critically analyze whether the equity account used remains in existence indefinitely.

ACC-ACF2100 Financial Accounting – Semester 2, 2021

Individual Assignment

Weighting: 15%

Due Date: Friday 22 October 2021, before 4pm.

Total marks: 80 marks.

Instruction:

This is an individual assignment. You are expected to apply knowledge from our lecture and

tutorial discussions to the assignment question. Some parts of the assignment question require

your critical and analytical thinking to analyse the scenario and provide your response. The

assignment question and relevant requirements are provided on the following two pages.

Plagiarism and collusion are prohibited. Marks are also allocated for effective presentation of

your written work.

Submission:

You are required to submit the softcopy of your individual work. On the cover page of your

submission, please include your tutor’s name, tutorial day and time, your student ID and your

name. The softcopy submission should be a pdf file.

Your submission file should be named Surname_StudentID.Ext where Surname is your surname,

StudentID is your STUDENT ID and Ext is pdf. For example, if your surname is “Naidu” and

your student ID number is “12345678” then the file should be named as: Naidu_12345678.pdf

Extensions of time and penalties for late lodgment:

Unless an extension or special consideration has been granted, or otherwise specified in the

learning management system, students who submit an assessment task after the due date will

receive a late-submission penalty of 10 per cent of the available marks in that task. A further

penalty of 10 per cent of the available marks will be applied for each additional day (24-hour

period), or part thereof, the assessment task is overdue.

Tasks submitted more than seven days after the due date will receive a mark of zero for that task.

Presentation requirements:

Try your best to construct your report as effectively as possible. The criteria for the presentation

effectiveness include whether the submitted report adheres to the instructions, structure of

analyses and journal entries, details of working (if required), correct labelling and clear and

complete narrations, the file name requirement and word limit (for part c).

https://www.monash.edu/exams/changes/special-consideration

2

Individual Assignment

On 1 July 2019, Parent Ltd acquired all the shares of Son Ltd, on a cum-div. basis, for $1,100,000. At this date, the equity of Son Ltd consisted of:

Share capital – 700 000 shares $ 1,050,000 Retained earnings 650,000

Son Ltd also reported a dividend payable of $100,000 and a recorded goodwill of $150,000 at the acquisition date. The dividend payable was subsequently paid in September 2019.

At the acquisition date, all the identifiable assets and liabilities of Son Ltd were recorded at amounts equal to fair value except for the following:

Carrying amount Fair value Inventory 100,000 80,000 Plant (cost $1,000 000) 800 000 700,000

Of the inventory on hand in Son Ltd at 1 July 2019, 60 percent was sold in December 2019 and the remainder was sold in August 2020.

The remaining useful life of the plant at the date of acquisition was 5 years. The plant on hand at the acquisition date was sold on 1 January 2021 for $500,000.

The company applies the partial goodwill method. The income tax rate is 30%.

During the period 1 July 2019 to 30 June 2021, the following intragroup transactions have occurred between Parent Ltd and Son Ltd:

(T1) On 1 January 2020, Parent Ltd acquired furniture for $200,000 from Son Ltd. The

furniture had originally cost Son Ltd $200,000 and had a carrying amount at the time of

sale of $160,000. The sale was made on credit. At 30 June 2020, $120,000 was

outstanding. At 30 June 2021, $40,000 was still not paid and outstanding. Both entities

apply depreciation on a straight-line basis. At 1 January 2020, the furniture had a further

five years of useful life, with zero residual value.

(T2) On 1 March 2020, Son Ltd sold inventory costing $120,000 to Parent Ltd for $100,000.

On 1 October 2020, Parent Ltd sold half of these inventory items back to Son Ltd for $60,000.

Of the remaining inventory kept by Parent Ltd, half was sold in March 2021 to Dingo Ltd at a

profit of $10,000.

Office Use Only

Question Question Presentation Effectiveness

Total

Marks allocated 70 10 80

Marks received

3

Required: a) Prepare the acquisition analysis at 1 July 2019.

(9 marks)

b) Prepare the consolidation worksheet entries at 30 June 2021. Your answer should include:

  1. BCVR entries,
  2. Pre-acquisition entries, and
  3. Intragroup transaction adjustment entries (T1 to T2).

(42 marks)

c) The accounting standard suggests that all the identifiable assets and liabilities of the subsidiary must be recognized in the consolidated financial statements at fair value. The accounting standard also suggests that previously unrecorded assets or liabilities (e.g., contingent liability) must be recognized at fair value.

Critically analyze whether the adjustments to fair value should be made in the books of the subsidiary or in the consolidation worksheet.

If the adjustments to fair value are made in the consolidation worksheet, critically analyze whether the equity account used remains in existence indefinitely.

[word limit: 250 words] (19 marks)

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