Q10. The following financial statements of Billy Ltd and its subsidiary Michael Ltd have been extracted from their financial records at 30 June 2015.
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Billy Ltd
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Michael Ltd
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|
|
|
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($000)
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($000)
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|
|
|
Reconciliation of opening and closing
|
|
|
|
|
|
retained earnings
|
|
|
|
|
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Sales revenue
|
671.4
|
640
|
|
|
|
Cost of goods sold
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(464)
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(238)
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|
|
|
Gross profit
|
207.4
|
302
|
|
|
|
Dividends received from Michael Ltd
|
93
|
---
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|
|
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Management fee revenue
|
26.5
|
---
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|
|
|
Gain on sale of plant
|
40
|
35
|
|
|
|
Expenses
|
|
|
|
|
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Administrative expenses
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(30.8)
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(28.7)
|
|
|
|
Depreciation
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(29.5)
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(56.8)
|
|
|
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Management fee expense
|
--
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(26.5)
|
|
|
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Other expenses
|
(101.1)
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(72)
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|
|
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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
|
|
|
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Dividends paid
|
(137.4)
|
(93)
|
|
|
|
Retained earnings-30 June 2015
|
326
|
247
|
|
|
|
|
|
|
|
|
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Statements of financial position
|
|
|
|
|
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Shareholders' equity
|
|
|
|
|
|
Retained earnings
|
326
|
247
|
|
|
|
Share capital
|
350
|
200
|
|
|
|
Current liabilities
|
|
|
|
|
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Accounts payable
|
54.7
|
46.3
|
|
|
|
Tax payable
|
41.3
|
25
|
|
|
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Non-current liabilities
|
|
|
|
|
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Loans
|
173.5
|
116
|
|
|
|
|
945.5
|
634.3
|
Other information
|
|
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Current assets
|
|
|
|
|
|
|
|
|
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Accounts receivable
|
59.4
|
62.3
|
|
|
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Inventory
|
92
|
29
|
|
|
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Non-current assets
|
|
|
|
|
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Land and buildings
|
224
|
326
|
|
|
|
Plant -at cost
|
299.85
|
355.8
|
|
|
|
Accumulated depreciation
|
(85.75)
|
(138.8)
|
|
|
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Investment in Michael Ltd
|
356
|
---
|
|
|
|
|
945.5
|
634.3
|
|
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Other information
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 percent.
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. (12 marks)
PART B
Q11. Read the attached article, published by AccountingWeb, in Appendix A about Tesco plc, a UK supermarket chain with interests throughout Asia, and read Note 12 to the financial statements on Property, Plant and Equipment.
You have been approached by a client who has invested in Tesco plc and is concerned by the disclosures. Write a report to your client, using the relevant accounting standards, identifying and explaining the sections that apply to the disclosed accounting treatment and explain in detail how and why they apply.
Your client is confused by the term "kitchen sinking" which applies in the UK. You have been advised that in Australia it is known as "taking a big bath." Conduct research to explain what these terms mean and place this explanation in the context of impairment testing and how this may have been employed in the case of Tesco plc.
In your answer pay strict attention to referencing with respect the accounting standards and the paragraphs contained therein that you have quoted and the websites visited quoting the website and the times of access.
Your report should be written as a business report with an executive summary, an introduction, the main findings, a conclusion and references. Marks will be awarded to reflect presentation, business English, content and referencing. (see CDU Report Format in Assessment Area) (50 marks)
Q12. Read the attached article, from the Sydney Morning Herald, in Appendix B on the theft of rare coins from the NSWState Library.
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? (30 marks)