Assignment 4 is due by 6 pm on FRIDAY, 18 October 2024
Note:
(a) You must use the Assignment 4 Answer Booklet Word document provided on Canvas to submit your answers online.
Do not change the format of the answer booklet when submitting it online. At times, more space has been provided than is necessary to answer a question.
(b) Important information about the submission of this assignment:
1. It is your responsibility to submit the correct document on time. Canvas will not accept assignments on Friday, 18 October at 6 pm or after 6 pm. Ultimately, there must be an acceptance cut-off policy. Submit before 6 pm on Friday, 18 October 2024 because it takes time to upload.
2. Extensions are impossible because the comprehensive assignment solutions will be available at 6 pm on Friday, 18 October 2024.
3. In special circumstances, you may be unable to complete this assignment. If this occurs, you must contact the course coordinator before Thursday, 17 October 2024; otherwise, you will not be eligible to be excused from this assignment. Your assignment mark will be zero.
If excused for Assignments 4, you will be awarded an average mark; an average mark will be calculated using your Assignment 2 and 3 marks.
(c) Assignment 4 counts for 8% of the final grade for the course.
(d) If you have questions about this assignment, attend the office/clinic hours, use the ACCTG 211 dedicated email, and ask quick questions after the lectures.
(e) When necessary, you are expected to round up or down to the nearest whole dollar. The Assignment 1 document explained rounding, and examples were provided. Ensure you round your numbers as per the examples provided.
QUESTION 1 PART A
A recent accounting graduate, employed by Investor Ltd, is helping to prepare the financial statements for the financial year ended 31 March 2024. The graduate is unsure about how to treat an equity investment asset when an investor has significant influence. You have been provided with the following information for the purposes of advising this graduate.
On 1 April 2007 Investor Ltd acquired 20 percent of the equity in Associate Ltd for
$175,000. At that date the identifiable net assets were considered to be fairly valued and the equity of Associate Ltd comprised:
|
Share capital
|
$150,000
|
|
Retained earnings
|
36,760
|
|
Asset revaluation surplus
|
29,000
|
The following account balances were extracted from the financial statements of Associate Ltd at 31 March 2024:
|
Share capital
|
$150,000
|
|
Asset revaluation surplus
|
45,000
|
|
Retained earnings - opening balance
|
43,200
|
|
Profit after tax
|
89,580
|
|
Dividends declared and paid
|
30,000
|
|
Retained earnings - closing balance
|
102,780
|
On the 27 December
2022 Associate Ltd made sales to Investor Ltd of $25,000 and recognised a profit of $3,600. Investor Ltd had not sold this purchase of inventory as at 31 March 2023.
On the 23 December 2023 Associate Ltd made sales to Investor Ltd of $54,000 and recognised a profit of $7,800. The inventory Investor Ltd had on hand at 31 March 2024. included this purchase from Associate Ltd.
Required:
(a) Prepare the notional journal entry, as at 31 March 2024, to account for Investors Ltd’s investment in Associate Ltd using the equity method as required by NZ IAS 28 Investments in Associates. The tax rate is 28%. Show all workings.
(b) Determine the amount at which the asset ‘Investment in Associate’ will be measured at, after being equity accounted for, in the financial statements as at 31 March 2024.
QUESTION 1 PART B
(a) There is one distinctive asset account that will appear in the balance sheet of the parent entity but will not appear in the subsidiary entity’s separate financial statements or in the consolidated balance sheet of the group.
There is one distinctive equity account that may appear in the consolidated balance sheet of a group but will not appear in the parent entity’s or subsidiary entity’s separate financial statements.
Required: Name the equity account and the asset account, respectively.
(b) Parent Ltd acquired equity in Sub Ltd on 1 April 2012. At that date the identifiable net assets were considered to be fairly valued and the equity of Sub Ltd comprised:
|
Share capital
|
$100,000
|
|
Retained earnings
|
30,000
|
Additional information:
(i) Prior years’ impairment of total goodwill amounted to $26,000. For the current year ended 31 March 2024 the directors of Parent Ltd believe that the total goodwill has been further impaired by $4,000.
(ii) During the financial year ended 31 March 2023 Sub Ltd made sales to Parent Ltd of $30,000 and recognised a profit of $5,000. Parent Ltd had not sold this purchase of inventory as at 31 March 2023.
(iii) During the financial year ended 31 March 2024 Parent Ltd made sales to Sub Ltd of $7,000 and recognised a profit of $3,200. This purchase remained in the inventory of Sub Ltd as at 31 March 2024.
