Academic integrity

FINAL EXAMINATION

 SEMESTER 1 2021

Family Name:Shahid
Given Names:Salman
Student Number:20171912  
Academic integrity means putting values into practice by being honest in the academic work you do at PIA, being fair to others, taking responsibility for learning, and following the conventions of scholarship. It is PIA’s responsibility to award credit for honestly conducted work, and it is your responsibility to ensure that you demonstrate academic integrity. Take the time to find out more by visiting PIA’s Policies and Procedures site. By submitting this assessment paper, I acknowledge that this is an individual assessment. I have undertaken this exam by myself and without any assistance from any other person or any website or other resources which are not specifically permitted. I have not shared any aspect of my exam participation or answers with other students or provide assistance to them in any way.

Unit Name (in full):                CORPORATE ACCOUNTING

Unit Code:                              ACC202

Time Allowed:                       2 hours and 30 minutes (no reading time for online papers).

Lecturer:                                Mr Lee Ridge

PLEASE READ CAREFULLY BEFORE PROCEEDING  

ACC202 Corporate Accounting Final Exam will start at 2.30 pm on Wednesday, 9 June 2021.

  • You must submit your answers by 5.00 pm, on the day of the exam.
  • To complete this exam you must have a functional computer/laptop and reliable internet connectivity.
  • If you do not have any of them, you need to come to PIA and use a computer in the computer LAB. Please contact Student Service in advance to allocate a computer for you.
  • Internet connectivity is the student’s responsibility.
    • There are five (5) questions – all of equal value. You are required to answer four (4) Complete all parts to each question.
  1. Type your name and student number in the space provided in the table at top of this examination paper.
  2. Use this word document to submit your answers.
  3. This is an OPEN book examination.  You may use any resources that you require. Your answers must be in your own words. Any references used must be acknowledged.
  4. Your completed exam is to be uploaded to Turnitin in this subjects’ Moodle site. Emailed exams will not be marked.
  5. This paper totals 100 marks and represents 50% of the total marks for the unit.
MARKERS’ USE ONLY – ANY 4 QUESTIONS  
 Q1Q2Q3Q4Q5TOTAL 
       


Question 1 – 20 marks (Answer both a. and b.)

Vin Rouge Ltd, a producer of premium wines has agreed to acquire the business of a rival company, Nullarbor Wines Ltd, taking over all assets and liabilities as at 1 March 2021.

The consideration (price) agreed on was $1,000,000, payable $800,000 in cash and the balance by the issue to the selling company of 200,000 fully paid shares in Vin Rouge Ltd, these shares having a fair value of $1.00 per share.

The trial balances of the two companies at 1 March 2021 were as follows.

 Vin RougeNullarbor Wines
 DrCrDrCr
Share capital  5,000,000       1,000,000
Retained earnings     1,700,000       175,000  
Accounts payable        475,000        325,000
Cash     2,120,000          210,000  
Equipment (net)    1,855,000        310,000  
Inventory     1,940,000        415,000  
Accounts receivable     1,260,000          170,000  
Goodwill          45,000  
        7,145,000     7,145,000      1,325,000       1,325,000

All the identifiable net assets of Nullarbor Wines Ltd were recorded by Nullarbor Wines Ltd at fair value except for the inventories, which were considered to be worth $450,000 (assume no tax effect). The plant had an expected remaining life of 5 years.

The business combination was completed and Nullarbor Wines Ltd went into liquidation. Vin Rouge Ltd incurred incidental costs of $40,000 in relation to the acquisition. Costs of issuing shares in Vin Rouge Ltd were $65,000.

Required

  1. Prepare the acquisition analysis for Vin Rouge Limited (10 marks)
  2. Prepare the journal entries in the records of Vin Rouge Ltd to record the business combination. (10 marks)

 

Answer:

01-Mar-21Vin RougeNullarbor Wines
Holding Company Purchased 100% for 10,00,000Subsidiary Company
              1,000,000
Details of difference in Carrying Amount and Fair Value of Assets
Particulars Carrying Amount  Fair ValueDifference
Inventories                  415,000                 450,00035,000
a) Acquisition Analysis as at 01 March, 2021
Calculation of acquisition analysis  for Vin Rouge Limited
   
Share Capital$1,000,000 
Retained Earnings-$175,000 
Asset revaluation Surplus$0$825,000
Add:  
Inventories$35,000 
In-Process Research$0$35,000
Less:  
Contingent Liability$0$0
   
