ACCTG 211 ASSIGNMENT 4 ANSWER BOOKLET Semester 2 2018 ASSIGNMENT SOLUTIONS Note: This assignment is due online by 6pm* on Friday 12th October 2018. *Do not submit at exactly 6pm as it will be recorded as being late and it will not be accepted for marking. It is your responsibility to ensure the Assignment 4 Answer Booklet is successfully submitted on time, the format is not changed, and it is downloadable and readable by the ACCTG 211 markers. QUESTION 1 Part A (a) Notional journal entry on 1 April 2002 and 31 March 2018 Your workings must be shown on each line of the notional journal entry below: Dr Share capital 380 000 x 70% $ 266 000 Dr REs 200 000 – 35 000 contingent liability effect = 165,000 x 70% 115 500 Dr ARS Zero + BV to FV 90 000 (330 000 BV – 420 000 FV) + 178 000 IA = 268 000 x 70% Dr Goodwill 187 600 $ 80 900 Cr Investment in Subsidiary 650 000 1 ACCTG 211 ASSIGNMENT 4 ANSWER BOOKLET Semester 2 2018 Question 1 Part A continued: (b) Notional journal entry on 1 April 2002 only Your workings must be shown on each line of the notional journal entry below: Dr Share capital 380 000 x 30% $ 114 000 Dr REs 200 000 – 35 000 contingent liability effect = 165,000 x 30% 49 500 Dr ARS Zero + BV to FV 90 000 (330 000 BV – 420 000 FV) + 178 000 IA = 268 000 x 30% Dr Goodwill (80 900/70 x 30) 80 400 $ 34 671 Cr NCI 278 571 (c) 100% Acquisition analysis FV of consideration: $650 000 Parent paid/70 x 100 = 928 571 FV of INA SC 380 000 + REs 200 000 = BV of net assets 580 000 - contingent liability 35 000 + BV to FV adjustment 90 000 + IA 178 000 = FV of INA $813 000 813 000 Total/100% of GW = Parent portion 80 900 + NCI portion 34 671 = $115 571 115 571 2 ACCTG 211 ASSIGNMENT 4 ANSWER BOOKLET Semester 2 2018 Question 1 continued: Part B (a) Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2018 Parent Sub Notional Journal Entries Group Ltd Ltd Dr Cr Income statement/dividend items: $ $ $ $ $ Income 1 290 000 823 685 (v) 74 000 2 025 485 (including interest income and dividend (vi) 6 800 income) (vi) 5 300 (vii) 2 100 Less expenses 890 238 619 046 (iii) 3 000 (vi) 2 200 1 496 824 (including COGS and interest expense) (vi) 4 000 (vi) 1 860 (vi) 3 540 (vi)1 760 (vii) 2 100 Profit before tax 399 762 204 639 528 661 Less income tax expense 145 780 115 059 260 839 Profit after tax 253 982 89 580 267 822 Retained earnings – opening bal 145 324 196 000 Less: dividends declared and paid 110 000 74 000 289 306 211 580 - 36 000 Share capital 500 000 370 000 Total equity $789 306 $617 580 839 886 Various liabilities 456 624 280 400 737 024 - 70 000 456 624 350 400 737 024 $1 245 930 $967 980 $1 576 910 Inventory 82 000 53 600 (vi) 2 800 Various other assets 563 930 914 380 (vii) 70 000 1 408 310 Investment in Subsidiary Ltd 600 000 - 600 000 - - - $1 245 930 $967 980 160 000 (iii) 6 200 (vi) 2 200 (vi) 1 860 171 064 (iii) (v) 74 000 110 000 Balance Sheet items: Retained earnings – closing bal Asset revaluation surplus Loan payable to Parent Ltd Total liabilities Total equity and liabilities Goodwill Total assets 328 886 (iii) (iii) 25 000 11 000 370 000 500 000 (vii) 70 000 - (iii) (iii) 45 000 771 460 132 800 (iii) 9 200 771 460 35 800 $1 576 910 3 ACCTG 211 ASSIGNMENT 4 ANSWER BOOKLET Semester 2 2018 Workings for Question 1 Part B (a) Notional Journal Entries (i) N/A (ii) N/A (iii) Dr Share capital 370 000 x 100% Dr REs 160 000 x 100% Dr ARS 25 000 x 100% Dr Goodwill Cr Investment in Sub Dr Impairment expense Dr REs (2 000 + 4 200) Cr Goodwill (iv) No NCI (v) Dr Dividend income - Parent Cr Dividend declared - Sub (vi) LY TY (vi) LY TY (vii) Upward sales: Dr REs – Sub (Sales 8 000 – COGS = Profit 2 200) Cr COGS – Parent (always assume sold in current year) Dr Sales - Sub Cr COGS – Sub (Sales 6 800 – profit 2 800 = COGS) Cr Inventory - Parent Downward sales: Dr REs – Parent (Sales 4 000 – COGS = Profit 1 860) Cr COGS – Sub (always assume sold in current year) 370 000 160 000 25 000 45 000 600 000 3 000 6 200 9 200 74 000 74 000 2 200 2 200 6 800 4 000 2 800 1 860 1 860 Dr Sales - Parent Cr COGS-Parent (Sales 5300 – profit 1760 = COGS) Cr COGS - Sub 5 300 Dr Loan payable to Parent Ltd - Sub Cr Loan receivable from Sub - Parent 70 000 3 540 1 760 70 000 Use the ‘Various other