year ended 30 June 2018.

Super Retail incurred the following transactions with New World Retail during financial year 01/07/2018-30/06/2019:

 Super Retail made total sales in inventory to New World Retail of $62 000, while New World Retail sold $65 000 in inventory to Super Retail. These inventories are expected to be sold to external parties.

The closing inventory in Super Retail includes inventory acquired from New World Retail at a cost of $36 000. This cost New World Retail $29 000 to purchase. New World
Retail sold all inventory acquired from Super Retail to external parties during the year.

 On 1 July 2018 Super Retail sold an machinery to New World Retail for $145 000 when its carrying amount in Super Retail’s accounts was $100 000 (initial cost $168 650, accumulated depreciation $68 650). This machinery is assessed as having a remaining useful life of 9 years.

 New World Retail declared and paid dividend $100 000 on 30 June 2019.

Super Retail provided management consultation to New World Retail and this was the first time that Super Retail Ltd provided such service to New World Retail. At the end of 2019, New World Retail paid $8,000 for these services and has a balance of $1000 payable at year end.

 New World Retail has a number of long-term loans, including a four-year loan for $50,000 from Super Retail. This loan was effective from 1 July 2018. Interest rate was
4% per annum. During the year ending 30 June 2019, New World Retail paid $1000 interest on this loan.

Part B
Super Retail is an Australian company and growing very fast. The Board of Directors expressed the interest to acquire another retailing business in America.
The Board of Directors is concerned about some obstacles to acquire a business overseas.

From financial accounting perspective, the Board raised the following question:
‘What are some possible impediments to acquire a business in America, any possible plans/solutions to overcome those possible impediments?

After a meeting with your supervisor, you were requested to prepare response/suggestions to the above question.

You might make reference to relevant paragraphs of International Financial Reporting Standards, Conceptual Framework, Generally Accepted Accounting Principles and to other sources of material.

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