Assignment ACC705 T2 2017

Worth 30 marks

Due week 10, submit soft copy online on Moodle, and printed copy to
lecturer at the start of lecture time.

Students on Wednesday class Wednesday lecture time week 10, students on

Friday class Friday lecture time week 10. See subject outline for details of
assignment requirements.

Q1
Consolidation worksheet entries
Ben Ltd operates a number of supermarkets with an emphasis on the supply of quality produce
The operations of Sam Ltd are primarily in the fine fruit market. Believing that the acquisition
of Sam Ltd would enable Ben Ltd to expand its supply of quality produce to its customers, Ben
Ltd commenced actions to acquire the shares of Sam Ltd. On 1 July 2013, Ben Ltd acquired all
the issued shares (cum div.) of Sam Ltd for $123 500. At this date the equity of Sam Ltd
consisted of:

Share capital $100 000

Reserves 5 000
Retained earnings 10 000

On 1 July 2013, Sam Ltd had recorded a dividend payable of $6000 and goodwill of $5000
(net of accumulated impairment losses of $7000). The dividend was paid in August 2013. In the
previous years annual report Sam Ltd had reported the existence of a contingent liability for
damages based upon a lawsuit by a customer who had slipped on some fallen fruit in one of the
stores operated by Sam Ltd. Ron Ltd calculated that this liability had a fair value of $10 000.
Sam Ltd also had some customer databases that were not recorded as assets but Ron Ltd placed
affair value of $6000 on these items. Sam Ltd believed that the databases had a future life of
4 years.
All of the identifiable assets and liabilities of Sam Ltd were recorded at amounts equal to their
fair values except for the following:

Carrying amount Fair value

Plant (cost $120 000) $94 000 $96 000
Land 80 000 85 000
Inventory 20 000 24 000

The plant had an expected remaining useful life of 10 years. The land was sold by Sam Ltd in
February 2015. The inventory was all sold by 30 June 2014.
In February 2016, Sam Ltd transferred $3000 of the reserves on hand at 1 July 2013 to
retained earnings. The remaining $2000 was transferred in February 2017.
The court case involving the damages sought by the customer was settled in May 2017.
Sam Ltd was required to pay $7500 to the customer.

Required

Prepare the consolidation worksheet entries for the preparation by Sam Ltd of its consolidated
financial statements at 30 June 2017.
 1 July 2013 - Ben Ltd
acquired all shares to
Sam for 123,500 Ben Ltd Sam Ltd Notes
Debit Credit Debit Credit

Equity
Share Capital 100,000
Reserves 5,000
Retained
Earnings 10,000
Carrying
Amount Fair Value
Plant (Cost 120000) 2,000 at 70% 94,000 96,000
Land 5,000 at 70% 80,000 85,000
Inventory 4,000 at 70% 20,000 24,000
Fair Value in
August 2013 with
Databases 6,000 at 70% life of 4 years

Total Assets 126900

Liabilities

Dividend Payable
(Transferred to Ben 123,50
Ltd) 0 6000
Contingent Liability
(Lawsuit) 10,000 at 70%
Goodwill 5,000

Net Fair Value of Sam

Ltd 114,900 Total Assets - Goodwill - Liability@70%

Transferred by Bob 117500

Goodwill 2600
Recorded Goodwill 5000
Unrecorded Goodwill -2400

Information considered;
Inventory was sold,
Dividend was payed,
Land sold,
Two transfers from reserves;
o 3000
o 2000
Settlement of court case
Database becomes outdated

At 30 June 2017
Business Combination Debit Credit
 Depreciation 26,000
Plant 24000
Deferred Tax Liability 600
Business Combination Reserve 1400 5000-3600

Depreciation 200
Retained Earnings 600
10% x 2000 per year for 4
Accumulated 800 years

Tax Liability 240

Income Tax Expense 60
Retained Earnings 180

Databases Amortised 1500 Life of 4 years

Income Tax 450
Retained Earnings 3150 Moving from Inventory
Transfer from Reserve 4200

Total Transfers 7000

Income Tax 3000
Damages (Lawsuit) 7500
Gain from the Lawsuit 2500

Total Losses 7000

Total Reserve 2400
Goodwill 9400

For balancing out payments in Ben;

debit credit
10000 + 2800 + 3500 +
Earnings 19300 3000
Share Capital 100000
Reserves 2000
Combination Valuation
Reserve 3800
Shares in Sam Ltd 117500

Reserve Transfer 2000 2000

Business valuation reserve 7500 7500

(Court Case)
Database Decommissioned 6000 6000
Q2 The following details are taken from the accounting records of Mercy Ltd as at 30
June 2016:
Debit Credit
Plant and equipment (net of depreciation) $ 800 000
Land 600 000
Buildings (net of depreciation) 900 000
Investments (long-term) 460 000
Accounts receivable 600 000
Allowance for impairment of receivables $ 60 000
Inventory 520 000
Bank overdraft 200 000
Accounts payable 400 000
Dividend payable 256 000
Goodwill (net of impairment) 300 000
Share capital (3 200 000 shares) 2 400 000
General reserve 290 000
Retained earnings 375 000
Income tax payable 249 000
Other debtors 50 000
$4 230 000 $4 230 000

Additional information
(a) Profit for the year was $581 000.
(b) Balance of retained earnings at 1 July 2015 was $80 000.
(c) During the year $30 000 was transferred from retained earnings to general reserve.
(d) A final dividend of 8c per share has been declared by directors and is not subject to
shareholders approval.

Required

Prepare the statement of financial position and statement of changes in equity to comply
with AASB 101. Include Notes to the accounts for the above financial statements

Statement of Financial Position

As at 30 June 2016 Notes 01-Jul-15 30 June 2016

$000 $000
Assets
Current
AASB 101.54(h) Accounts Receivable 600
AASB 101.54(g) Inventories 520

Current 1120
Non-Current
AASB 101.54(a) Plant and Equipment (after depreciation) 800
AASB 101.54(a) Land 600
AASB 101.54(a) Buildings (after depreciation) 900
AASB 101.57 Goodwill 300
AASB 101.54(e) Long-term Investments 460
AASB 101.67 Other Debtors 50
 Non-Current 3110

Total Assets 4230

AASB 101.51(c) Liabilities

AASB 101.60,
101.69 Current
AASB 101.54(k) Accounts Payable 400
AASB 101.54(n) Income Tax Payable 249
AASB 101.70 Dividend Payable 1 256

Non-Current
AASB 101.54(l) Allowance for impairment of Receivables 2 60
AASB 101.54(m) Bank overdraft 200

Net Assets 3065

Equity
AASB 101.54(r) Share Capital 3 2400
AASB 101.54(r) General Reserve 4 260 290
AASB 101.54(r) Retained Earnings 5 80 375

Total Equity 3065

Notes

1 8c per share. 3200,000 shares

2 Contingent Liability
3 3,200,000 shares
4 30k shifted from previous year
581 profit - 256 for dividend - 30 k reserve + 80 from
5 previous year
Statement of Changes in Equity

General Other Retained Total

Share Capital Reserve Components Earnings Equity
$1,000 $1,000 $1,000 $1,000 $1,000
Balance at 1 July 2015 2400 260 80
Profit for Period
Dividends 256
Issue of Share Capital 30 -30
Transactions with Owners
Other Income
Total Income for the period -256 581

Balance at 30 June 2016 2400 290 375 3065