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Financial Accounting - Consolidation: Non-Controlling Interests - Peaceful Ltd Assessment Answer
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Internal Code: 1AHJII
At 30 June 2016, Serene Ltd had recorded a dividend payable of $10,000. The inventory on hand at 1 July 2016 was all sold by 30 November 2016. The machinery had a further 5-year life, but was sold on 1 April 2019. At acquisition date, Serene Ltd reported a contingent liability of $15,000 that Peaceful Ltd considered to have a fair value of $7,000. This liability was settled in June 2017 for $10,000. At acquisition date, Serene Ltd had not recorded an asset relating to equipment design as the asset was still in the research phase. Peaceful Ltd placed a fair value on the asset of $12,000, reflecting expected benefits existing at acquisition date. The asset was considered to have a further 10-year life. On 1 January 2018, the asset met the requirements of AASB 138 Intangible Assets and subsequent expenditure by Serene Ltd on the asset was capitalised.
Peaceful Ltd uses the full goodwill method. At 1 July 2016, the fair value of the non-controlling interest was $75,000.
Additional information
On 1 July 2017, Serene Ltd sold an item of plant to Peaceful Ltd at a profit before tax of $4,000. Peaceful Ltd depreciates this class of plant at a rate of 10% p.a. on cost while Serene Ltd applies a rate of 20% p.a. on cost.
At 30 June 2018, Peaceful Ltd had on hand some items of inventory purchased from Serene Ltd in June 2018 at a profit before tax of $500. These were all sold by 30 June 2019.
During the financial year ending 30 June 2019, Peaceful Ltd recorded a sales of inventory to Serene Ltd at $12,000, after adding a mark-up of 20% on cost. $3,000 of this inventory remains unsold by 30 June 2019.
The other components of equity relate to financial assets. These assets are measured at fair value with movements in fair value being recognised in other comprehensive income.
The parent and the subsidiary are considered to be separate cash generating units. Management have analysed the impairment indicators on an annual basis and conducted an impairment test on the subsidiary cash generating unit in the financial year ending 30 June 2018, which resulted in the writing down of goodwill in the records of the subsidiary by $4,000. There have been no other business combinations involving these entities since 1 July 2016.
Question 2
Topic 4: Investment in associates
Abby Ltd acquired 30% of the issued ordinary shares of Binny Ltd for $160,000 on 1 July 2018. The equity of Binny Ltd at that date was as follows. All assets were recorded at fair value.
At 30 June 2019, Abby Ltd had inventories costing $60,000 on hand which had been purchased from Binny Ltd. Binny Ltd had recognised a profit before tax of $25,000 on the sales.
At 30 June 2019, Binny Ltd had inventories costing $20,000 on hand which had been purchased from Abby Ltd. Abby Ltd had recognised a profit before tax of $5,000 on the sales.
For the year ended 30 June 2019, the income and changes in equity of Binny Ltd are as follows:
Additional information:
All dividends are paid/declared out of the current year profit.
Abby Ltd recognises dividends as revenue when they are declared by the investee.
The tax rate is 30%.
Question 3
Topic 5: Accounting for foreign currency transactions
MyBeauty Ltd is an Australian company which specialises in manufacturing and distributing health and beauty products to both local and international clients. The company has a reporting period which ends on 30 June and the Australian dollar is the functional and presentation currency. For the financial year ending 30 June 2019, MyBeauty LTd has entered into two independent transactions denominated in foreign currency as follows.
Transaction A
MyBeauty Ltd sells some goods on credit to Bristol Industries, a British company. The contract, dated 3 January 2019, is denominated in United Kingdom pounds and the contract amounts to £150,000. Bristol Industries settles the contract on 29 January 2019.
Transaction B
On 1 July 2017, MyBeauty Ltd entered into a loan denominated in Euros, borrowing €300,000 from a European Bank. The following summarises the bank loan statements over the period 1 July 2017 to 30 June 2019.
Required:
In accordance with AASB 121, prepare all relevant journal entries of MyBeauty Ltd to account for the above transactions for the financial years ending 30 June 2018 and 2019, where relevant.
