Q1. New Start Ltd acquired 90 per cent of the share capital of Old Timer Ltd on 1 July2014 for a cost of $500000. As at the date of acquisition assets of Old Timer Ltd were fairly valued, other than land that had a carrying amount $50 000 less than its fair value. The recorded balances of equity in Old Timer Ltd as at 1 July 2014 were:
|
$ |
| Share capital |
350000 |
| Retained earnings |
100000 |
|
450000 |
During the financial year to 30 June 2015 Old Timer Ltd sold inventory to New Start Ltd for a price of $50 000.
The inventory cost Old Timer Ltd $30 000 to produce, and 25 per cent of this inventory was still on hand with New Start Ltd as at 30 June 2015.
During the year Old Timer Ltd paid $10 000 in management fees to New Start Ltd.
On 1 July 2014 Old Timer Ltd sold an item of plant to New Start Ltd for $40 000 when it had a carrying amount of $30 000 (cost of $50 000, accumulated depreciation of $20 000). At the date of sale it was expected that the plant had a remaining useful life of four years, and no residual value.
The tax rate is 30 per cent.
REQUIRED: Prepare the consolidation adjustments for the year ended 30 June 2015 and, based on the information provided above, calculate the non-controlling interest in the 2015 profits.
Q2. The Big Company Ltd acquires 100 per cent of the shares of The Little Company Ltd on 1 July 2014 for a consideration of $1.25 million. The share capital and reserves of The Little Company Ltd at the date of acquisition are:
| Share capital |
$750 000 |
| Retained earnings |
$375 000 |
| Revaluation surplus |
$375 000 |
|
$1500 000 |
Additional information
There are no transactions between the entities and all assets are fairly valued at the date of acquisition. No land or plant is acquired or sold by The Little Company Ltd in the year to 30 June 2015. The financial statements of The Big Company Ltd and The Little Company Ltd at 30 June 2015 (one year after acquisition) are:
|
|
The Big
Company Ltd
($000)
|
The Little
Company Ltd
($000)
|
|
Reconciliation of opening and closing retained earnings
|
|
|
|
Profit before tax
|
750
|
375
|
|
Tax
|
(250)
|
(125)
|
|
Profit after tax
|
500
|
250
|
|
Retained earnings at 30 June 2014
|
1 000
|
375
|
|
Retained earnings at 30 June 2015
|
1 500
|
625
|
|
|
The Big
Company Ltd
($000
|
The Little
Company Ltd
($000)
|
|
Statements of financial position
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
Retained earnings
|
|
1500
|
|
625
|
|
Share capital
|
|
3000
|
|
750
|
|
Revaluation surplus
|
|
750
|
|
500
|
|
Current liabilities
|
|
|
|
|
|
Accounts payable
|
|
250
|
|
250
|
|
Non-current liabilities
|
|
|
|
|
|
Loans
|
|
1500
|
|
625
|
|
|
|
7000
|
|
2750
|
|
Current assets
|
|
|
|
|
|
Cash
|
|
250
|
|
200
|
|
Accounts receivable
|
|
875
|
|
300
|
|
Non-current assets
|
|
|
|
|
|
Land
|
|
1750
|
|
750
|
|
Plant
|
|
2875
|
|
1500
|
|
Investment in The Little Company Ltd
|
|
1250
|
|
-
|
|
|
|
7000
|
|
2750
|
REQUIRED
Prepare the consolidated accounts for The Big Company Ltd and The Little Company Ltd as at 30 June 2015.
