ADVANCED FINANCIAL ACCOUNTING 260
ASSIGNMENT – SEMESTER 2, 2014
CONSOLIDATED FINANCIAL STATEMENTS
On 1 July 2011, Kookaburra Ltd acquired all the shares of Magpie Ltd on a cum div
basis. At this date, the equity and liability sections of Magpie Ltd.’s statement of
financial position showed the following balances:
Share Capital (60 000 shares)
General Reserve
Retained Earnings
Option Reserve
Dividend payable
$60 000
$30 000
$21 000
$6 000
$5 000
The dividend payable at acquisition date was subsequently paid in September 2011.
At acquisition date, all the identifiable assets and liabilities of Magpie Ltd were
recorded at amounts equal to fair value except for:
Carrying
Fair
Amount
Value
Inventory
$50 000
$56 000
Machinery (cost $17 000)
15 000
16 000
Equipment (cost $30 000)
24 000
32 000
Land
18 480
24 480
Manufacturing Software (cost $36 000)
28 800
31 800
The manufacturing software is a custom-designed programme used by Magpie Ltd to
run its robotic manufacturing plant. It has a remaining useful life of four years.
Additionally, Magpie Ltd owns, but has not recognised, the internally generated brand
name “Handytrax”. The fair value of the brand, which is regarded as having an
indefinite life, is $30 000 at 1 July 2011.
The inventory on hand in Magpie Ltd at 1 July 2011 was sold during the following 12
months. The machinery, which had a further five-year life on acquisition date, was
sold on 1 January 2014. The land on hand at acquisition date was sold on 1 August
2013. The equipment was estimated to have a further 8-year life. At 1 July 2011,
Magpie Ltd had not recorded any goodwill. On 30 June 2013, half of the goodwill
acquired was written off as a result of an impairment test.
Any adjustments for differences between carrying amounts at acquisition date and fair
values are made on consolidation. Any valuation reserves created are transferred on
consolidation to retained earnings when assets are sold, fully consumed or completely
impaired.
A bonus dividend, of six [6] ordinary shares for every sixty [60] ordinary shares held,
was paid by Magpie Ltd in January 2012 out of the Option Reserve existing at
acquisition date.
Advanced Financial Accounting 260
Assignment
Semester 2, 2014
On 28 June 2014, Magpie Ltd transferred $15 000 from the General Reserve to
Retained Earnings.
The release onto the market, in November 2013, of a new product as direct
competition for the ‘Handytrax” product manufactured by Magpie Ltd indicated that
both the brand and the software programme may be impaired. Subsequent testing
resulted in impairment losses of $25 000 for the brand to be recorded on consolidation
and the complete write-off on 30 June 2014 of the remaining balance of the
Manufacturing Software asset.
Additional information:
(a)
On 1 July 2013, Magpie Ltd has on hand inventory worth $25 000
transferred from Kookaburra Ltd in June 2013. The inventory had
previously cost Kookaburra Ltd $22 000. By 30 June 2014, Magpie Ltd
had sold the entire inventory to external parties.
(b)
On 1 January 2014, Kookaburra Ltd acquired $36 000 worth of inventory
from Magpie Ltd. The inventory had previously cost Magpie Ltd $29 500.
By 30 June 2014, Kookaburra Ltd had sold 65% of the transferred
inventory to external entities.
(c)
On 1 March 2013, Magpie Ltd sold equipment to Kookaburra Ltd for
$18,000. This had originally cost Magpie Ltd $38 000 and had a carrying
amount at the time of sale of $22 000. Both entities charge depreciation at
a rate of 20% p.a. straight-line
(d)
Kookaburra Ltd sold an item of inventory to Magpie Ltd on 1 April 2014
for use as machinery. This item cost Kookaburra Ltd $3 000 and was sold
to Magpie Ltd for $6 000. Magpie Ltd depreciated the item at 25% p. a.
straight-line.
(e)
Magpie Ltd sold an item of machinery to Kookaburra Ltd on 1 May 2014
for $9 000. The machinery had a carrying amount of $8 000 at the date of
sale and was classified as inventory by Kookaburra Ltd. The item is still
on hand at 30 June 2014.
