1. Must be in excel file
2. The presentation of the financial statements must follow the format of the examples and end-of-chapter exercise in chapter 29 of the textbook.
QUESTION
Using the information below and on the next two pages, prepare the following as at 30th June 2015:
PART A: Consolidation adjustment/elimination journal entries that are required at the above financial year end date (i.e. for one year only); and
PART B: A detailed calculation of non-controlling interest balance and consolidation worksheet; and
PART C: Consolidated financial statements and statements of changes in equity for both the the group and parent.
THE FOLLOWING EVENTS OCCURRED:
During the year ended 30 June 2013:
1. On 1 September 2012 Adam Ltd created a group entity when it purchased 70% of the issued capital of Eve Ltd. On acquisition, Eve’s Ltd’s accounts showed: Share capital $200,000 and Retained earnings $46,000. All assets and liabilities appearing in Eve Ltd’s financial statements were fairly valued, except:
• One of their blocks of land was recorded at $50,000 when its fair value was judged by the group to be $110,000. During the following financial year this land was sold for $140,000 cash.
• An item of plant was undervalued by $40,000. At that time it had a remaining life of 5 years and accumulated depreciation of $30,000. The plant is still an asset of Eve Ltd at 30 June 2015.
• A contingent liability relating to an unsettled legal claim with a fair value of $50,000 was recorded in the notes to the financial statements. This amount will be tax deductible when paid. The court case is still in progress at 30 June 2015.
During the year ended 30 June 2014:
2. On 1 July 2013 Eve Ltd sold an item of plant to Adam Ltd for $50,000. The plant had cost $54,000 when purchased on 31 December 2012. It’s expected useful life was originally 5 years and this original estimate is still considered to be valid. The plant is still an asset of Adam Ltd at 30 June 2015.
3. During the year Adam Ltd made sales of inventory to Eve Ltd of $72,000. The inventory balance of Eve Ltd at the end of the year included stock of $62,000 acquired from Adam Ltd.
4. Adam Ltd declared and paid dividends of $80,000 for the year. Eve Ltd did not declare or pay any dividends for the year.
During the year ended 30 June 2015:
5. On 1 November 2014 Adam Ltd sold an item of plant to Eve Ltd for $80,000 when its carrying value in Adam’s books on that date was $109,500 (original cost $182,500 and original estimated life of 5 years). The plant is still an asset of Eve Ltd at 30 June 2015.
6. During the year Eve Ltd made sales of inventory to Adam Ltd of $66,600. The inventory balance of Adam Ltd at the end of the year included stock of $33,400 acquired from Eve Ltd.
7. The management of Adam Ltd believes that the goodwill acquired on acquisition of Eve Ltd was impaired by $3,000 in the current year. This is in addition to a total of $5,000 of impairment in previous years.
8. Adam Ltd charged management fees to Eve Ltd.
9. Dividends were declared/paid by both companies.
10. Non-controlling interests in Eve Ltd to be recognised. This is the only subsidiary in the group.
ADDITIONAL INFORMATION:
• The company tax rate is currently 30% and it has been this rate for many years.
• Adam Ltd has the following accounting policies for the group:
(i) Revaluation adjustments on acquisition are to be made on consolidation only, not in the books of any subsidiary;
(ii) Non-controlling interests are measured at fair value;
(iii) Intragroup sales of inventory to be at a selling price of cost plus a mark-up of 40%;
(iv) Plant is depreciated using the straight-line method with no residual value. For part-years, depreciation is to be calculated on the number of days the asset is held in the relevant year, with the day of acquisition counting as one day while the day of disposal does not count; and
(v) All calculated amounts are to be rounded to the nearest whole dollar. Companies in the group do not show cents in any journals, worksheets, or financial statements.
NOTE:
• You MUST number your journal entries and present them in the order as they relate to the number given for each “event”. Where more than one journal is needed for an “event” to be completely accounted for add the letters a,b,c,…etc to them as necessary. [For example, if three separate journal entries are required to fully record the information detailed in point number 1, then the first journal will be 1a and the second is to be 1b and the third 1c.] Short narrations are expected for each journal entry
• The required statements for both the group and the parent company are: the statement of comprehensive income, statement of financial position, and statement of changes in equity. Follow the formats shown in Chapter 29 of the textbook. Notes to the statements are not required.
• You may “cut and paste” the financial information on the next page into your excel file, but no other information is to be copied into your file from anywhere else.
• You are expected to use at least the basic formula functions in Excel when preparing worksheets and financial statements (i.e. use Excel formulas to add totals and sub-totals etc, rather than calculating values manually and then just typing them in to the spreadsheet!).
• This is the final unit in the accounting major where you will have to produce complex journal entries and financial reports at a professional level. Therefore, a very high standard is expected.
AT 30 JUNE 2015 ADAM LTD EVE LTD
$ $
INCOME STATEMENTS
Sales revenue 2,150,123 667,000
Cost of goods sold 1,212,000 400,200
Gross profit 938,123 266,800
Other income
Management fee revenue 24,000 -
Dividend revenue 104,000 -
Expenses
Depreciation expense -182000 -47,000
Management fee expense - -24,000
Loss on sale of asset -29,500 -
Other expenses -547,012 -82,100
Profit before tax 307,611 113,700
Income tax expense -32,020 -34,110
Profit for the year after tax 275,591 79,590
Retained earnings at start of year 192,400 108,560
Dividend paid/declared -75,000 -73,200
Retained earnings at year end 392,991 114,950
BALANCE SHEETS
Equity
Share capital 500,000 200,000
Retained earnings 392,991 114,950
Current Liabilities
Accounts payable 212,360 218,330
Income tax payable 14,710 38,120
Dividends payable 27,500 39,600
Non-Current Liabilities
Bank Loans 670,000 620,000
Provision for employee benefits 31,200 12,300
Deferred tax liability 7,100 -
1,855,861 1,243,300
Current Assets
Accounts receivable 277,421 104,000
Less: Allowance for doubtful debts -27,000 -10,400
Dividends receivable 54,860 -
Inventory 108,300 101,200
Non-Current Assets
Land and buildings 820,000 780,000
Plant – at cost 445,600 402,100
Accumulated depreciation – plant -172,300 -135,400
Deferred tax asset - 1,800
Shares in Eden Pty Ltd 48,980 -
Investment in Eve Ltd 300,000 -
1,855,861 1,243,300
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