(iv) Sub Ltd billed Parent Ltd $2,100 for consulting advice provided on 25 March 2024. This transaction had been recorded by both entities; it remained unpaid as at 31 March 2024.
(v) The equity of Sub Ltd as at 31 March 2024 comprised:
|
Share capital
|
$100,000
|
|
Retained earnings - opening balance
|
40,000
|
|
Profit after tax
|
60,000
|
|
Dividends declared
|
15,000
|
|
Retained earnings - closing balance
|
85,000
|
|
|
|
Required:
Assume Parent Ltd acquired 100% of the equity in Subsidiary Ltd for $200,000 on 1 April 2012. Complete the consolidation worksheet in the assignment answer book for Parent Ltd for the financial year ended 31 March 2024 in accordance with NZ IFRS 10 Consolidated Financial Statements and NZ IFRS 3 Business Combinations.
Question 1 Part B
(c) Assume Parent Ltd acquired 80% of the equity in Sub Ltd for $160,000 on 1 April 2012.
Required:
(i) Prepare the notional journal entry as at 31 March 2024 to identify the non-controlling interest (NCI), in Subsidiary Ltd, to be reported in the group accounts. The directors of Parent Ltd require the NCI to be measured at fair value (FV).
(ii) Prepare the notional journal entry as at 31 March 2024 to identify the NCI, in Subsidiary Ltd, to be reported in the group accounts. The directors of Parent Ltd now require the NCI to be measured at the NCI’s proportionate share of the acquiree’s identifiable net assets.
(iii) Reconcile your NCI measured at FV in (i) to your NCI measured not at FV in (ii).
QUESTION 2
On 1 April 2014 Parent Ltd acquired 60% of the equity in Subsidiary Ltd for $100,000. At this date the equity of Subsidiary Ltd comprised:
|
Share capital
|
$100,000
|
|
Retained earnings
|
28,000
|
|
Asset revaluation surplus
|
2,000
|
At the date of acquisition the Subsidiary’s property, plant and equipment had a book value of $136,000 and a fair value of $146,000. Subsidiary Ltd also had an unrecognised internally generated intangible of $7,000 and a contingent liability of $8,000.
At the date of consolidation 31 March 2024 the equity of Subsidiary Ltd comprised:
|
Share capital
|
|
$100,000
|
|
Retained earnings - open
|
12,000
|
|
|
Profit after tax
|
40,000
|
|
|
Dividends declared
|
15,000
|
37,000
|
|
Asset revaluation surplus
|
|
22,000
|
Additional information:
(i) During March 2023 Subsidiary Ltd made sales to Parent Ltd and realised a profit of $2,000. This profit was considered to be realised for group purposes.
(ii) During March 2024 Subsidiary Ltd made sales to Parent Ltd and realised a profit of $3,000. This profit was considered to be unrealised for group purposes.
(iii) During March 2024 Parent Ltd made sales to Subsidiary Ltd and realised a profit of $2,000. This profit was considered to be unrealised for group purposes.
(iv) Goodwill arising on acquisition was impaired by $450 for the year ended 31 March 2019 and by $670 for the year ended 31 March 2024.
Required:
(a) Following the requirements of NZ IFRS 3 Business Combinations and NZ IFRS 10 Consolidated Financial Statements prepare the notional journal entry on consolidation to offset the carrying amount of the asset Investment in Subsidiary Ltd and the parent’s portion of equity in Subsidiary Ltd.
(b) Following the requirements of NZ IFRS 3 Business Combinations and NZ IFRS 10 Consolidated Financial Statements prepare the notional journal entry to identify the non-controlling interest (NCI) in Subsidiary Ltd to be reported in the group accounts as at 31 March 2024. Parent Ltd measures the NCI in Subsidiary Ltd at the NCI’s proportionate share of the acquiree’s identifiable net assets i.e. not at fair value.
(c) Paragraph 19 of NZ IFRS 3 Business Combinations allows a choice of measurement for the acquirer to use when measuring any NCI in the acquiree. In (b) above you identified the NCI in Subsidiary Ltd measured not at fair value; use this amount as a starting point to determine the NCI in Subsidiary Ltd measured at fair value.
QUESTION 3
On 1 April 2015 Parent Ltd acquired 75% of the equity in Subsidiary Ltd. Parent Ltd has provided you with their incomplete consolidation worksheet for the year ended 31 March 2024.