Q3. The following financial statements of Billy Ltd and its subsidiary Michael Ltd have been extracted from their financial records at 30 June 2015.
|
|
Billy Ltd
($000)
|
Michael Ltd
($000)
|
|
Reconciliation of opening and closing retained eaminqs
|
|
|
|
Sales revenue
|
671.4
|
640
|
|
Cost of goods sold
|
(464)
|
(238)
|
|
Gross profit
|
207.4
|
302
|
|
Dividends received from Michael Ltd
|
93
|
--
|
|
Management fee revenue
|
26.5
|
--
|
|
Gain on sale of plant
|
40
|
35
|
|
Expenses
|
|
|
|
Administrative expenses
|
(30.8)
|
(28.7)
|
|
Depreciation
|
(29.5)
|
(56.8)
|
|
Management fee expense
|
--
|
(26.5)
|
|
Other expenses
|
(101.1)
|
(72)
|
|
Profit before tax
|
205.5
|
143
|
|
Tax expense
|
61.5
|
42.2
|
|
Profit for the year
|
144
|
100.8
|
|
Retained earnings-30 June 2014
|
319.4
|
239.2
|
|
|
463.4
|
340
|
|
Dividends paid
|
(137.4)
|
(93)
|
|
Retained earnings-30 June 2015
|
326
|
247
|
|
|
|
|
|
Statements of financial position
|
|
|
|
Shareholders' equity
|
|
|
|
Retained earnings
|
326
|
247
|
|
Share capital
|
350
|
200
|
|
Current liabilities
|
|
|
|
Accounts payable
|
54.7
|
46.3
|
|
Tax payable
|
41.3
|
25
|
|
Non-current liabilities
|
|
|
|
Loans
|
173.5
|
116
|
|
|
945.5
|
634.3
|
|
Current assets
|
|
|
|
Accounts receivable
|
59.4
|
62.3
|
|
Inventory
|
92
|
29
|
|
Non-current assets
|
|
|
|
Land and buildings
|
224
|
326
|
|
Plant -at cost
|
299.85
|
355.8
|
|
Accumulated depreciation
|
(85.75)
|
(138.8)
|
|
Investment in Michael Ltd
|
356
|
--
|
|
|
945.5
|
634.3
|
Billy Ltd acquired its 100 per cent interest in Michael Ltd on 1 July 2010, that is five years earlier. At that date the capital and reserves of Michael Ltd were:
| Share capital |
$200 000 |
| Retained earnings |
$180 000 |
| |
$380 000 |
At the date of acquisition all assets were considered to be fairly valued.
During the year Billy Ltd made total sales to Michael Ltd of $80 000, while Michael Ltd sold $50 000 in inventory to Billy Ltd.
The opening inventory in Billy Ltd as at 1 July 2014 included inventory acquired from Michael Ltd for $40 000 that cost Michael Ltd $30 000 to produce.
The closing inventory in Billy Ltd includes inventory acquired from Michael Ltd at a cost of $33 000. This cost Michael Ltd $28 000 to produce
The closing inventory of Michael Ltd includes inventory acquired from Billy Ltd at a cost of $12 000. This cost Billy Ltd $10 000 to produce.
On 1 July 2014 Michael Ltd sold an item of plant to Billy Ltd for $116 000 when its carrying value in Michael Ltd's accounts was $81 000 (cost $135 000, accumulated depreciation $54 000). This plant is assessed as having a remaining useful life of six years.
Michael Ltd paid $26 500 in management fees to Billy Ltd.
The tax rate is 30 per cent.
REQUIRED: Prepare a consolidated statement of financial position, and a consolidated statement of comprehensive income for Billy Ltd and Michael Ltd as at 30 June 2015.
Q4. Read the article, from the Sydney Morning Herald, in Appendix B on the theft of rare coins from the NSW State Library.
Rare coins worth $1 million - including 'holey dollar' - stolen from State Library of NSW
Would you consider these coins to be heritage assets? Give explanations for your conclusion.
How do these coins differ from the definition of an asset in the Conceptual Framework?
What problems can you identify when trying to recognise these coins as assets?
How do the coins fall within the definition of Property, Plant and Equipment as defined by AASB 116?
What use would be gained by placing a financial value on them?
Who would benefit by having a financial value placed upon them and why?
How would valuers identify a fair value if cost was not available?
What problems do you envisage that valuers would have when trying to ascertain fair value?
Who would be better at establishing a fair value, the Museum Director or an independent valuer? Give reasons for your answer and identify the disclosure requirements of such a valuation.
Suggest alternative methods of assessing the Museum Director's performance. How could this be contained within the annual report and financial statements?