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ACCT20073 Company Accounting
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ACCT20073 Company Accounting
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Course Code: ACCT20073
University: Central Queensland University
MyAssignmentHelp.com is not sponsored or endorsed by this college or university
Country: Australia
Question:
The body of the Memorandum begins with an introduction that identifies the subject and provides an overview of the contents. The length of the introduction should be no more than one paragraph but it depends on the needs of the reader: how much do they already know about the subject? This is followed by the discussion which moves through the points to be made in a logical order. Atthe end is a conclusion that reinforces and reiterates the main points made in the discussion.
Answer:
This memorandum is with reference to purchase of majority shares of Soletta Ltd. and few issues, which might be faced on the decision to purchase the majority shares on discussion with the executive team of Soletta Ltd.
What is the purpose of preparing consolidated financial statements?
The purpose of consolidated financial statement is to present to the various stakeholders of the company, the results of the operations and the financial position of the group consisting of the parent and its subsidiaries as if they were a single entity. (Principles of consolidation)
What is a group, a parent and a subsidiary?
A group is a composite of parent and subsidiaries corporations that functions as a single economic entity having common control.
A Parent company is a company which controls another entity.
A subsidiary corporation or a daughter corporation is a company that is owned or controlled by another company referred to as parent company. (Corporate Finance Institute)
How many parents can a group have? Justify your answer.
A group can have multiple parent companies like for example there can be a parent company which holds first tier subsidiaries directly and then an ultimate parent company which controls second and lower tiers of subsidiaries indirectly through first tier subsidiaries.
Why is it necessary to make adjustments for intra group transactions?
Adjustments are made for intra group transactions as these are internal to the group and do not reflect transactions with external parties. (Course Hero, 2018) This is also in line with the entity concept of consolidation, which says transactions within the group must be adjusted as within the same economic entity.
Intra group transaction does not reflect an economic activity for earning some gain but is like transaction with oneself considering group as a single entity.
When are profits realised in relation to inventories transfers within the group?
Profits realized in relation to inventories are transferred within the group when the inventory is on-sold to an external entity not forming part of the group.
Acquisition Analysis as on 1st July, 2019
Sl. No.
Particulars
$
$
1
Purchase Consideration paid to Soletta Ltd. for issue of Shares
1,000,000
2
Fair Value of business Acquired
Net Assets Acquired
– Share Capital
650,000
– General Reserve
20,000
-Retained Earnings
250,000
920,000
3
Upward valuationof Equipment
50,000
4
Recognition of Fair Value of Law suit
(40,000)
5
Positive Good Will ( Balancing Figure)
70,000
Business Combination JE
Books of Paldivia Ltd as at 1st July, 2019
Date
Particulars
LF
DR
CR
01/07/2019
AssetEquipment
$ 50,000
Revaluation Surplus
$ 50,000
(Being Equipment revalued upward by $50,000)
01/07/2019
Revaluation Surplus
$ 40,000
Prov for Suits
$ 40,000
(Being fairprice valuation done)
01/07/2019
Retained earnings
$ 250,000
General reserve
$ 20,000
Share capital
$ 650,000
Revaluation Surplus
$ 80,000
Investment
$ 1,000,000
01/07/2019
Goodwill
$ 70,000
Revaluation Surplus
$ 70,000
01/07/2019
Solletta shares Ltd
$ 1,000,000
To Cash
$ 1,000,000
( Being settlement done in cash)
Entries in the books of Patagonia Ltd
Date
Particulars
LF
DR
CR
Question 3 (a)
30/06/2018
Elimination of Intra Group Sales
$
$
Sales
6,000
To CGS
5,750
To Inventory
250
Profit elimination tax recognition effect
DTA(Deferred Tax Asset)
75
ITA(Income Tax Expenses)
75
30/06/2019
In case of further period sales, no entry is required as the profit has been “realised”. (All accounts will close to retained earnings)
Question 3 (b)
Reduction of assets to written down value and elimination of profit unrealised
$
$
30/06/2018
Retained Earnings
2,800
DTA
1,200
Tractor
4,000
Depreciation excess charged to be eliminated
30/06/2020
Accumulated Depreciation
922
To Depreciation Expenses
342
To Retained Earnings
580
(Refer sheet for calculations)
Transactions effect on Income Tax
30/06/2020
ITA
103
Retained Earnings
174
To DTA
277
Question 3 (C)
30/06/2018
Sales within Intra group elimination
$
$
Sales
400
Purchase
400
Balances elimination of Intra group
Patagonia Ltd – Accounts Receivable
100
Salto Ltd – Accounts Payable
100
Adjustment of overstated inventory
Cost of Goods Sold (COGS) .
