MPA505: Corporate Accounting - Business Combinations - Andy Ltd - Accounting and Finance Assignment Help

Assignment Task:

Part A: Discussion Question (20 raw marks)

Do you agree or disagree with this statement? Given reasons.

AASB 3 governs business combinations where one entity, clearly identified as the acquirer, obtains control of one or more other businesses, which take the form of an entity or a group of assets. AASB 3 does not cover business combinations involving entities and business under common control.

Part B: Consolidation (85 raw marks)

The following financial statements of Andy Ltd and its subsidiary Irons Ltd have been extracted from their financial records at 30 June 2019.

Other information: 

• Andy Ltd acquired its 100 per cent interest in Irons Ltd on 1 July 2012—that is, seven years earlier. The cost of the investment was $500 000. At that date the capital and reserves of Irons Ltd were:

• At the date of acquisition all assets were considered to be fairly valued.

• During the year Andy Ltd made total sales to Irons Ltd of $81 250, while Irons Ltd sold $65 000 in inventory to Andy Ltd.

• The opening inventory in Andy Ltd as at 1 July 2018 included inventory acquired from Irons Ltd for $52 500 that cost Irons Ltd $43 750 to produce.

• The closing inventory in Andy Ltd includes inventory acquired from Irons Ltd at a cost of $42 000. This cost Irons Ltd $35 000 to produce.

• The closing inventory of Irons Ltd includes inventory acquired from Andy Ltd at a cost of $15 000. This cost Andy Ltd $12 000 to produce.

• The management of Andy Ltd believe that goodwill acquired was impaired by $3750 in the current financial year. Previous impairments of goodwill amounted to $20 000.

• On 1 July 2018 Andy Ltd sold an item of plant to Irons Ltd for $145 000 when its carrying amount in Andy Ltd’s accounts was $101 250 (cost $168 750, accumulated depreciation $67 500). This plant is assessed as having a remaining useful life of six years. The Group has a policy of measuring its property, plant and equipment using the ‘cost model’.

• Irons Ltd paid $33 000 in management fees to Andy Ltd.

• The tax rate is 35 per cent.

REQUIRED

1. Prepare the acquisition analysis as at 1 July 2012.

2. Prepare the consolidated journal entry to eliminate the investment as at 30 June 2019.

3. Prepare the consolidation worksheet journal entries to eliminate the effects of intragroup transactions as at 30 June 2019.

4. Prepare the consolidation worksheet for the preparation of the consolidated financial statements for the period ended as at 30 June 2019.

5. Prepare the consolidated statement of financial position and consolidated statement of profit or loss and other comprehensive income of Andy Ltd and Irons Ltd as at 30 June 2019.

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