QUESTION 1 – DISCLOSURE (20 MARKS)
The adjusted trial balance of Knapp Ltd as at 30 June 2017 is as follows:
Debit Credit
$ $
Administration expenses 689,000
Advertising expenses 109,000
Bank loan 216,000
Carrying amount of plant and machinery sold 23,000
Cost of sales 3,421,000
Sales commission expense 45,000
Deposits at call 132,000
Dividends received 43,000
Deferred tax asset 212,000
Ordinary shares, fully paid 3,960,000
General reserve 724,000
Goodwill 742,000
Accounts receivable 1,334,000
Asset revaluation reserve 346,000
Accumulated impairment loss – goodwill 180,000
Accumulated depreciation –
Plant & machinery 206,000
Fixtures & fittings 47,000
Retained profits – 1/7/2016 800,000
Mortgage loan (secured over land – due 30/9/2021) 239,000
Accounts payable 486,000
Current tax liabilities 268,000
GST payable 8,000
Provision for long service leave (only 40% is currently eligible) 265,000
Deferred tax liability 175,000
Allowance for doubtful debts 77,000
Provision for annual leave 62,000
Freehold land (at fair value) 1,724,000
Buildings (at fair value) 900,000
Listed investments – at cost (long-term) 559,000
Plant & machinery – at cost 684,000
Preference shares, fully paid 200,000
Prepayments 30,000
Inventories 2,000,000
Income tax expense 367,000
Final dividend payable 165,000
Fixtures & fittings – at cost 118,000
Cash at bank 483,000
Sales revenue 6,124,000
Share options 19,000
7% debentures (secured over inventories – due 30/4/2018) 120,000
Proceeds on sale of plant and machinery 36,000
Sales returns 20,000
Freight outwards 38,000
Other selling expense 590,000
Other expenses (include interest expense of $87,000) 165,000
Underwriting commission and other share issue costs 44,000
Interest received 43,000
Transfer to general reserve 80,000
Interim dividend paid – ord 135,000
Final dividend declared – ord 135,000
Final dividend declared – pref 30,000 –
14,809,000 14,809,000
Additional information
- i) Administration expenses include the following auditor’s remuneration:
– audit & review of financial reports $49,000
– accounting advice $33,000
– related practice of auditor for legal advice $18,000
- ii) Inventories, $2,000,000, comprise of:
Raw material – at cost $76,000
Work in progress – at cost 789,000
Finished goods – at cost 1,115,000
Finished goods – at net realisable value 20,000
Inventories are valued at the lower of cost (using the weighted average basis) and estimated net realisable value.
iii) Contributed equity as at 1 July 2016 consisted of:
1,800,000 ordinary issued at $1 each, fully paid $ 1,800,000
100,000 15 % preference shares issued at $2.00 each 200,000
400,000 share options issued at 50c each, fully pay 200,000
Each option entitles the holder to acquire one ordinary share at a price of $1.00 per share, exercisable by 1 April 2017. Any options not exercised by this date will lapse.
iv) On 1 July 2016, 800,000 ordinary shares were privately placed at $1.95 each. Shares issue costs for the issue amounted to $9,000.
- v) On 2 July 2016, 38,000 share options were issued at a price of 50c per option. Each option allows the holder to subscribe for one preference share at an exercise price of 80c per share on 1 September 2018.
- vi) The bank loan is payable in annual instalments of $36,000 due 1 May each year.
vii) On 30 June 2017, freehold land and buildings were revalued to its fair value by the directors based on an independent valuation received from S. E. Brown. The carrying amounts of land and buildings before the revaluation were $1,494,000 and $750,000 respectively.
viii) Listed investments are classified as available-for-sale financial assets.
An amount of $80,000 was transferred to general reserve from retained earnings.
- x) The company tax rate is 30%
xi) Accounting policies adopted are consistent with those of the previous year.
Required
- Prepare a statement of comprehensive income for Knapp Ltd for the year ended 30 June 2017 according to the requirements of AASB 101. Use the function of expense (or cost of sales) method. Show all workings (5 marks).
- Prepare a statement of financial position for Knapp Ltd as at 30 June 2017 to comply with AASB 101. Use the current and non-current presentation format. Show all workings (7 marks).
