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ACCT3004 Company Accounting- DEFERRED EXAMINATION End of Semester 1 & Trimester 1A, 2020

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School of Accounting

Downloadable DEFERRED EXAMINATION

End of Semester 1 & Trimester 1A, 2020

ACCT3004 Company Accounting

This paper is for Bentley Campus, Bentley Campus (External), Mauritius, Miri Sarawak and Singapore Campus students

 

This is an OPEN BOOK examination

Students are not to use internet or other digital sources of information in completing the exam. Students are required to complete the exam individually and must not communicate or discuss the exam or any other unit material with any other person until the period the exam is available expires. Copying answers or parts of answers from any source, including unit materials, into your answers is plagiarism and academic misconduct.

Examination Duration                   2 hours working time – however, you have 4 hours to upload your answers after downloading the exam paper. This is not extra work time but time to allow for any issues in submission. The submission portal closes automatically at the expiration of the 4 hours. Submissions after this time must be done manually direct to the Unit Coordinator and will be subject to late submission penalties. Your upload of your answers must also be completed prior to the conclusion of the 24 hour availability of the exam.

 

 

 

 

Question 1:                             Consolidations 1                                           (25 marks)

On 1 July 2022, Donald Ltd acquired the remaining 60% of the issued shares of Mickey Ltd for shares in Donald Ltd with a fair value of $600 000. At that date, the financial statements of Mickey Ltd showed the following information.

 

                        Share capital               $650 000

                        General reserve           $20 000

                        Retained losses            $50 000

 

All the assets and liabilities of Mickey Ltd were recorded at amounts equal to their fair values at the acquisition date, except some equipment recorded at $40 000 below its fair value with a related accumulated depreciation of $50 000. Assume the equipment has not been revalued in the subsidiaries accounts. Also, Donald Ltd identified at acquisition date a contingent liability related to a lawsuit where Mickey Ltd was sued by a former supplier and attached a fair value of $30 000 to that liability. The previous held interest by Donald Ltd in Mickey Ltd (ie 40% of the issued shares) was recognised by in Donald Ltd.’s accounts at the fair value at acquisition date of $400 000. Donald Ltd incurred $15 000 in acquisition related costs including $10 000 in share issue costs.

The Company tax rate is 30%.

Required:

< >Complete the acquisition analysis as at the date of acquisition.        (10 marks)Prepare the adjusting journal entries for the consolidation worksheet and the acquisition at 1 July 2022.                                                                           (13.5 marks)Complete the BCVR ledger account as at 1 July 2022.                     (1.5 marks) 

 

 

 

 

Space for your answer begins on the next page.

 

 

 

Question 1:                             Consolidations 1 - continued                        (25 marks)

Answer space for acquisition analysis for question 1 part 1

Use the worksheet below to show your acquisition analysis in good format, narrations are required, expand /insert rows to the answer table as required:

1. Acquisition analysis at 1 July 2022:

 
   

Net fair value of identifiable assets
 and liabilities of Alma Ltd =

 
   

Share capital

650000

Asset revaluation surplus

20000

Retained Loss

-50000

Machinery -BCVR-(FV-CA)*(1-30%)

28000

 

 

 

 

Contingent Liability

-21000

   

Fair value of Identifiable net asset=

627000

   

Consideration transferred =

600000

NCI in Donald Ltd=

37620

Aggregate=

637620

   

Goodwill acquired by Parent only=

10620

 

 

 

Answer journal for question 1 part 2

Use the worksheet below to show your adjusting consolidation journal entries at 1 July 2022, narrations are required, expand /insert rows to the answer table as required:

Business Combination Valuation at acquisition date:

Date

Account

Debit

Credit

01.07.2022

Accumulated depreciation  Dr

$50,000

 

 

Machinery   Cr

 

$50,000

 

 

 

 

01.07.2022

Machinery   Cr

$40,000

 

 

     Deferred tax liability Cr

 

12000

 

     BCVR                                 Cr

 

