Accounting for Group Structures - Intangible Assets - Economics Assignment Help

Assignment Task:

Topic 1:

Part A:

Following are the list of transactions between FMCG Ltd and it is subsidiary RG Ltd during the year 1 July 2018 to 30 June 2019:
• RG Ltd paid $26,000 in management fee to FMCG Ltd.
• FMCG management determined that the goodwill is impaired by $5,000 in the current financial year. Previously accumulated impairment amounted to $22,000.
• During the year FMCG Ltd made total sales to RG Ltd of $60,000, while RG Ltd sold $50,000 in inventory to FMCG Ltd.
• The opening inventory in FMCG Ltd as at 1 July 2018 included inventory acquired from RG Ltd for $40,000 that had cost RG Ltd $33,000 to produce.
• The closing inventory in FMCG Ltd includes inventory purchased from RG Ltd at a cost of 33,000. The cost of this inventory to RG Ltd was $27,000.
• The closing inventory of RG Ltd includes inventory acquired from FMCG Ltd at a cost of $12,000. This cost FMCG Ltd $9,000 to produce.
• On 1 July 2018, FMCG Ltd sold an item of equipment to RG Ltd for $120,000 when its carrying value in FMCG Ltd was $80,000.
• Management of FMCG Ltd values any non-controlling interest at the proportionate share of RG Ltd’s identifiable net assets.
• The applicable tax rate is 30%.
• All calculated amounts are to be rounded to the nearest whole dollar.

Required:

Prepare the consolidation eliminations journals necessary and required before preparation of consolidated financial statements of FMCG Ltd and its subsidiary (state narrations to journals, provide clear workings and explanations). Also prepare a calculation of non-controlling interest at the acquisition date, between acquisition date and the beginning of the reporting period and for the current reporting period.

Part B:

The consolidated financial statements of FMCG Ltd and RG Ltd were presented to the Board. The Board is alarmed that the economic entity’s balance sheet (consolidated balance sheet) shows a deferred tax balance when the accounts for FMCG Ltd had no deferred tax asset or deferred tax liability.

FMCG management is also planning to acquire another entity ABC Investments Ltd in the near future. Management pointed out to the Board that on the acquisition, the financial results of this new subsidiary (ABC Investments Ltd) will also be consolidated in the economic entity financial statements.

One of the Board members noted that the new business to be acquired by FMCG Ltd is an investment company. Its financial statements should not be consolidated because it is involved in the investments industry, whereas all of the other companies in the economic entity are involved in the retail industry.

Required:

As the financial accountant you are requested to prepare a response to the following questions:

(a) Why does the economic entity have a deferred tax balance?
(b) Should the financial statements of proposed acquired business, ABC Investments Ltd, be consolidated into the economic entity and why?

Topic 2:

The Board’s view, consistently reflected in previous proposals for intangible assets, is that there should be no difference between the requirements for:

(a) intangible assets that are acquired externally;
(b) internally generated intangible assets, whether they arise from development activities or other types of activities.

Required:

Evaluate the above view, identify and explain inconsistencies between this view and the current requirements of AASB 138.

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