- Prepare a statement of changes in equity for Knapp Ltd for the year ended 30 June 2017 according to the requirements of AASB 101. Show the dividends per share on the face of your statement. Show all workings (4marks).
- Prepare appropriate notes to the following items (4 marks, marks will only be given if notes are complete and accurate):
1) summary of significant accounting policies – an extract of the basis of accounting and inventories (1 mark);
2) inventories (1 mark);
3) long-term borrowings (1 mark);
4) auditor’s remuneration (1 mark).
Please note marks will be deducted if incorrect name of entity, title of report and reporting date are provided.
QUESTION 2 – CONSOLIDATION (25 MARKS)
On 1 July 2017, Crocodile Ltd acquired all the shares of Dundee Ltd for $445,000 on an ex-div basis. On this date, the equity and liabilities of Dundee Ltd included the following balances:
Share Capital $270 000
General Reserve 34 000
Retained Earnings 60 000
Dividend payable 14 000
Provisions 228 000
At acquisition date, all the identifiable assets and liabilities of Dundee Ltd were recorded at amounts equal to fair value except for:
Carrying Fair
Amount Value
Inventory $95 000 $108 000
Plant & Equipment (cost $405 000) 250 000 256 000
Truck (cost $24 000) 20 000 22 000
Trademark 135 000 149 000
Land 67 000 95 000
Goodwill 34 000 74 000
Goodwill was not impaired in any period. The plant and equipment had a further six year life at acquisition date and was expected to be used evenly over that time. The trademark was considered to have an indefinite life. The truck, which was estimated to have a further five year life at acquisition date, was sold to Amy Ltd on 1 January 2019. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation.
During the year ended 30 June 2018, all inventories on hand at acquisition date were sold to external parties, and the land was sold on 1 June 2019 to ABC Ltd. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed.
Additional information:
- The bonus dividend paid by Dundee Ltd in the current year was from profits before acquisition date. All other dividends were from current year profits. Shareholder approval is not required in relation to dividends.
- On 1 July 2018, Dundee Ltd has on hand inventory worth $16 000, being transferred from Crocodile Ltd in June 2018. The inventory had previously cost Crocodile Ltd $10 000. It was all sold to external parties by 1 August 2018.
- On 31 March 2019, Dundee Ltd transferred an item of plant with a carrying amount of $14 000 to Crocodile Ltd for $20 000. Crocodile Ltd treated this item as inventory. The item was still on hand at the end of the year. Dundee Ltd applied a 20% depreciation rate to this plant.
- During the year ending 30 June 2019, Dundee Ltd sold inventory costing $7 000 to Crocodile Ltd for $11 000. Half of this was sold to external parties for $8 000.
- On 1 January 2018, Crocodile Ltd sold furniture to Dundee Ltd for $9 000. This had originally cost Crocodile Ltd $14 000 and had a carrying amount at the time of sale of $6 000. Both entities charge depreciation at a rate of 10% p.a.
- Crocodile Ltd sold some land to Dundee Ltd in December 2018. The land had originally cost Crocodile Ltd $34 000, but was sold to Dundee Ltd for only $27 000. To help Dundee Ltd pay for the land, Crocodile Ltd gave Dundee Ltd an interest-free loan of $16 000. Dundee Ltd has as yet made no repayments on the loan.
- On 1 July 2015, Dundee Ltd issued 900 mortgage debentures of $100 nominal value, and are redeemable on 30 June 2021. Crocodile Ltd acquired 300 of these debentures on the open market on 1 January 2019, immediately after the half-yearly interest payment had been made. Interest is payable half-yearly on 31 December and 30 June. All interest has been paid and brought to account in the records of both entities.
- The tax rate is 30%.