assets’ line Dr Interest income - Parent Ct Interest expense - Sub ($70 000 x 3%) 2 100 2 100 4 ACCTG 211 ASSIGNMENT 4 ANSWER BOOKLET Semester 2 2018 Question 1 Part B continued: Part B (b) Notional journal entry, at 31 March 2018, for the NCI measured at FV Your workings must be shown on each line of the notional journal entry below: Dr Share Capital 370 000 x 20% $ 74 000 Dr ARS 36 000 x 20% $ 7 200 Dr PAT [89,580 – TY 2 800 + LY 2 200 – TY 3 000 impair = 85 980] x 20% 17 196 Dr RE [196 000 – LY 2 200 – LYs impair 6 200 = 187 600] x 20% 37 520 Dr Goodwill $45 000* x 20% 9 000 Cr Dividends declared 74 000 x 20% 14 800 Cr NCI (this is the balance of journal entry) 130 116 *Calculated in Part B (a) 100% of the GW in Sub is $45 000 Part B (c) Reconciliation of the two measurement methods for the NCI $ NCI measured at FV, as per your answer in (b) 130 116 Subtract the 20% goodwill portion (9 000) Add back the impairment 3 000 + 6 200 = 9 200 x 20% = NCI measured at the proportionate share in the recognised amounts of the Sub’s INA 1 840 122 956 5 ACCTG 211 ASSIGNMENT 4 ANSWER BOOKLET Semester 2 2018 QUESTION 2 Part A Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2016 Parent Sub Notional Journal Entries Group Ltd Ltd Dr Cr Income statement/dividend items: $ $ $ $ $ Income (all types of income) 522,500 275,000 (vi)7,000 773,400 (vii)2,100 (v)15,000 Less expenses 410,000 197,000 (iii)4,000 (vi)5,000 600,100 (vi)3,800 (vii)2,100 Profit before tax 112,500 78,000 173,300 Less income tax expense 50,000 18,000 68,000 Profit after tax 62,500 60,000 105,300 Retained earnings – opening balance 50,000 40,000 Less: dividends declared 50,000 15,000 Retained earnings – closing balance 62,500 85,000 Share capital 400,000 100,000 Total equity 462,500 185,000 484,300 127,900 70,000 197,900 Consulting fee payable to Sub Ltd 2,100 - Bank loan 92,500 30,000 122,500 Total liabilities 222,500 100,000 320,400 Total equity and liabilities $685,000 $285,000 $804,700 Receivables 40,000 20,000 (vii)2,100 57,900 Inventory 120,000 55,000 (vi)3,200 171,800 Other assets 325,000 210,000 Investment in Sub Ltd 200,000 - (iii)30,000 (iii)26,000 (vi)5,000 29,000 (v)15,000 50,000 Balance Sheet items: Equity 84,300 (iii)100,000 400,000 Liabilities Various liabilities (vii)2,100 - Assets Goodwill Total assets $685,000 $285,000 535,000 (iii)200,000 - (iii)70,000 (iii)30,000 40,000 261 200 261 200 $804,700 6 ACCTG 211 ASSIGNMENT 4 ANSWER BOOKLET Semester 2 2018 Question 2 continued: Part B Notional journal entry for the NCI measured at FV Parent 80% so NCI = 20% 31/03/16 Include all your workings on each line of your notional journal entry: Dr Share Capital $ 20,000 $ 100,000 x 20% Dr RE- open 1,800 (40,000 – LY 5,000 – LY impairment 26,000) x 20% Dr PAT 12,200 (60,000 – TY 0 + LY 5,000 – TY impairment 4,000) x 20% Dr Goodwill 14,000 (70,000 x 20%) Cr Dividends declared 3,000 15,000 x 20% Cr NCI 45,000 Part C Name of Equity account: NCI Name of Asset account: Investment in Subsidiary 7 ACCTG 211 ASSIGNMENT 4 ANSWER BOOKLET Semester 2 2018 QUESTION 3 Air NZ 1. How many significant subsidiaries does the Parent entity control? Auckland Airport Six Five All are 100% owned. Corporate information policy note on page 26. Note 13 page 18 2. Why is there no NCI account in the group financial statements? The Subs are 100% owned. Page 18 3. The ‘Investments in other entities’ asset in the SFP is predominantly made up of what type of investment? Investment in Associates are $92 M of the $95 M total. Note 13 4. The ‘Investments in Associates’ asset in the SFP is predominantly made up of what type of investment? The Subs are wholly owned. Page 26 Investment in Associates $171.6 M * Note 8 title is ‘Associates and Joint Ventures’. *How much of this is the JV? 5. Within the Statement of Accounting Policies there is one for the ‘Basis of consolidation’. Within this policy find the answers for the following: (a) State the page number where you found this policy (b)The consolidated financial statements are accounted for using which method? (a) Page 8 (a) Page 27 (b) Acquisition method (b) .Does not say (c) They are eliminated. (c) Are eliminated in full (c) What is done with the material intercompany transactions? 8