Accounting Assignment. Accounting Assignment. ASSIGNMENT
On 1 July 2011, Tangiers Ltd acquired all the shares of Tripoli Ltd. On this date, the equity of Tripoli Ltd comprised the following balances:
Share Capital $180 000
General Reserve 20 000
Plant Maintenance Reserve 30 000
Retained Earnings 72 000
At acquisition date, all the identifiable assets and liabilities of Tripoli Ltd were recorded at amounts equal to fair value except for:
Carrying Fair
Amount Value
Land $50 000 $75 000
Buildings (cost $75 000) 55 000 57 000
Inventory 45 000 60 000
Plant (cost $260 000) 182 000 190 000
Delivery Truck (cost $90 000) 36 000 38 000
Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed or lost.
Tripoli Ltd registered a patent on 26 June 2011 but did not recognize it as an asset. Tangiers Ltd believed the fair value of the patent was $45 000. The patent is legally enforceable for a period of 15 years. On 1 January 2015, Tripoli Ltd sold the patent for $30 000.
At 1 July 2011, Tripoli Ltd was involved in a lawsuit brought against it by a customer for damages suffered as a result of poor quality goods supplied. Lawyers for Tangiers Ltd advised that the court is likely to find in favour of the customer and likely damages may amount to $30 000. After a prolonged court case, damages of $34 000 were paid in full settlement on 3 May 2015.
The plant had a further five year life at acquisition date and was expected to be used evenly over that time. Buildings have a further 10 years of useful life. The delivery truck which was expected to have a further four year useful life at acquisition date was sold on 1 April 2014 for 28 000. During the year ended 30 June 2011 all inventory, on hand, at acquisition date, was sold. As a result of the annual impairment test at 30 June 2015, Tangiers Ltd determined that the goodwill of Tripoli Ltd had been impaired by $5 000.
In the financial year ended 30 June 2014 Tripoli Ltd transferred $10 000 from retained earnings on hand at acquisition date to the general reserve.
Additional information:
- On 1 July 2014, Tripoli Ltd had on hand inventory worth $36 000, transferred from Tangiers Ltd in June 2014. The inventory cost Tangiers Ltd $28 000. This entire inventory was sold to external parties in the year ended 30 June 2015.
- On 1 April 2014, Tangiers Ltd sold inventory which cost $27 000 to Tripoli Ltd for $25 000. Tripoli Ltd treated this item as plant with a five year useful life.
- During the year ended 30 June 2015, Tangiers Ltd sold inventory costing $18,000 to Tripoli Ltd for $27 000. Prior to 30 June 2015, two thirds of this inventory was sold to external customers for $21 600.
- In May 2011 Tangiers Ltd lent $35 000 at an annual interest rate of 4% to Tripoli Ltd. Tripoli Ltd has as yet made no repayments on the loan.
- Tangiers Ltd rents surplus space in its warehouse to Tripoli Ltd for an annual rental charge of $40 000.
- On 1 October 2014 Tripoli Ltd sold an item of plant to Tangiers Ltd which regarded the item as inventory. The plant had a carrying amount of $11 000 and was sold for $14 000. The item was subsequently sold to an external party in May 2015.
- On 1 January 2015 Tangiers Ltd sold an item of office furniture to Tripoli Ltd for $5 000. The furniture had a carrying amount at the date of sale of $4 500. Both companies depreciate office furniture at 20% per annum.
- The gains on Available-for-Sale Financial Assets for the year ended 30 June 2015 were $6 700 (Tangiers Ltd) and $1 900 (Tripoli Ltd). There were no other movements during the year.
- The tax rate is 30%.
On 30 June 2015 the trial balances of Tangiers Ltd and Tripoli Ltd were as follows:
Tangiers Ltd Tripoli Ltd
Debit Balances
Cash $90 620 $96 145
Receivables 36 000 73 800
Dividend Receivable 8 000 1 200
Inventory 72 000 97 800
Available-for-Sale Financial Assets 90 250 27 250
Loan Receivable – Tripoli Ltd 35 000 –
Shares in Tripoli Ltd 360 000 –
Deferred tax assets 32 080 24 725
Land 125 000 50 000
Buildings 120 000 75 000
Plant 450 000 320 000
Delivery Truck 75 000 120 000
Office Furniture 15 000 26 000
Goodwill 28 000 –
Cost of Sales 1 440 100 1 190 500
Amortisation and Depreciation 60 000 54 100
Impairment loss – 5 000
Damages expense – 34 000
Other expenses 63 000 162 400
Income tax expense 68 100 79 860
Dividend paid 12 000 10 000
Dividend declared 6 000 8 000
Transfer to general reserve 10 000 10 000
3 196 150 2 465 780
Credit Balances
Share capital 450 000 200 000
General Reserve 80 000 30 000
Plant Maintenance Reserve – 10 000
Available-for-Sale Financial Assets Reserve 40 000 5 000
Retained earnings (1/7/14) 89 500 165 340
Dividend Payable 6 000 8 000
Accounts Payable 37 000 31 400
Loan Payable – Tangiers Ltd – 35 000
Loan Payable (due 1/7/17) 100 000 50 000
Current Tax Liability 65 200 69 000
Deferred Tax Liability 19 250 26 040
Annual Leave Entitlements 50 000 25 000
Sales Revenue 1 830 000 1 500 000
Dividend Revenue 23 500 3 200
Proceeds on sale of non-current assets 500 50 000
Other Revenue 62 900 16 000
Transfer from plant maintenance reserve – 20 000
Accumulated impairment – Goodwill – 5 000
Accumulated depreciation – Buildings 56 000 40 000
Accumulated depreciation – Plant 252 000 148 000
Accumulated depreciation – Office Furniture 6 200 13 800
Accumulated depreciation – Delivery Truck 28 100 15 000
$3 196 150 $2 465 780
Required
Prepare the following:
- Acquisition analysis at 1 July 2011.
- The BCVR & pre-acquisition worksheet journal entries ONLY at 30 June 2014.
- The BCVR, pre-acquisition and intra-group transaction consolidation worksheet journal entries at 30 June 2015.
- The consolidation worksheet and the consolidated financial statements for Tangiers Ltd at 30 June 2015.
Marking Guide
This assignment is worth 20% of the total assessment. Marks will be apportioned as follows:
- Acquisition analysis at 1 July 2011. (6 marks)
- The BCVR & pre-acquisition worksheet journal entries at 30 June 2014. (24 Marks)
- All of the consolidation worksheet journal entries at 30 June 2015. (60 Marks)
- The consolidation worksheet and the consolidated financial statements at 30 June 2015. (10 marks)
Parts 1 and 2:
The acquisition analysis and the journal entries will marked based solely on their accuracy. In other words, you have to get both the account name and amount correct to get your mark. For the adjusting entries, consequential marking will be applied to the journal entries if the acquisition analysis is incorrect.
Parts 3 and 4:
For both the consolidation worksheet and the consolidated financial statements, the tutor will grade you out of 5 based on the degree of completion and consistency. Deductions will be made for errors in classification and presentation and for figures that are inconsistent, missing or incomplete.
p(4)
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