(f)
Magpie Ltd rents a warehouse from Kookaburra for an annual rent of
$12,000.
(g)
On 1 June 2014 both companies adopted the revaluation model to account
for the asset - land. Consequently, on 30 June 2014, land was revalued up
by $10,000 (Kookaburra Ltd) and by $2 000 (Magpie Ltd).
(h)
The tax rate is 30%.
(i)
Round all figures to the nearest dollar.
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Advanced Financial Accounting 260
Assignment
Semester 2, 2014
On 30 June 2014 the trial balances of Kookaburra Ltd and Magpie Ltd were as
follows:
Kookaburra Ltd
Magpie Ltd
Shares in Magpie Ltd
$175 000
0
Cash
30 000
25 000
Receivables
41 580
25 000
Inventory
31 450
20 000
Other current assets
8 620
3 100
Deferred tax assets
16 200
7 400
Machinery
328 000
122 000
Land
110 000
58 000
Equipment
34 000
37 300
Advance to Magpie Ltd
10 000
0
Cost of sales
365 000
203 500
Depreciation and Amortisation Expense
29 600
44 600
Impairment Losses
0
7 200
Other expenses
22 000
17 000
Income tax expense
37 200
32 000
Dividend paid
4 000
2 000
Dividend declared
10 000
3 000
$1 252 650
$607 100
Share capital
General Reserve
Asset Revaluation Reserve
Retained earnings (1/7/13)
Debentures (Mature on 31/12/17)
Dividend Payable
Other Payables
Current Tax Liabilities
Deferred Tax Liability
Advance from Kookaburra Ltd
Employee entitlements
Sales
Gain on sale of non-current assets
Other income
Transfer from general reserve
Accumulated depreciation – Machinery
Accumulated depreciation – Equipment
270 000
41 000
10 000
63 850
60 000
10 000
34 800
8 000
26 700
0
22 000
585 000
16 000
23 000
9 000
57 000
16 300
$1 252 650
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66 000
15 000
2 000
17 000
3 000
10 100
12 500
19 800
10 000
17 500
295 000
7 000
22 000
15 000
76 000
19 200
$607 100
Advanced Financial Accounting 260
Assignment
Semester 2, 2014
Prepare the following:
1. Acquisition analysis at 1 July 2011.
2. The BCVR & pre-acquisition worksheet journal entries ONLY at 30 June
2013.
3. The BCVR, pre-acquisition and intra-group transaction worksheet journal
entries at 30 June 2014.
4. The consolidation worksheet for Kookaburra Ltd at 30 June 2014.
5. The consolidated financial statements for Kookaburra Ltd at 30 June 2014.
Marking Guide
This assignment is worth 20% of the total assessment. Marks will be apportioned as
follows:
1. Acquisition analysis at 1 July 2011. (6 marks)
2. The BCVR & pre-acquisition worksheet journal entries at 30 June 2013. (24
Marks)
3. The consolidation worksheet journal entries at 30 June 2014. (60 Marks)
4. The consolidation worksheet at 30 June 2014. (5 marks)
5. The consolidated financial statements at 30 June 2014. (5 marks)
Parts 1 and 2:
The acquisition analysis and the journal entries will marked based solely on their
accuracy. In other words, you have to get both the account name and amount correct
to get your mark. For the adjusting entries, consequential marking will be applied to
the journal entries if the acquisition analysis is incorrect.
Parts 3 and 4:
For both the consolidation worksheet and the consolidated financial statements, the
tutor will grade you out of 5 based on purely on format and completeness of each of
these items. Use the Excel Spreadsheet provided, do not reformat the worksheet and
add only additional asset, liability and equity accounts as required.
Assignment Submission
You are required to work in pairs with partners from the same tutorial class. No
cross tutorial pairs are permitted. A 10% penalty will apply for any assignment
completed on an individual basis.
You are required to submit your assignment on or before 12 noon, 27 October 2014.
Late assignments will attract a penalty.
Each group will need to submit a hard copy with appropriate signed coversheet
(download from Blackboard) to the School of Accounting Office AND submit an
electronic copy via the assignment submission link in Blackboard located under the
assessments tab.
Note: Failure to submit a copy of your assignment in Blackboard may mean that
your assignment will not be marked.
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