Additional information:
(i) At the date of acquisition the equity of Subsidiary Ltd comprised:
|
Share capital
|
$120,000
|
|
Retained earnings
|
4,000
|
|
Asset revaluation surplus
|
6,000
|
(ii) During March 2023 Subsidiary Ltd made sales to Parent Ltd and realised a profit of $2,000. This inventory remained in Parent Ltd’s inventory at year end.
(iii) During March 2024 Subsidiary Ltd made sales to Parent Ltd and realised a profit of $6,000. Parent Ltd had not sold this inventory at year end.
(iv) During March 2024 Parent Ltd made sales to Subsidiary Ltd and realised a profit of $2 500. The inventory of Subsidiary Ltd at year end contained this purchase from Parent Ltd.
(v) Goodwill arising on acquisition has been impaired by the following amounts:
|
31 March 2024
|
$5 000
|
|
31 March 2021
|
2 000
|
|
31 March 2020
|
1 200
|
(vi)
|
In relation to the identifiable net assets (INA) of Subsidiary Ltd as at the date of acquisition:
|
|
Scenario 1: The identifiable net assets were considered to be fairly valued.
|
|
Scenario 2: The identifiable net assets were not considered to be fairly valued. Property, plant and equipment had a carrying amount of $180 000 but a fair value of $200 000. Subsidiary Ltd also had an unrecognised intangible asset of $10 000 and a contingent liability of $3 000.
|
Required:
(a) For each of the two independent scenarios described above in (vi) prepare the notional journal entry on consolidation to offset the carrying amount of the asset Investment in Subsidiary Ltd and the parent’s portion of equity in Subsidiary Ltd.
(b) For each of the two independent scenarios described above in (vi) prepare the notional journal entry to identify the non-controlling interest (NCI) in Subsidiary Ltd to be reported in the group accounts as at 31 March 2024.
Firstly assume Parent Ltd measures the NCI in Subsidiary Ltd at fair value and then assume
Parent Ltd measures the NCI in Subsidiary Ltd at the NCI’s proportionate share of the acquiree’s INA.
QUESTION 4
Ascot Coal Ltd requested a review of the treatment of the following material events on its
financial statements for the year ended 31 March 2024. It authorised the said financial
statements for issue on 15 May 2024.
(i) 27 April 2024: On 20 December 2023, a customer initiated legal proceedings against the company in relation to a breach of contract.
Scenario (a): On 23 February 2024, the company’s legal advisers informed the directors that it was unlikely that the company would be found liable; therefore no provision has been made in the financial statements for the year ended 31 March 2024, but a contingent liability of $350 000 has been disclosed. On 27 April 2024, the court found Ascot Coal Ltd liable on a technicality and is now required to pay damages of $560 000.
Scenario (b): On 23 February 2024, the company’s legal advisers informed the directors that it was likely the company would be found liable; therefore a provision of $400 000 was included in the financial statements for the year ended 31 March 2024. On 27 April 2024, the court found Ascot Coal Ltd liable on a technicality and is now required to pay damages of $560 000.
Scenario (c): On 23 February 2024, the company’s legal advisers informed the directors that it was likely the company would be found liable; therefore a provision of $600 000 was included in the financial statements for the year ended 31 March 2024. On 27 April 2024, the court found Ascot Coal Ltd liable on a technicality and is now required to pay damages of $560 000.
(ii) 28 April 2024: Ascot Coal Ltd paid the final dividend on 28 April 2024. This final dividend of $230 000 (500 000 shares x 46 cents per share) had been declared on 28 March 2024.
Alternative scenario for 28 April 2024: Ascot Coal Ltd paid the final dividend on 28 April 2024. This final dividend of $230 000 (500 000 shares x 46 cents per share) had been declared on 01 April 2024.
(iii) 09 May 2024: Ascot Coal Ltd received $5 million cash on 9 May 2024; this was the proceeds from the sale of a piece of mining equipment on 2 February 2024. This piece of mining equipment had a carrying value of $4 million on 2 February 2024.
(iv) 13 May 2024: On 13 May 2024, a customer called Energy Ltd was declared bankrupt.
On 31 March 2024, Energy Ltd owed Ascot Coal Ltd $290 000 for credit sales; Energy Ltd was not considered doubtful at balance date.
Required:
Prepare a report for the Ascot Coal Ltd managing director to explain the treatment of the above events according to NZ IAS 10 Events after the Reporting Period.
Note: You must use the Topic 6 Example Document Report Flowchart.