Fair Value of Identifiable Net Assets  (FVINA) $860,000
   
Purchase Consideration for 100% acquisition $1,000,000
Goodwill (Consideration- FVINA) $140,000
b) Business Combination Valuation Entries at Acquisition date
DateParticulars Dr Amount Cr Amount
01-Mar-21Inventories$35,000 
 Business Combination Valuation Reserve $35,000
 (Being difference in fair value and carrying amount of Inventories recorded )  
    
01-Mar-21Pre-acquisition entries at acquisition date  
 Share Capital$1,000,000 
 Retained Earnings-$175,000 
 Inventory Revaluation Surplus$35,000 
 Goodwill$140,000 
 Shares in Nullarbor Wines Ltd $1,000,000
 (Being the goodwill recognized and consolidation entry done)  
    
01-Mar-21liquidation Expenses A/c$40,000 
 Cash A/c $40,000
 ( being liquidation expenses paid by Vin Rough Limited )  
    
01-Mar-21Costs of issuing shares$40,000 
 Cash A/c $40,000
 ( being Costs of issuing shares to Nullarbor Wines Ltd )  

______________________________________________________________________________

 

Question 2 – 20 marks

On 1 July 2020, Everest Ltd acquired the remaining 80% of the issued shares that it did not previously own in K2 Ltd, transferring 500,000 Everest Ltd shares to K2 Ltd’s former shareholders. At that date, the financial statements of K2 Ltd showed the following information:

Share capital      $1,200,000
General reserve             550,000
Retained earnings             880,000

All the assets and liabilities of K2 Ltd were recorded at amounts equal to their fair values at the acquisition date. The fair value of Everest Ltd’s shares at acquisition date was $5.00 per share. The previously held interest by Everest Ltd in K2 Ltd (i.e. 20% of the issued shares) was recognised in Everest Ltd’s accounts at the fair value at acquisition date of $500,000. Everest Ltd incurred $35,000 in acquisition‐related costs, including $50,000 in share issue costs.

Required

1.         Prepare the acquisition analysis at 1 July 2020. [6 marks]

2.         Prepare the journal entries for Everest Ltd to recognise the additional investment in K2 Ltd at 1 July 2020. [7 marks]

3.         Prepare the consolidation worksheet entries for Everest Ltd’s group at 1 July 2020. [7 marks]

Answer:

01-Jul-20Everest LtdK2 Ltd
Holding Company Purchased 80% for issuing 500000 sharesSubsidiary Company
              2,500,000
a) Acquisition Analysis as at 01/07/2020
Calculation of acquisition analysis  for Everest Limited
   
Share Capital$960,000 
Retained Earnings$704,000 
General Reserve$440,000$2,104,000
   
Fair Value of Identifiable Net Assets  (FVINA) $2,104,000
   
Purchase Consideration for 80 % acquisition $2,500,000
Goodwill (Consideration- FVINA) $396,000
b) Business Combination Valuation Entries at Acquisition date
DateParticular Debit Credit
01-Jul-20Pre-acquisition entries at acquisition date  
 Share Capital$960,000 
 Retained Earnings$704,000 
 General Reserve$440,000 
 Goodwill$396,000 
 Shares in Nullarbor Wines Ltd $2,500,000
 (Being the goodwill recognized and consolidation entry done)  
    
01-Jul-20Consolidation Expenses A/c$35,000 
 Cash A/c $35,000
 ( being Consolidation expenses paid by Everest Limited )  
    
01-Jul-20Costs of issuing shares$50,000 
 Cash A/c $50,000
 ( being Costs of issuing shares to K2 Ltd )  

c)

DateParticular Debit Credit
01-07-2020Share Capital$1,200,000 
Retained Earnings$880,000 
General Reserve$550,000 
Goodwill$370,000 
Shares in k2 Ltd $3,000,000
(Being the goodwill recognized and consolidation entry done)  

Question 3 – 20 marks

Pujara Ltd owns all the share capital of Smooth Ltd. The income tax rate is 30%. The following transactions took place during the periods ended 30 June 2019 or 30 June 2020.

(a)   On 1 May 2019, Pujara Ltd sold inventories to Smooth Ltd for $50,000 on credit, recording a profit of $10,000. Half of the inventories were unsold by Smooth Ltd at 30 June 2019 and none at 30 June 2020. Smooth Ltd paid half of the amount owed on 15 June 2019 and the balance on 15 August 2019.

