BUS356 Semester 1, 2017
Group Assignment
25%
Instructions:
This assignment is to be completed in a pair of 2 students only.
The assignment is made up of two independent questions and both are
to be completed. It is to be typed in Word and a Murdoch Cover page
is to be included.
You may submit a maximum of 3 files only and 1 of those files should
include your cover page. Please submit your assignment by the due
date through the submission link on the LMS portal. No email
submissions will be accepted and only 1 person should submit the
assignment on the group behalf. If both members submit you will be
penalised due to the high Urkund score.
The submission is due by Sunday 4th June 2017, 5:00pm. Question 1 (12 marks)
On 1 July 2015, WC Ltd acquired all the shares in SC Ltd for $400,000. The equity and
liability sections of SC Ltd’s balance sheet showed the following:
Share capital (300,000 shares)
General reserve
Retained earnings
Dividend payable $300,000
$60,000
$10,000
$5,000 At acquisition date, all the identifiable assets and liabilities of SC Ltd were recorded at
amounts equal to fair value except for:
Inventory
Machinery (cost $200,000) Carrying amount
$120,000
$150,000 Fair value
$130,000
$165,000 In June 2017, a $4,000 dividend was declared by SC Ltd from post-acquisition profits to be
paid in August 2017.
The inventory was all sold by 30 June 2016. The machinery had a further five year life and is
depreciated on a straight line basis. This machinery was sold on 1 January 2017.
At the acquisition date, SC Ltd had a contingent liability of $20,000 that WC Ltd considered
to have a fair value of $12,000. This liability was settled in full at its fair value in June 2017.
Goodwill was not impaired in any period. In the year ending 30 June 2016, SC Ltd
transferred $2,000 from pre-acquisition retained earnings to general reserve.
In the year ending 30 June 2017, SC Ltd transferred $5,000 to retained earnings from the
general reserve pre-acquisition.
(Please turn over for the continued question) On 30 June 2017, the trial balances of WC Ltd and SC Ltd were as follows:
Shares in SC Ltd
Inventory
Other current assets
Machinery
Land
Income tax expenses
Goodwill
Interim dividend paid
Dividend declared
Share capital
General reserve
Retained earnings (30/06/2017)
Profit before tax
Debentures
Dividend payable
Other current liabilities
Accumulated depreciation – Machinery WC Ltd
$390 000
174 000
54 000
572 500
166 200
25 000
10 000
10 000
1 401 700 SC Ltd
$160 000
25 000
412 000
65 000
30 000
5 000
5 000
4 000
706 000 $800 000
150 000
15 000
80 000
100 000
10 000
34 700
212 000
1 401 700 $330 000
57 000
15 000
90 000
40 000
4 000
60 000
110 000
706 000 Additional information:
a) On 1 January 2017, SC Ltd sold inventory costing $15,000 to WC Ltd for $25,000.
Half of this inventory was sold by WC Ltd to external parties and the other half of the
inventory was still on hand at 30 June 2017.
b) On 31 March 2017, WC Ltd sold machinery to SC Ltd for $6,000 which was $1,000
below its carrying amount at that date. SC Ltd charged depreciation at the rate of 20%
per annum on this machinery.
c) The tax rate is 30%.
REQUIREMENTS:
Prepare the consolidation worksheet journal entries for the year ended 30 June 2017.
Include narrations and show any relevant workings also in the narrations. (12 marks) Question 2 (13 marks)
On 1 July 2016, Sierra Ltd acquired 80% of the share capital of Sahara Ltd for
$264 800. On that date, the statement of financial position of Sahara Ltd consisted of:
Share capital
General reserve
Asset revaluation surplus
Retained earnings
Liabilities $250 000
10 000
15 000
10 000
180 000
$465 000
$ 35 000
70 000
65 000
300 000
(130 000)
100 000
25 000
$ 465 000 Cash
Inventories
Land
Plant and equipment
Accumulated depreciation – plant and equipment
Trademark
Goodwill At 1 July 2016, all identifiable assets and liabilities of Sahara Ltd were recorded at fair value
except for:
Inventories
Land
Plant and equipment (cost $200
000)
Trademark Carrying amount
$ 70 000
65 000
70 000 Fair value
$ 80 000
85 000
90 000 100 000 110 000 During the year ended 30 June 2017, all inventories on hand at the beginning of the year were
sold, and the land was sold on 28 February 2017 to Oasis Ltd for $80 000. The plant and
equipment had a further 5-year life beyond 1 July 2016 and was expected to be used evenly
over that time. The trademark was considered to have an indefinite life. Any adjustments for
differences at acquisition date between carrying amounts and fair values are made in the
consolidation worksheet.
Sierra Ltd uses the partial goodwill method. The tax rate is assumed to be 30%.
Financial information for Sierra Ltd and Sahara Ltd for the year ended 30 June 2017 is shown
below.
Sales revenue
Other income
Cost of sales
Other expenses
Profit from trading
Gains/(losses) on sale of non-current Sierra Ltd Sahara Ltd
$200 000
$172 000
75 000
30 000
275 000
202 000
162 000
128 000
53 000
31 000
215 000
159 000
60 000
43 000
10 000
5 000 assets
Profit before tax
Income tax expense
Profit for the period
Retained earnings (1/7/16)
Transfer from general reserve
Interim dividend paid
Final dividend declared
Retained earnings (30/6/17)
Asset revaluation surplus (1/7/16)
Gain on revaluation of specialised plant
Asset revaluation surplus (30/6/17) 70 000
20 000
50 000
30 000
—
80 000
12 000
6 000
18 000
$ 62 000 48 000
18 000
30 000
10 000
8 000
48 000
10 000
4 000
14 000
$ 34 000
$ 15 000
5 000
$ 20 000 During the year ended 30 June 2017, Sahara Ltd sold inventories to Sierra Ltd for $8000. The
original cost of these items to Sahara Ltd was $5000. One-third of these inventories were still
on hand at the end of the year.
On 31 March 2017, Sahara Ltd transferred an item of plant with a carrying amount of
$10 000 to Sierra Ltd for $15 000. The item was still on hand at the end of the year. Sahara
Ltd applied a 20% depreciation rate to this type of plant.
Required:
1. Prepare the acquisition analysis and all consolidation worksheet entries
(narrations not required) necessary for preparation of the consolidated financial
statements for Sierra Ltd and its subsidiary for the year ended 30 June 2017.
(10 marks)
2. Prepare the Statement of Changes in Shareholders Equity at 30 June 2017.
(3 marks)

 

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