28000

 

 

 

 

01.07.2022

Patent   Dr

$0

 

 

     Deferred tax liability Cr

 

0

 

     BCVR                                 Cr

 

0

 

 

 

 

01.07.2022

Share Issue and Acquisition cost

$25,000

 

 

     Deferred tax liability Cr

 

7500

 

     BCVR                                 Cr

 

17500

 

 

 

 

01.07.2022

Deferred tax Asset Dr

9000

 

 

BCVR                             Dr

21000

 

 

Contingent Liability

 

$30,000

 

 

 

 

 

Pre-acquisition entries at acquisition date:30th june22

Account

Debit

Credit

Share capital Dr

611000

 

Asset revaluation surplus Dr

18800

 

Retained Loss Dr

-47000

 

Business combination valuation reserve Dr

23030

 

Goodwill  Dr

-5830

 

             Shares in Micky Ltd Cr

 

600000

 

Account

Debit

Credit

Share capital Dr

39000

 

Asset revaluation surplus Dr

1200

 

Retained earnings Dr

-3000

 

Business combination valuation reserve Dr

1470

 

                                NCI   Cr

 

38670

NCI  share of profit  Dr

1848

 

                                         NCI    Cr

 

1848

 

 

Answer space for acquisition analysis for question 1 part 3

Use the worksheet below to show your BCVR ledger account in good format, expand /insert rows to the answer table as required:

BCVR Ledger Account Entries :

 

 

 

Accounts

Dr

Cr

Share issue and acquisition cost

25000

 

 Deferred tax liability

 

12000

Deferred tax Asset

9000

 

 

 

 

Contingent Liability

 

$30,000

Total

$34000

$42000

Balance C/f

$8000

 

 

Question 2 begins on the next page

 

Question 2:                             Consolidations 2                                            (25 marks)

< >Cook Ltd owns all of the share capital of James Ltd. The income tax rate is 30%. The following transactions took place during the periods ended 30 June 2019 or 30 June 2020.In January 2020, Cook Ltd sells inventories to James Ltd for $10 000 in cash. These inventories had previously cost Cook Ltd $7 000, and remain unsold by James Ltd at the end of the period.                                                              (3 marks) 

 

< >In February 2020, Cook Ltd sells inventories to James Ltd for $15 000 in cash. These inventories had previously cost Cook Ltd $12 000, and are on-sold externally on 2 April 2020.                                                                           (2 marks)In February 2020, James Ltd sells inventories to Cook Ltd for $22 000 in cash (original cost to James Ltd was $16 000) and one quarter (25%) are on-sold externally by 30 June 2020.                                                                    (3 marks)In March 2020, Cook Ltd sold inventories for $10 000 to Zara Ltd, an external entity. These inventories were transferred from James Ltd on 1 June 2019. The inventories had originally cost James Ltd $8000, and were sold to Cook Ltd for $12 000.                                                                                                       (2 marks) 

 

Answer journal for question 2(a)

Use the worksheet below to show your adjusting consolidation journal entries at 30 June 2020, narrations are not required:

 Sales Revenue Dr $22,000

To Cost of Sales. $19,000

To Inventories $3,000

Deferred tax asset Dr. $900

To Income tax expense $900

(d) Retained Earnings (1/7/19) Dr $4,200

Income tax expense Dr $1,800

To Cost of sales $6,00

 

 

Date

Account

Dr

Cr

 

Jan 2020

Sale Revenue Account

Cost of Sale

Inventories A/c

 

 

10000

 

7000

2000

 

Deferred Tax

 

Income tax expense

 

600

 

 

600

Feb 20

Sales Revenue Account

Cost of sale

 

15000

 

15000

 

 

 

Income Tax

Deffered Tax

 

 

 

900

 

 

 

 

900

Feb 20

Sales Revenue account

 

To cost of sale

22000

 

22000

 

Question 2:     Consolidations 2 – continued                                               (25 marks)

< >Barney Ltd owns all of the share capital of Betty Ltd. The income tax rate is 30%. The following transactions took place during the periods ended 30 June 2022 and 30 June 2023. 

