110.309 1 Assignment 2 2015
Assignment 2 (20%, due 8:55 a.m. Wednesday 6 May)
Question 1.
“The only measurement of value which properly serves the objectives of financial reporting is
historical cost. The obsession of standard-setters with various fair value concepts has made
accounting information less fit for purpose.” Evaluate this statement.
Indicative length: 1,000 words – a few pages. You are expected to express a conclusion about the
quote, and persuade us by evidence and argument why we should agree with your conclusion,
taking due account of contrary evidence and arguments. To answer the question fully, you will
need to research information from sources beyond those that we have provided in this course;
you should reference your sources properly. A marking rubric for this assignment will be provided
on Stream.
Question 2.
On 1/1/2013, Shark Ltd acquired 40% of the contributed capital of Minnow Ltd for $2,020. On that
date Minnow Ltd had Contributed Capital of $2,000 and Retained Earnings of $3,000. The other
60% of Minnow is owned by the Barracuda Group, but Shark has significant influence over
Minnow and appoints two directors to Minnow’s board. Shark Ltd controls a number of subsidiary
companies.
Assume that all transactions described are for cash.
Information relating to Minnow’s profits and dividends is listed below.
2013 2014
Net income $200 $400
Dividends $50 $150
Other information:
a) Shark’s investment in Minnow has not been impaired.
b) Minnow sold inventory to Shark in 2014 at a selling price of $440, recording a gross profit
on the sale of $50. As at 31/12/2014 25% of these goods had been sold by Shark to third
parties at a gross profit of $20.
c) Both Shark and Minnow employ 31/12 balance dates.
Required:
Prepare the following journal entries, ignoring income tax effects. If no entry is required, say
so. Number each entry clearly.
1) Entry in Shark’s books to record the initial purchase of Minnow.
2) Entry in Shark’s books to record the 2013 dividend from Minnow.
3) Entry in Shark’s books to record any necessary adjustments at 31/12/2013.
4) Entry in Shark’s books to record the purchase of inventory from Minnow.
5) Entry in Minnow’s books to record the sale of inventory to Shark.
6) Entry in Shark’s books to record any necessary adjustments at 31/12/2014.
7) Entry required in the consolidation worksheet for the Shark Group for 2014.