2103AFE Company Accounting
Group Assignment
Trimester 1, 2017
This assignment requires students to prepare consolidated financial statements in accordance with
appropriate Australian Accounting Standards and Corporate Legislation.
DUE DATES:
Assignment:
SPARK ratings: 5.00pm Friday 19th May 2017
5:00pm Friday 2nd June 2017 TOTAL WEIGHTING: 20%
This is calculated as follow:
Part A (by GROUP): 10% - Group mark multiplied by SPA factor*
Part B (by INDIVIDUAL): 10% - Individual mark
*A group mark will be allocated for technical content OUT OF 10%. This will be adjusted for
each student using the SPA factor generated by SPARK. An adjusted mark will be calculated
for each individual student; therefore, each member of the group may receive a different fnal assessment percentage.
SPARK ratings will be included in relation to the individual mark awarded for Group Assignment only.
REQUIREMENTS:
1. Students are required to complete Group Assignment in a group.
2. All answers must use proper English expression and grammar.
Students must complete the Self & Peer Assessment Resource Kit (SPARK) Ratings of the group. Final
ratings must be completed by the due date shown above. Otherwise a penalty of 20% will be given.
3. The assignment is to be submitted on-line by the due date. SUBMISSION:
1. Detailed instructions on how to submit the assignment is available in the Course Home
Tab/Assignment Submission on Learning@Griffith.
2. The assignment must be word-processed using Microsoft Word or Excel, Times New Roman, 12point font, double-spaced.
3. Part A is to be submitted by the group (only one member submits the assignment on behalf of
the group). Part B is to be submitted by the individual.
4. Each group member must complete the electronic assignment cover sheet in “assignment “on
L@G.
5. Marks may be deducted if any of the requirements (1-4) or submission instructions (1 -3) are not
completed. 1 Part A (by group): Consolidation Case Study: Perth Ltd and Summer Ltd
Perth Ltd acquired 80% of the share capital of Summer Ltd on 1 July 2011. The following equity
balances appeared in the records of Summer Ltd at the date of acquisition:
$210,000
Share capital (210,000 shares)
6,100
General reserve
75,000
Retained earnings
Financial information at 30 June 2016 of Perth Ltd and its subsidiary company, Summer Ltd, is shown
below.
Perth Ltd
Summer Ltd
$
$
Sales revenue
Cost of sales 708,000
(273,000) 492,000
(178,500) 435,000 313,500 —
10,500
16,800 10,500
—
— Administrative expenses
Distribution expenses
Depreciation on machinery
Finance expenses
Other expenses 462,300
(31,500)
(189,000)
(31,500)
(27,600)
(29,400) 324,000
(16,800)
(126,000)
(31,500)
(12,000)
(25,200) Total operating expenses
Profit before tax
Income tax expense (309,000)
153,300
(52,500) (211,500)
112,500
(34,500) Profit after tax
Retained earnings (1/7/2015) 100,800
105,000 78,000
94,500 Transfer to general reserve
Interim dividend paid
Final dividend declared 205,800
(6,300)
(31,500)
(37,800) 172,500
—
(21,000)
(42,000) Retained earnings (30/6/2016)
General reserve
Other components of equity (1/7/2015)
Share capital (75,600)
130,200
105,000
27,300
630,000 (63,000)
109,500
36,000
21,000
210,000 Gross Profit
Other revenue:
Debenture interest
Management fees
Dividend from Summer Ltd 2 Liabilities:
Debentures
Deferred tax liability
Current tax liability
Dividend payable
Other current liabilities
Cash and cash equivalents
Trade receivables
Inventory
Debentures in Perth Ltd
Shares in Summer Ltd
Machinery (cost)
Accumulated depreciation – machinery
Other depreciable assets
Accumulated depreciation
Deferred tax asset
Land 255,000
—
52,500
37,800
189,000 60,000
14,700
35,700
42,000
25,200 1,426,800
107,100
68,250
189,000
270,000
252,000
(136,500)
159,600
(84,000)
179,250
422,100 554,100
6,000
40,200
58,500
105,000
—
214,200
(115,500)
115,500
(52,500)
63,000
119,700 1,426,800 554,100 Additional information
i.
