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:

  1. Acquisition analysis at 1 July 2011.
  2. The BCVR & pre-acquisition worksheet journal entries ONLY at 30 June 2014.
  3. The BCVR, pre-acquisition and intra-group transaction consolidation worksheet journal entries at 30 June 2015.
  4. 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:

  1. Acquisition analysis at 1 July 2011. (6 marks)
  2. The BCVR & pre-acquisition worksheet journal entries at 30 June 2014. (24 Marks)
  3. All of the consolidation worksheet journal entries at 30 June 2015. (60 Marks)
  4. 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.

 

 

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