 

< >On 10 June 2022, Barney Ltd sold inventories to Betty Ltd for $16 000 in cash. The inventories had previously cost Barney Ltd $12 000. 60% of these inventories were unsold by Betty Ltd at 30 June 2022 and 30% at 30 June 2023.       (7 marks) 

 

< >On 1 July 2021, Barney Ltd sold equipment costing $10 000 to Betty Ltd for $12 000. Barney Ltd had not charged any depreciation on the asset before the sale as it just purchased it from an external entity. Both entities depreciate items of equipment at 10% p.a. on cost. The equipment is still held by Betty Ltd at 30 June 2023. Neither entity uses a Gain on Sale account.                        (8 marks)

Date

Account

Dr

Cr

 

01.7.2023

Retained Earning

 

Income tax

4900

2100

 

 

Cost of sales

Machine A/c

 

 

 

5000

2000

Question 3 begins on the next page

 

Question 3:                             Corporate Governance & Ethics                           (25 marks)

< >Example Ltd is a public listed Company on the Australian Securities Exchange. Frank Doorman is the CEO of the Company. George is the Chair of the Board. The CFO (Chief Financial Officer) and the COO (Chief Operating Officer) are also directors on the Board. Due to his previous experience as an auditor, the CFO is also Chair of the Remuneration Committee, the other member of the remuneration committee is the COO, who was appointed because of his knowledge of systems and internal control in the Company. Frank sees no need for any other committees as the Company has been very stable over the last few years with no change of directors.Alice. Alice has never been employed by the Company and owns 3% of the shares in Example Ltd. 

 

< >George, is a Director of XYZ Ltd, a Finance Company that has not had dealings with Example Ltd. George owns 9% of the shares in Example Ltd.

 

Example Ltd has 4 Director with following shareholding and experience:-

Alice        3%      

George    9%

Drew       1%       2 year, and Accounting firm with no connection with Example

James       0%     40 Year and connection since inception

 

Overall it seem that from corporate Governance point of view that is no much issue , because none of them have personal interest in the company currently though James was a employee of the company long back … , and it is good for the company he is there since inception

As per corporate Governance approach

 

The Council encourages listed entities to give an informative explanation of their corporate governance arrangements and not to take a pedantic or legalistic approach to their disclosures under listing rule 4.10.3, such as simply listing the recommendations followed and those not followed and why. In this regard, listed entities should view their corporate governance statement not as a compliance document but rather as an opportunity to demonstrate that their board and management are alive to the importance of having proper and effective corporate governance arrangements and to communicate to security holders and the broader investment community the robustness of their particular approach to corporate governance. This includes not only outlining the governance arrangements it has in place but also explaining how they are being implemented in Practice

The structure of the Principles and Recommendations

1. Lay solid foundations for management and oversight: A listed entity should clearly delineate the respective roles and responsibilities of its board and management and regularly review their performance.

2. Structure the board to be effective and add value: The board of a listed entity should be of an appropriate size and collectively have the skills, commitment and knowledge of the entity and the industry in which it operates, to enable it to discharge its duties effectively and to add value.

3. Instil a culture of acting lawfully, ethically and responsibly: A listed entity should instill and continually reinforce a culture across the organization of acting lawfully, ethically and responsibly

4. Safeguard the integrity of corporate reports: A listed entity should have appropriate processes to verify the integrity of its corporate reports.

5. Make timely and balanced disclosure: A listed entity should make timely and balanced disclosure of all matters concerning it that a reasonable person would expect to have a material effect on the price or value of its securities

6. Respect the rights of security holders: A listed entity should provide its security holders with appropriate information and facilities to allow them to exercise their rights as security holders effectively.

