ACT305-Corporate Accounting
Section A
Question One
When accounting for business combinations how would you decide which entity was the acquiring entity?
Question Two
a)When a parent obtains control over a subsidiary, the carrying amounts of the subsidiary’s assets at the date of acquisition are compared to fair value. If there are differences between these values, adjustments are required to be made in the consolidation worksheets. Explain why.
b)Which asset that is acquired is not measured at fair value?
Question Three
Why are intragroup transactions adjusted for on the consolidation worksheet?
Question Four
There has been considerable publicity given to the damage caused to the land by mining operations which raises the issue of who is responsible for restoring the land after mining operations cease. If a company is not legally required to carry out the restoration but has decided that it will do so because as a global citizen in the Directors’ Report it states that it is the right thing to do, would the company recognise a liability in the financial statements? Give reasons for your answer.
Question Five
When identifying the NCI share of equity explain how intragroup transactions can influence the calculation.
Section B
Question One
Kelly Mills Ltd was wound up on 22nd August 2020.
Kelly Mills Ltd
Trial Balance
as at 22nd August 2020
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Debit
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Credit
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Cash
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$46 800
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Inventories
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981 760
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Plant and equipment
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1 099 280
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Land and buildings
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312 000
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Accumulated losses
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420 160
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Accounts payable
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$832 000
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Alliance Bank mortgage loan (secured on land and buildings)
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208 000
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Share capital: 1 820 000 ordinary shares issued for $1 each, fully paid
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. .
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1 820 000
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$2 860 000
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$2 860 000
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The following information is relevant
(a)The assets were sold and realised the following cash amounts:
Inventories $624 000
Plant and machinery $728 000
(b)The Alliance Bank took possession of the land and buildings, sold them for $468 000 and after the debt was cleared paid any excess funds to the liquidator.
(c)Liquidation costs were $98 800.
(d)The liquidator paid all liabilities.
Required
Prepare the JOURNAL ENTRIES to wind up the affairs of Kelly Mills Ltd and to calculate any deficiency and distribution to the shareholders.
T accounts are NOT required.
Question Two
The Humpty Doo Rare Earths Mining Company started mining operations on 1 July 2019. In the year to the 30th June 2020 three areas were explored, Europium, Gadolinium, and Terbium. The following costs were incurred:
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Exploration and evaluation costs
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Exploration and evaluation costs
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Total site costs
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Property, plant and equipment
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Intangibles assets
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$m
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$m
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$m
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Europium
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9
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18
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27
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Gadolinium
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18
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12
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30
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Terbium
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9
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21
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30
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36
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51
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87
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Rare earths were discovered at Europium on 17th January 2020. In April 2020 after a review of the prospects for the Gadolinium site it was decided to abandon operations there. Exploration was still a work in progress at the Terbium site, but no decision had been made about the commercial potential of that site. Development of the Europium site had continued during the year and at 30th June 2020 $36 million had been incurred. These costs are to be written off on a production basis.
This cost relates to the construction of plant and equipment. It is estimated that there are 150,000 tonnes of rare earth which has a current sale price of $3,500 per tonne. By the 30th June 2020 15,000 tonnes had been extracted at a production cost of $6 million of which 12,000 tonnes were sold.
Required
Record this first year’s transactions by journal entry using the area of interest method.
Question Three
On 1 July 2019 Prometheus Ltd acquired 90% of the shares of Unbound Ltd for $326 430. At this date the equity of Unbound Ltd consisted of share capital of $225 000 and retained earnings of $90 000. All the identifiable asset and liabilities of Unbound Ltd were recorded at amounts equal to fair value except for:
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Carrying amount
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Fair value
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Land
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$ 60 000
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$ 67 500
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Plant (cost $285 000)
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225 000
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247 500
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Inventory
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11 250
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13 500
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The plant was considered to have a further 10-year life. All the inventory was sold by 30 June 2020. The tax rate is 30%. Prometheus Ltd uses the partial goodwill method.
During the 2019–20 period Unbound Ltd recorded a profit of $22 500.
Required
Prepare the consolidation worksheet journal entries for the preparation of the consolidated financial statements of Prometheus Ltd at 30 June 2020. (round to the nearest dollar, worksheets are not required).
