Accounting -Using the information below and on the next two pages, prepare the following as at 30th June 2014:

| January 30, 2017

Question

200109 Corporate Accounting Systems

QUESTION

Using the information below and on the next two pages, prepare the following as at 30th June 2014:

PART A: Consolidation adjustment/elimination journal entries that are required at the above financial year end date (i.e. for one year only); and Non-controlling Journal entries also.

THE FOLLOWING EVENTS OCCURRED:

During the year ended 30 June 2012:

1. On 17 October 2011 Sydney Ltd created a group entity when it purchased 90% of the issued capital of Tower Ltd for $289,980 cash. On acquisition,TowerLtd’s accounts showed: Share capital $200,000 and Retained earnings $58,000. All assets and liabilities appearing in TowerLtd’s financial statements were fairly valued, except:

· One of their blocks of land was recorded at $100,000 when its fair value was judged by the group to be $130,000. During the following financial year this land was sold for $140,000 cash.

· An item of plant was undervalued by $50,000. At that time it had a remaining life of 5 years and accumulated depreciation of $36,000. The plant is still an asset of Tower Ltd at 30 June 2014.

· A contingent liability relating to an unsettled legal claim with a fair value of $50,000 was recorded in the notes to the financial statements. This amount will be tax deductible when paid. The court case is still in progress at 30 June 2014.

During the year ended 30 June 2013:

2. On 1 July 2012Tower Ltd sold an item ofplant to Sydney Ltd for $59,000. This was financed by a short-term interest-free loan from Tower Ltd that was repaid 14 months later. The plant had cost $64,000 when purchased on 13November 2011. It’s expected useful life was originally 5 years and this original estimate is still considered to be valid. The plant is still an asset of Sydney Ltd at 30 June 2014.

3. During the year Sydney Ltd made sales of inventory to Tower Ltd of $569,600. The inventory balance ofTower Ltd at the end of the year included stock of $84,000 acquired from Sydney Ltd. Sydney Ltd declared and paid dividends of $90,000 for the year. Tower Ltd did not declare or pay any dividends for the year.

During the year ended 30 June 2014:

4. On 23 December 2013Sydney Ltd sold an item of plant to Tower Ltd for $100,000 when its carrying value in Sydney’s books was $170,000 (original cost $212,500 and original estimated life of 10 years).The plant is still an asset of Tower Ltd at 30 June 2014.

5. During the year Tower Ltd made sales of inventory to Sydney Ltd of $88,200.The inventory balance of Sydney Ltd at the end of the year included stock of $54,300 acquired from Tower Ltd.

6. The management of Sydney Ltd believes that the goodwill acquired on acquisition of Tower Ltd was impaired by $5,000 in the current year. This is in addition to a total of $8,000 of impairment in previous years.

7. Sydney Ltd charged management fees to Tower Ltd.

8. Dividends were declared/paid by both companies.

9. Non-controlling interests in Tower Ltd to be recognised. This is the only subsidiary in the group.

ADDITIONAL INFORMATION:

· The company tax rate is currently 30% and it has been this rate for many years.

· SydneyLtd has the following accounting policies for the group:

(i) Revaluation adjustments on acquisition are to be made on consolidation only, not in the books ofany subsidiary;

(ii) Non-controlling interests are measured at fair value;

(iii) Intragroup sales of inventory to be at a selling price of cost plus a mark-up of 50%;

(iv) Plant is depreciated using the straight-line method with no residual value. For part-years, depreciation is to be calculated on the number of days the asset is held in the relevant year, with the day of acquisition counting as one day while the day of disposal does not count; and

(v) All calculated amounts are to be rounded to the nearest whole dollar. Companies in the group do not show cents in any journals, worksheets, or financial statements.

NOTE:

· You MUST number your journal entries and present them in the order as they relate to the number given for each “event”. Where more than one journal is needed for an “event” to be completely accounted for add the letters a,b,c,…etc to them as necessary. [For example, if three separate journal entries are required to fully record the information detailed in point number 1, then the first journal will be 1a and the second is to be 1b and the third 1c.] Short narrations are expected for each journal entry. Marks will be lost if journals are not presented in a clear and professional manner (i.e. poor or unclear presentation can include showing the debit entry on one page but the credit entry on another, or not clearly distinguishing between debit and credit entries).

AT 30 JUNE 2014

SYDNEY LTD

TOWER LTD

$

$

INCOME STATEMENTS

Sales revenue

1,365,300

992,200

Cost of goods sold

692,000

618,500

Gross profit

673,300

373,700

Other income

Management fee revenue

12,900

Dividend revenue

87,960

Expenses

Depreciation expense

(133,300)

(59,000)

Management fee expense

(12,900)

Loss on sale of asset

(70,000)

Other expenses

(426,200)

(163,400)

Profit before tax

144,660

138,400

Income tax expense

(17,010)

(41,520)

Profit for the year after tax

127,650

96,880

Retained earnings at start of year

159,220

134,320

Dividend paid/declared

(75,000)

(96,400)

Retained earnings at end of year

211,870

134,800

BALANCE SHEETS

Equity

Share capital

450,000

200,000

Retained earnings

211,870

134,800

Current Liabilities

Accounts payable

210,280

148,180

Income tax payable

10,910

42,420

Dividends payable

37,500

48,200

Non-Current Liabilities

Bank Loans

710,000

650,000

Provision for employee benefits

29,100

14,300

Deferred tax liability

6,100

1,665,760

1,237,900

Current Assets

Accounts receivable

176,800

98,700

Allowance for doubtful debts

(22,100)

(9,500)

Dividends receivable

43,980

Inventory

98,300

121,200

Non-Current Assets

Land and buildings

790,000

910,800

Plant – at cost

449,700

301,200

Accumulated depreciation – plant

(169,400)

(185,400)

Deferred tax asset

900

Shares in The Rocks Pty Ltd

8,500

Investment in Tower Ltd

289,980

1,665,760

1,237,900

8+

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