Financial Accounting Assessment Answer
Assignment Task: On 1 July 2016, Peaceful Ltd acquired 80% of the shares of Serene Ltd on an ex-div basis for $305,600. All the identifiable assets and liabilities of Serene Ltd were recorded at amounts equal to their fair values except for:
At 30 June 2016, Serene Ltd had recorded a dividend payable of $10,000. The inventory on hand at 1 July 2016 was all sold by 30 November 2016. The machinery had a further 5-year life, but was sold on 1 April 2019. At acquisition date, Serene Ltd reported a contingent liability of $15,000 that Peaceful Ltd considered to have a fair value of $7,000. This liability was settled in June 2017 for $10,000. At acquisition date, Serene Ltd had not recorded an asset relating to equipment design as the asset was still in the research phase. Peaceful Ltd placed a fair value on the asset of $12,000, reflecting expected benefits existing at acquisition date. The asset was considered to have a further 10-year life. On 1 January 2018, the asset met the requirements of AASB 138 Intangible Assets and subsequent expenditure by Serene Ltd on the asset was capitalised.
Peaceful Ltd uses the full goodwill method. At 1 July 2016, the fair value of the non-controlling interest was $75,000.
Additional information
On 1 July 2017, Serene Ltd sold an item of plant to Peaceful Ltd at a profit before tax of $4,000. Peaceful Ltd depreciates this class of plant at a rate of 10% p.a. on cost while Serene Ltd applies a rate of 20% p.a. on cost.
At 30 June 2018, Peaceful Ltd had on hand some items of inventory purchased from Serene Ltd in June 2018 at a profit before tax of $500. These were all sold by 30 June 2019.
During the financial year ending 30 June 2019, Peaceful Ltd recorded a sales of inventory to Serene Ltd at $12,000, after adding a mark-up of 20% on cost. $3,000 of this inventory remains unsold by 30 June 2019.
The other components of equity relate to financial assets. These assets are measured at fair value with movements in fair value being recognised in other comprehensive income.
The parent and the subsidiary are considered to be separate cash generating units. Management have analysed the impairment indicators on an annual basis and conducted an impairment test on the subsidiary cash generating unit in the financial year ending 30 June 2018, which resulted in the writing down of goodwill in the records of the subsidiary by $4,000. There have been no other business combinations involving these entities since 1 July 2016.
Question 2
Topic 4: Investment in associates
Abby Ltd acquired 30% of the issued ordinary shares of Binny Ltd for $160,000 on 1 July 2018. The equity of Binny Ltd at that date was as follows. All assets were recorded at fair value.
At 30 June 2019, Abby Ltd had inventories costing $60,000 on hand which had been purchased from Binny Ltd. Binny Ltd had recognised a profit before tax of $25,000 on the sales.
At 30 June 2019, Binny Ltd had inventories costing $20,000 on hand which had been purchased from Abby Ltd. Abby Ltd had recognised a profit before tax of $5,000 on the sales.
For the year ended 30 June 2019, the income and changes in equity of Binny Ltd are as follows:
Additional information:
All dividends are paid/declared out of the current year profit.
Abby Ltd recognises dividends as revenue when they are declared by the investee.
The tax rate is 30%.
Question 3
Topic 5: Accounting for foreign currency transactions
MyBeauty Ltd is an Australian company which specialises in manufacturing and distributing health and beauty products to both local and international clients. The company has a reporting period which ends on 30 June and the Australian dollar is the functional and presentation currency. For the financial year ending 30 June 2019, MyBeauty LTd has entered into two independent transactions denominated in foreign currency as follows.
Transaction A
MyBeauty Ltd sells some goods on credit to Bristol Industries, a British company. The contract, dated 3 January 2019, is denominated in United Kingdom pounds and the contract amounts to £150,000. Bristol Industries settles the contract on 29 January 2019.
Transaction B
On 1 July 2017, MyBeauty Ltd entered into a loan denominated in Euros, borrowing €300,000 from a European Bank. The following summarises the bank loan statements over the period 1 July 2017 to 30 June 2019.
Required:
In accordance with AASB 121, prepare all relevant journal entries of MyBeauty Ltd to account for the above transactions for the financial years ending 30 June 2018 and 2019, where relevant.
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