Q6. The management of one of your clients has told you that they intend not to consolidate the financial statements ofone of their subsidiaries because it is involved in mining, whereas all the other organisations in the group are involved in service industries. How would you respond to this position?
(4 marks)
Q7. New Start Ltd acquired 90 per cent of the share capital of Old Timer Ltd on 1 July2014 for a cost of $500
000. As at the date of acquisition assets of Old Timer Ltd were fairly valued, other than land that had a carrying amount $50 000 less than its fair value. The recorded balances of equity in Old Timer Ltd as at 1 July 2014 were:
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$
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Share capital
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350 000
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Retained earnings
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100 000
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450 000
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Additional information
The management of New Start Ltd values any non-controlling interest at the proportionate share of Old Timer Ltd's identifiable net assets.
Old Timer Ltd had a profit after tax of $70 000 for the year ended 30 June 2015.
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 informationprovided above, calculate the non-controlling interest in the 2015 profits. (10 marks)
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Q8.
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2016
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2015 ($000)'s
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($000)'s
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Assets
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Cash
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96
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---
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Accounts receivable
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36
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60
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Allowance for doubtful debts
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(12)
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(8)
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Property, plant and equipment
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156
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120
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Accumulated depreciation-property, plant
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(36)
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(20)
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and equipment
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Inventory
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92
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52
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Total assets
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332
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204
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Liabilities
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Bank overdraft
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--
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40
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Accounts payable
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60
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60
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Accrued wages
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20
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16
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Provision for annual leave
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8
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12
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Loans
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60
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---
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Total liabilities
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148
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128
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Net assets
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184
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76
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Represented by:
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Shareholders' funds
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Share capital (ordinary shares)
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140
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20
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Revaluation surplus
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28
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8
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Retained earnings
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16
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48
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Total shareholders' funds
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184
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76
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The statement of comprehensive income (extract) of Wayne's Pools Ltd for the
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year ended 30 June 2016 is:
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2016 ($000)'s
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Revenues
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Sales
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60
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Interest (no interest receivable at year end)
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4
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Profit on sale of property (which had a
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8
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carrying amount of $20 000)
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Expenses
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Cost of goods sold
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(40)
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Doubtful debts
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(8)
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Depreciation
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(20)
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Wages
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(20)
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Employee entitlements
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(16)
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Loss for the year
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(32)
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Wayne's Pools Ltd is involved in manufacturing swimming pools. Wayne's Pools Ltd's statement of financial positions for the years ended 30 June 2015 and 30 June 2016 are presented below.
REQUIRED Prepare a statement of cash flows for Wayne's Pools Ltd for the year ended 30 June 2016. Comparatives are not required. Ignore tax effects. (18 marks)
Q9. The Big Company Ltd acquires 100 per cent of the shares of The Little Company Ltd on 1 July 2014 for aconsideration of $1.25 million. The share capital and reserves of The Little Company Ltd at the date of acquisition are:
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Share capital
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$750 000
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Retained earnings
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$375 000
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Revaluation surplus
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$375 000
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$1 500 000
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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:
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The Big
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The Little
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Company Ltd
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Company Ltd
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($000)
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($000)
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Reconciliation of opening and closing
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retained earnings
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Profit before tax
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750
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375
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Tax
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(250)
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(125)
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Profit after tax
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500
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250
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Retained earnings at 30 June 2014
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1 000
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375
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Retained earnings at 30 June 2015
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1 500
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625
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The Big
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The Little
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Company Ltd
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Company Ltd
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($000
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($000)
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Statements of financial position
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Shareholders' equity
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Retained earnings
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1 500
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625
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Share capital
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3 000
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750
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Revaluation surplus
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750
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500
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Current liabilities
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Accounts payable
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250
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250
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Non-current liabilities
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Loans
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1 500
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625
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7 000
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2 750
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Current assets
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Cash
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250
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200
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Accounts receivable
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875
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300
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Non-current assets
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Land
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1 750
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750
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Plant
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2 875
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1 500
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Investment in The Little Company Ltd
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1 250
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---
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7 000
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2 750
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REQUIRED
Prepare the consolidated accounts for The Big Company Ltd and The Little Company Ltd as at 30 June 2015. (12marks)