Arteta Ltd. Case Study - Accounting & Finance Assignment Help

Assignment Task

Question 1
On 1 Jan 2009, Arteta Ltd acquired 70% of the share capital of Rosicky Ltd for $160,000. At this date, the equity of Rosicky Ltd consisted of:
Share capital 120 000
General reserve 20 000
Retained earnings 40 000

At the date of acquisition all assets and liabilities of Rosicky Ltd were carried in their accounting records at fair values with the exception of the following assets:
Carrying amount Fair value
Machinery (cost $100 000) 70 000 80 000
Land 90 000 120 000
The Machinery had a further 5-year useful life as at the date of acquisition. The land was sold on 30 June 2011.

Additional information:
a) Included in the opening inventory of Rosicky Ltd as at 1 January 2011 were items purchased from Arteta Ltd prior to 31 December 2010 for $12,000. The original cost of these items was $9,000. All inventory was sold by Rosicky to external parties by 31 December 2011.
b) During the current year, Rosicky Ltd sold inventory to Arteta Ltd for $20,000. The inventory had cost Rosicky Ltd $15,000. Half of this inventory was still held by Arteta Ltd by the year end.
c) On 30 June 2010, Rosicky Ltd sold machinery to Arteta for $80,000. The machinery had cost Rosicky Ltd $100,000 and had a carrying amount of $60,000 at the date of transfer. The remaining useful life of the machinery at 30 June 2010 was 5 years.
d) Arteta Ltd uses the full goodwill method. The fair value of the non-controlling interest at the acquisition date was $66,000.
e) The tax rate is 30%.
f) The annual reporting date of Arteta group is 31 December. 

The financial statements of the two companies at 31 December 2011 are as follows:
Arteta $
Rosicky $
Revenues 650 000 310 000
Expenses (520 000) (205 000)
Net profit before tax 130 000 105 000
Income tax expense (39 000) (33 000)
Net profit after tax 91 000 72 000
Retained earnings 1 January 2011 58 000 60 000
149 000 132 000
Interim dividend paid (10 000) (5 000)
Final dividend declared (16 000) (18 000)
Retained earnings 31 December 2011 123 000 109 000
Share capital 200 000 120 000
General reserve 110 000 20 000
Dividend payable 16 000 18 000
Advance from Arteta Ltd - 40 000
Other liabilities 70 000 9 000
TOTAL EQUITY AND LIABILITIES 519 000 316 000

Non-current assets 170 000 162 000
Investment in Rosicky Ltd 160 000 -
Advance to Rosicky Ltd 40 000 -
Dividend receivable 12 600 -
Inventory 88 000 105 000
Other current assets 48 400 49 000
TOTAL ASSETS 519 000 316 000

Required
Prepare the consolidation journal entries (including NCI journals) required for the Arteta group for the year ended 31 December 2011. You must use the 3 Step method to calculate NCI and show all workings.

Question 2
On 1 July 2010 King Limited paid $425,000 to acquire a 25% interest in Queen Limited. All assets were recorded at their fair value except for inventory which was
recorded at $10,000 below its fair value. This entire inventory was sold to external parties within the following twelve months.
The financial statements for Queen Limited show a profit of $150,000 for the year ending 30 June 2013 with a dividend of $20,000 paid during the year. King Limited
accrues dividends when they are declared.
On 1 July 2012, King Limited sold an item of plant to Queen Limited at a profit of $5,000. The plant has a further 5 year life. Both companies use the straight line
method of depreciation. The relevant equity balances of Queen Limited are listed below:
1 July 2010 1 July 2012
Share Capital 1 000 000 1 000 000
Retained Earnings 600 000 780 000
Asset Revaluation Reserve 50 000 70 000
The tax rate is 30%.

Required
a) Prepare the acquisition analysis and journals entries to account for the acquisition of Queen Limited using the equity method on consolidation as at 30 June 2013.
b) Calculate the value of the investment of Queen Limited in the books of King Limited as at 30 June 2013. Show your workings.

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