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:
On 1 September 2012 Ivy Ltd created a group entity when it purchased 65% of the issued capital of Rose Ltd. On acquisition, Rose's Ltd's accounts showed: Share capital $200,000 and Retained earnings $46,000. All assets and liabilities appearing in Rose Ltd's financial statements were fairly valued, except:
- One of their blocks of land was recorded at $40,000 when its fair value was judged by the group to be $90,000. During the following financial year this land was sold for $120,000 cash.
- An item of plant was undervalued by $30,000. At that time it had a remaining life of 5 years and accumulated depreciation of $20,000. The plant is still an asset of Rose Ltd at 30 June 2015.
- A contingent liability relating to an unsettled legal claim with a fair value of $60,000 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:
On 1 July 2013 Rose Ltd sold an item of plant to Ivy Ltd for $60,000. The plant had cost $64,000 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 Ivy Ltd at 30 June 2015.
During the year Ivy Ltd made sales of inventory to Rose Ltd of $62,000. The inventory balance of Rose Ltd at the end of the year included stock of $52,000 acquired from Ivy Ltd.
Ivy Ltd declared and paid dividends of $70,000 for the year. Rose Ltd did not declare or pay any dividends for the year.
During the year ended 30 June 2015:
On 1 November 2014 Ivy Ltd sold an item of plant to Rose Ltd for $90,000 when its carrying value in Ivy's books on that date was $108,000 (original cost $180,000 and original estimated life of 5 years). The plant is still an asset of Rose Ltd at 30 June 2015.
During the year Rose Ltd made sales of inventory to Ivy Ltd of $44,400. The inventory balance of Ivy Ltd at the end of the year included stock of $21,200 acquired from Rose Ltd.
The management of Ivy Ltd believes that the goodwill acquired on acquisition of Rose Ltd was impaired by $9,000 in the current year. This is in addition to a total of $15,000 of impairment in previous years.
Ivy Ltd charged management fees to Rose Ltd.
Dividends were declared/paid by both companies.
Non-controlling interests in Rose 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.
Ivy 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) Intragroup sales of inventory to be at a selling price of cost plus a mark-up of 30%;
(iii) Plant is depreciated using the straight-line method with no residual value. For part-years, depreciation is to be calculated on the number of months the asset is held in the relevant year.
(iv) 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.
(v) The management of Ivy Ltd values any non-controlling interest at the proportionate share of Rose Ltd's identifiable net assets.
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. Marks will be lost if journals are not presented in a clear and professional manner (i.e. poor or unclear presentation can include showing the debit entry on one page but the credit entry on another, or not clearly distinguishing between debit and credit entries).
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. Marks will be lost if statements are not presented in a clear and professional manner (i.e. poor or unclear presentation can include splitting the reports over two pages, so start each statement on a new page!).
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. Approach it as if you are preparing it for your employer. The reports cannot be late for the board meeting and the directors carefully review all of the information you give them. They pay you well, but they expect quality work. It needs to be technically correct and presented well.
|
AT 30 JUNE 2015
|
IVY LTD
|
ROSE LTD
|
|
|
$
|
$
|
|
INCOME STATEMENTS
|
|
|
Sales revenue
|
3,230,650
|
867,000
|
|
Cost of goods sold
|
1,934,000
|
480,200
|
|
Gross profit
|
1,296,650
|
386,800
|
|
Other income
|
|
|
Management fee revenue
|
36,000
|
-
|
|
Dividend revenue
|
96,000
|
-
|
|
Expenses
|
|
|
Depreciation expense
|
-178000
|
-41,000
|
|
Management fee expense
|
-
|
-36,000
|
|
Loss on sale of asset
|
-18,000
|
-
|
|
Other expenses
|
-644,220
|
-97,010
|
|
Profit before tax
|
588,430
|
212,790
|
|
Income tax expense
|
-59,000
|
-24,110
|
|
Profit for the year after tax
|
529,430
|
188,680
|
|
Retained earnings at start of year
|
392,400
|
178,600
|
|
Dividend paid/declared
|
-125,000
|
-48,200
|
|
Retained earnings at year end
|
796,830
|
319,080
|
|
|
|
|
BALANCE SHEETS
|
|
|
Equity
|
|
|
Share capital
|
500,000
|
200,000
|
|
Retained earnings
|
796,830
|
319,080
|
|
Current Liabilities
|
|
|
Accounts payable
|
520,600
|
189,000
|
|
Income tax payable
|
24,000
|
18,000
|
|
Dividends payable
|
37,000
|
18,000
|
|
Non-Current Liabilities
|
|
|
Bank Loans
|
712,000
|
340,000
|
|
Provision for employee benefits
|
45,100
|
11,100
|
|
Deferred tax liability
|
8,200
|
-
|
|
|
2,643,730
|
1,095,180
|
|
Current Assets
|
|
|
Accounts receivable
|
575,300
|
205,000
|
|
Less: Allowance for doubtful debts
|
-56,000
|
-20,500
|
|
Dividends receivable
|
48,000
|
-
|
|
Inventory
|
209,000
|
104,000
|
|
Non-Current Assets
|
|
|
Land and buildings
|
1,060,000
|
502,000
|
|
Plant - at cost
|
577,470
|
408,480
|
|
Accumulated depreciation - plant
|
-189,000
|
-105,000
|
|
Deferred tax asset
|
-
|
1,200
|
|
Shares in Joey Pty Ltd
|
18,960
|
-
|
|
Investment in Rose Ltd
|
400,000
|
-
|
|
|
2,643,730
|
1,095,180
|