100
Inventory A/c.
100
Elimination of Profit tax effect
DTA.
30
To ITA
30
30/06/2019
In case of further period sales, no entry is required as the profit has been “realised”. (All accounts will close to retained earnings)
30/06/2019
In case of further period sales, no entry is required as the profit has been “realised”. (All accounts will close to retained earnings)
Question 3 (D)
$
$
30/06/2020
Management revenue services
3,000
Management expenses services
3,000
30/06/2020
Salto Ltd – Accounts Receivable
3,000
Patagonia Ltd – Accounts Payable
3,000
Question 3 (E)
$
$
30/06/2019
Payable Loan
50,000
Receivable Loan
50,000
(Being assumption of Interest paid)
30/06/2020
Payable Loan
50,000
Receivable Loan
50,000
(Assumed Interest Paid)
30/06/2019
Interest Revenue
3,000
Interest Expenses
3,000
30/06/2019
Interest Revenue
3,000
Interest Expenses
3,000
Question 3 (F)
30/06/2020
Revenue On Dividend
1,500
Expenses On Dividend
1,500
Question 3 (G)
30/06/2020
Revenue On Dividend
3,000
Expenses On Dividend
3,000
Intragroup balances elimination
30/06/2020
Dividend Payable
3,000
Dividend Receivable
3,000
Computation
Part3 (a)
Stock SP
$ 6,000
Cost Mark up
20%
CP
$ 5,000
Stock as on 30/06/2018
$ 1,250 (5000/4)
Unrealised Profit
$ 250 (1250*20%)
Part 3 (b)
Cost Price
Sale Price
Excess
Assetcost 01/01/2018
$ 16,000
$ 20,000
Depreciation till 30/06/2018 @ 10%
$ 800 (16000*10%*6/12)
$ 1,000
$ 200
Net Asset Value
$ 15,200
$ 19,000
Depreciation till 30/06/2019 @ 10%
$ 1,520 (15200*10%)
$ 1,900
$ 380
Net Asset Value
$ 13,680
$ 17,100
Depreciation till 30/06/2019 @ 10%
$ 1,368 (13680*10%)
$ 1,710
$ 342
Net Asset Value
$ 12,312
$ 15,390
Total Excess Charged
$ 922
Part 3 (C)
Stock SP
$ 400
Cost Mark up
100%
CP(400/200*100)
$ 200
Stock as on 30 June 2018(200/2)
$ 100
UnrealisedProfit(100*100%)
$ 100
Part 3 (e)
Value of Loan
$ 50,000
Interest rate
6%
Period
5 Years
Date of Loan
1-Jul-18
Calculation Of Interest
31-Dec-18
$ 1,500
30-Jun-19
$ 1,500
31-Dec-19
$ 1,500
30-Jun-20
$ 1,500
References:
Corporate Finance Institute. (n.d.). What is a Subsidiary. Retrieved September 10, 2018, from corporatefinanceinstitute.com: https://corporatefinanceinstitute.com/resources/knowledge/finance/subsidiary-definition/
Course Hero. (2018). Why is it necessary to make adjustments for intragroup transactions? Retrieved September 10, 2018, from www.coursehero.com: https://www.coursehero.com/file/18010019/SOLUTION-CHAPTER-20/
Principles of consolidation. (n.d.). Retrieved September 10, 2018, from accionistaseinversores.bbva.com:https://accionistaseinversores.bbva.com/microsites/bbva2015/en/C/2.html
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