At 1 July 2011, all the identifiable assets and liabilities of Summer Ltd were recorded at fair
value except for the following assets:
Carrying amount
Fair value
Land
$62,000
$80,000
105,000
120,000
Machinery (cost 135,000)
42,000
36,000
Receivable
The machinery has an expected life of 10 years, with benefits being received evenly over that
period. Differences between carrying amounts and fair values are adjusted on consolidation.
The land on hand at 1 July 2011 was sold on 1 March 2013 for $84,000. Any valuation
reserve in relation to the land is transferred on consolidation to retained earnings. By 30
June 2012, receivables had all been collected.
ii. Perth Ltd uses the full goodwill method. The fair value of the non-controlling interest at 1
July 2011 was $66,000.
iii. Opening inventory of Summer Ltd includes unrealised profit of $5,000 on inventory sold by
Perth Ltd. It was all sold by Summer Ltd during the year.
iv. During the year, intragroup sales by Summer Ltd to Perth Ltd were $80,000. The mark-up on
cost of all sales was 25%. At 30 June 2016, Perth Ltd’s inventory included $35,000 of items
acquired from Summer Ltd.
v. On 1 January 2016, Summer Ltd sold an item of inventory to Perth Ltd for $18,000 at a profit
before tax of $3000. Perth Ltd had treated this item as an addition to its machinery and
depreciated at 10% p.a. straight-line. 3 vi. On 1 April 2016, Perth Ltd sold $15,000 worth of inventory to Summer Ltd. The cost of this
inventory was $9000. By 30 June 2016, Summer Ltd had sold 60% of the inventory to outside
entities.
vii. Some of the items manufactured by Summer Ltd are used as machinery by Perth Ltd. One of
the machinery items held by Perth Ltd at 30 June 2016 was purchased from Summer Ltd on 1
January 2015. It had cost Summer Ltd $17,500 to manufacture this item and was sold to
Perth Ltd for $25,000. Perth Ltd depreciates such items at 10% p.a. on cost.
viii. Management fees derived by Perth Ltd were all from Summer Ltd and represented charges
made for administration. ix. The tax rate is 30%.
Required:
a) Prepare the acquisition analysis at 1 July 2011
b) Prepare i) the consolidation journal entries; ii) consolidation worksheet (Show all workings) for
the year ended at 30 June 2016.
Note: Consolidation worksheet and all calculation should be presented in the same format as
used in Leo, Hoggett and Sweeting, 10ed textbook. 4 Required A)
The fair value of the identifiable net assets of Summer Ltd
= Share Capital $210,000 + General reserve $6,100 + Retained earnings $75,000 + Land $5,400
($18,000 x 30%) + Machinery $4,500 ($15,000 x 30%) + Receivable $-1,800 ($-6000 x 30%)
= $299,200
Consideration transferred = $270,000
Non-controlling interest = $66,000
Agreegate of Consideration transferred and NCI = $336,000
Total Goodwill = $336,000 – $299,200 = $36,800
Goodwill of Summer LTD
Fair value of Summer LTD = $66,000/20% = $330,000
The fair value of the identifiable net assets of Summer Ltd = $299,200
Goodwill of Summer LTD = $330,000 - $299,200= 30,800
Goodwill of Perth LTD
Total Goodwill acquired = $36,800
Goodwill of Summer Ltd = $30,800
Goodwill of Perth LTD - Control premium = $6,000
Required B)
i) The consolidation journal entries at 30 June 2016
(a) Unrealised profit in opening
Unrealised profit in opening inventory : Summer Ltd to Perth LtdOpening inventory of Summer Ltd
includes unrealised profit of $5,000 on inventory sold by Perth Ltd. 5 Part B (by individual): Theory Questions
Q1. a) Discuss four prescriptions contained in AASB 10 Consolidated Financial Statements when
applying to the consolidation process.
b) Discuss four issues that may challenge existing policies and procedures of the consolidation
process when applying AAASB 10 Consolidated Financial Statements. Q2. Why is it necessary to make adjustments for intragroup transactions? When does an intragroup
transaction consolidation adjustment require us to perform a consolidation adjustment to tax
expense? 6

 

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