On 30 June 2019 the trial balances of Crocodile Ltd and Dundee Ltd were as follows:
Crocodile Ltd Dundee Ltd
Shares in Dundee Ltd $445 000 –
Debentures in Dundee Ltd 27 000 –
Cash 17 000 $71 000
Receivables 50 000 60 000
Inventory 85 000 75 000
Deferred tax assets 15 000 –
Trucks 62 000 47 000
Plant & equipment 511 000 490 000
Land 70 000 60 000
Furniture 32 000 28 000
Trademark – 135 000
Goodwill – 34 000
Cost of sales 210 000 166 000
Other expenses 68 000 40 000
Income tax expense 40 000 24 000
Bonus dividend paid – 2 000
Interim dividend paid 8 000 7 000
Final dividend declared 32 000 5 000
Loan to Dundee Ltd 16 000 –
1 688 000 1 244 000
Share capital 640 000 272 000
General reserve 60 000 45 000
Retained earnings (1/7/2018) 110 000 90 000
Final dividend payable 32 000 5 000
Current Tax Liabilities 17 000 4 000
Provisions 211 000 254 000
Loan from Crocodile Ltd – 16 000
12% Mortgage debentures – 90 000
Sales 330 000 255 000
Other income 107 000 49 000
Accumulated depreciation – P & E 153 000 147 000
Accumulated depreciation – Trucks 19 000 9 000
Accumulated depreciation – Furniture 9 000 8 000
$1 688 000 $1 244 000
Required
- Prepare the acquisition analysis at 1 July 2017, and the consolidation worksheet entries at that date (5 marks).
- Prepare the consolidation worksheet entries at 30 June 2019 (15 marks).
- Complete the worksheet below (5 marks, you must complete every section including subtotal lines to score full marks, you are not penalised by consequential errors).
Please note marks will be deducted if incorrect name of entity, reporting periods are provided.
| Financial Statements | CrocodileLtd | Dundee Ltd | Adjustments | Group | |||
| Dr | Cr | ||||||
| Sales revenue | 330 000 | 255 000 | |||||
| Other income | 107 000 | 49 000 | |||||
| 437 000 | 304 000 | ||||||
| Cost of sales | 210 000 | 166 000 | |||||
| Other expenses | 68 000 | 40 000 | |||||
| 278 000 | 206 000 | ||||||
| Profit before tax | 159 000 | 98 000 | |||||
| Tax expense | 40 000 | 24 000 | |||||
| Profit | 119 000 | 74 000 | |||||
| Retained earnings(1/7/2018) | 110 000 | 90 000 | |||||
| Transfer from BCV reserve | — | — | |||||
| 229 000 | 164 000 | ||||||
| Bonus dividend paid | – | 2 000 | |||||
| Interim dividend paid | 8 000 | 7 000 | |||||
| Dividend declared | 32 000 | 5 000 | |||||
| 40 000 | 14 000 | ||||||
| Retained earnings(30/6/2019) | 189 000 | 150 000 | |||||
| Share capital | 640 000 | 272 000 | |||||
| General reserve | 60 000 | 45 000 | |||||
| BCVR | – | – | |||||
| Total Equity | 889 000 | 467 000 | |||||
| DTL | – | – | |||||
| Dividend Payable | 32 000 | 5 000 | |||||
| Current Tax Liability | 17 000 | 4 000 | |||||
| Loan from Crocodile Ltd | – | 16 000 | |||||
| 12% Mortgage debentures | 90 000 | ||||||
| Provisions | 211 000 | 254 000 | |||||
| Total Liabilities | 260 000 | 369 000 | |||||
| Total Liabilities + Equity | 1 149 000 | 836 000 | |||||
| CrocodileLtd | DundeeLtd |
Adjustments |
Group | ||||
| Dr | Cr | ||||||
| Shares in Dundee Ltd | 445 000 | — | |||||
| Debentures in Dundee Ltd | 27 000 | — | |||||
| Cash | 17 000 | 71 000 | |||||
| Inventory | 85 000 | 75 000 | |||||
| Land | 70 000 | 60 000 | |||||
| Plant & Equipment | 511 000 | 490 000 | |||||
| Accumulated depn – P & E | (153 000) | (147 000) | |||||
| Trucks | 62 000 | 47 000 | |||||
| Accumulated depn – Trucks | (19 000) | (9 000) | |||||
| Furniture | 32 000 | 28 000 | |||||
| Accumulated depn – Furn. | (9 000) | (8 000) | |||||
| Trademark | 135 000 | ||||||
| Goodwill | – | 34 000 | |||||
| Deferred tax asset | 15 000 | – | |||||
| Loan to Dundee Ltd | 16 000 | – | |||||
| Receivables | 50 000 | 60 000 | |||||
| Total assets | 1 149 000 | 836 000 | |||||
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