ACC304: Company Accounting - Case Study

Assignment Task

Learning Outcomes
This assessment addresses the following subject learning outcomes:
b) Identify and apply appropriate accounting standards and processes to a range of authentic accounting scenarios.
c) Prepare general-purpose financial statements for a group of companies in accordance with appropriate accounting standards.

Assessment Task:
Case study: PART A Elton Ltd acquired 100% interest in John Ltd on 1 May 2021 and paid $500,000 in cash. At that date, John Ltd.’s net assets were represented by its shareholders’ equity consisting of share capital of $200,000, general reserve of $20,000 and retained earnings of $130,000.
On the date of the acquisition, all assets and liabilities were equal to fair value except for the following:
(a) John Ltd had inventories recorded for $480,000 which had a fair value of $520,000. These inventories were sold to external parties by 30 June 2022 for $658,000.
(b) John Ltd’s Land had a fair value of $500,000 and had recorded the asset at $450,000.

Additional information:
John Ltd has existing goodwill recorded of $1,000 on acquisition date.
The corporate tax rate is 30%. 
The following intra-company transactions have occurred since acquisition date:
a) On 30 April 2022, John Ltd purchased goods for $125,000 from Elton Ltd on credit. This inventory had originally cost Elton Ltd $80,000. As at 30 June 2022, 40% of inventory was still on hand.
b) On 1 June 2021, Elton Ltd sold inventory to John Ltd for $295,000, recording a before-tax profit of $80,000. By 30 June 2021, 100% of this inventory remains unsold by John Ltd.
c) On 1 January 2022, Elton Ltd sold an item of plant for $117,000 to John Ltd. At the date of sale, Elton Ltd had recorded the asset at a carrying amount of $73,000. The plant will be depreciated at a rate of 15% p.a. straight-line for its remaining useful life.
d) John Ltd has management advice to Elton Ltd since acquisition date. The management fee charged is $20,000 per annum and payable 6 monthly on 31 August and 31 January each year. All fees had been paid and received in cash to 31 January 2022. Both companies record accruals.
e) During the year ended 30 June 2022, John Ltd declared a final dividend of $25,000. This was paid on 30 September 2022. 

Required
a) Prepare an acquisition analysis at 1 May 2021.
b) Prepare consolidated worksheet entries for the year ending 30 June 2022. Include dates, narrations and a reference number per entry.
c) A consolidation worksheet for the year ended 30 June 2022. Please enter each entry as a separate amount and not as aggregated totals from part (b) above.
d) Prepare a consolidated Balance sheet in narrative format, for the Elton Ltd group as at 30 June 2022.

PART B
Please ensure your presentation includes reference to the appropriate Australian accounting standards (AASB). Your presentation should focus on demonstrating your technical understanding of why these entries are made rather than only discussing the numeric calculations performed. The following questions relate to Part A of this assessment:
1. Discuss the accounting treatment for any prior year transactions and why these adjustments were necessary
2. Discuss all calculations and consolidation entries required for the management fees elimination entries, including any tax effects.
3. Justify and explain the reason for any consolidation entries you have made to the Plant account and related accounts, including tax effects.

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