(b)   On 10 June 2019, Smooth Ltd sold inventories to Pujara Ltd for $30,000 in cash. The inventories had previously cost Smooth Ltd $24,000. Half of these inventories were unsold by Pujara Ltd at 30 June 2019 and 30% at 30 June 2020.

(c)   On 1 January 2020, Smooth Ltd sold inventories costing $6,000 to Pujara Ltd at a transfer price of $9,000, paid in cash. The entire inventories were sold by Pujara Ltd to external entities by 30 June 2020.

Required

In relation to the above intragroup transactions, prepare adjusting journal entries for the consolidation worksheet at 30 June 2019 and 30 June 2020.

b)

DateParticularDebitCredit
30-06-2019Sale A/c            15,000 
 Cost of Goods Sold A/c  12,000
 Inventory    3,000
(Being the 50% value of unsold inventory eliminated) 
    
30-06-2020Sale A/c               9,000 
 Cost of Goods Sold A/c    7,200
 Inventory    1,800
(Being the 30% value of unsold inventory eliminated) 

c) No intra group transaction required as the goods sold by the subsidiary company has been sold by the holding company to external. At the end of the year, no due pending, no inventory so no need of adjusting entry

Question 4 – 20 marks (Answer both a. and b.)

On 1 July 2019, Plum Ltd acquired 80% of the issued shares of Strawberry Ltd for $1,400,000. At this date, the equity of Strawberry Ltd consisted of share capital of $500,000 and retained earnings of $20,000. All the identifiable assets and liabilities of Strawberry Ltd were recorded at amounts equal to fair value except for the following.

  Carrying Amount Fair value
Machine (cost $75,000)                     45,000         52,000
Plant (cost $500,000)       240,000      320,000
Inventories                    100,000      160,000

Canberra Ltd also had an internally generated patent not recognised at 1 July 2019. Plum Ltd assessed the fair value of that patent at $120,000. The tax rate is 30%.

Required

  1. Prepare the acquisition analysis at 1 July 2019 assuming that Plum Ltd used the full goodwill method and the fair value of the non‐controlling interest at 1 July 2019 was $330,000. (15 marks)
  2. Calculate the Control premium for the parent. (5 marks)

Answer:

01-Jul-19Plum LtdStrawberry Ltd
Holding Company Purchased 80 % sharesSubsidiary Company
              1,400,000
Details of difference in Carrying Amount and Fair Value of Assets
Particulars Carrying Amount  Fair ValueDifference
Machine                    45,000                   52,0007,000
Plant                  240,000                 320,00080,000
Inventories                  100,000                 160,00060,000
Acquisition Analysis as at 01 July, 2019
 
Calculation of acquisition analysis  for Plum Limited
   
Share Capital$500,000 
Retained Earnings$20,000 
Asset revaluation Surplus$0$520,000
Add:  
Machine$7,000 
Plant$80,000 
Inventories$60,000 
fair value of the non‐controlling$330,000$477,000
   
Fair Value of Identifiable Net Assets  (FVINA) $997,000
   
Purchase Consideration for 80% acquisition $1,400,000
Goodwill (Consideration- FVINA) $403,000
B) Calculation of Control premium  For Parent Company
   
Share Capital$400,000 
Retained Earnings$16,000 
Asset revaluation Surplus$0$416,000
Add:  
Machine$5,600 
Plant$64,000 
Inventories$48,000                 117,600
   
Fair Value of Identifiable Net Assets  (FVINA) $533,600
   
Purchase Consideration for 80% acquisition $1,400,000
Goodwill (Consideration- FVINA) $866,400

Question 5 – 20 marks (Answer both a. and b.)

  1. With regard to managing the affairs of companies in financial difficulty, the Corporations Act refers to Administrators and Liquidators, respectively.

Required

Outline the role of Administrators and Liquidators, respectively and who they act for. [12 marks]

  • Bronte Limited has $3.5 Million more liabilities than assets. Included in the liabilities of Bronte Limited, is a bank loan of $2.2 million, secured against the company’s building. You have been asked to advise the directors of Bronte Limited on the possible insolvency administrations facing Bronte Limited.

Required

Describe the possible insolvency administrations facing XYZ Limited. [8 marks]

  • End of Exam Paper –

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