7. Recognize and manage risk: A listed entity should establish a sound risk management framework and periodically review the effectiveness of that framework

 

Question 3 is continued over the page

Question 3:     Corporate Governance & Ethics – continued                              (25 marks)

< >For each of the following ethical situations consider the fundamental principles of professional behaviour and: identify the fundamental principle at threat,                                      identify the threat to the fundamental principle                                  discuss how the accountant involved should resolve the situation      

 

< >You have been employed as a graduate accountant in a listed company and have been asked to complete a business report for the group.  Your report must be completed by the tomorrow but vital statistics essential for the report will not be available for another three days. Your immediate supervisor has made it clear you will be severely reprimanded if the work is not completed on time.                                              (4 marks) 

 

Answer space for question 3(b)(i) – expand the answer table as necessary.

 

I. Fundamental principle: Objectivity

 

Threat: Professional or Regulatory monitoring and disciplinary procedures.

 

Resolution: if we refer to the employing organisation internal procedures and also consider which parties ought to be involved in the ethical conflict resolution process, in what role and at what stage. .For instance, the professional accountant needs to consider when it would be appropriate to refer to the external source of supply or can go for any alternative course of action.

Ii .Fundamental  Principle: Personal Behaviour

Threat: Professional and regulatory monitoring and disciplinary procedures.

Resolution: A member should consider the established internal procedures and select the course of action that will best enable him or her after weighing the consequences of each to comply with the rules.

.

 

 

 

 

 

 

 

< >At a party, an accountant speaks to another accountant, a person she has met for the first time, and says that she is amazed at the loss of her employer.  She mentions the name of the employer and the results have not been released to the public yet. (4 marks)

 

Answer space for question 3(b)(ii) – expand the answer table as necessary.

Fundamental principle: Personal Behaviour

Threat: Professional and regulatory monitoring and disciplinary procedures

Resolution:

A member should consider the established internal procedures and select the course of action that will best enable him or her after weighing the consequences of each to comply with the rules

 

 

< >You are the CFO and have been asked to evaluate and choose a vendor to complete repair work from tenders in the company that you work. On looking through the tenders, you realise that one of them has come from your brother who you know is in serious financial troubles and could really do with the money.                   (4 marks)

Fundamental principle: Integrity

Threat: Corporate Governance Regulation

Resolution:

While evaluating the course of action, it is expected to consider the applicable laws and regulations and long term and short term consequences

 

 

Question 4 starts on the next page

Question 4:                                                     Insolvency                                        (25 marks)

Bunny Ltd went into voluntary liquidation on 30 June 2020. Its summarised statement of financial position at that date is as follows:

Bunny Ltd

Statement of Financial Position

As at 30 June 2020

Equity

 

Current assets

 

 

Share capital

59 000

Cash

10 000

 

 

 

Inventory

13 000

23 000

 

 

Non-current assets

 

 

 

 

Land

 

42 000

 

 

Total assets

 

65 000

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

Payables

 

6 000

 

 

 

 

 

Total equity

59 000

Net assets

 

59 000

 

All assets realised amounted to $55 000. Payables allowed a $1000 discount. Costs of liquidation were $2 000.

Required

< >Complete the journal entries to liquidation.                     (15 ½ marks)Record the entries in the Liquidation account, the Liquidators receipts & payments, and the Shareholders distribution account.           (9 ½ marks)

Date

Account

Dr

Cr

30-Jun-20

Liquidation A/C

55000

To Statement of Profit and Loss (Loss on Sales of assets)

10000

65000

30-Jun-20

Liquidator's A/c

2000

To Liquidation A/c

2000

Narration: Fees for Liquidation

30-Jun-20

Payables A/C

6000

To Liquidation A/C

5000

To Statement of Profit and Loss (Discount on Payables)

1000

30-Jun-20

Shareholders A/c

48000

To Liquidation A/C

48000

Narration: Balancing figure distributed among shareholders

 

4(ii)

 Worksheet for Liquidation Accounts:-

 

Receipt

Book Value

Realised Value

Payments

Book Value

Realised Value

Total Assets

65000

55000

Liquidation Charges

 

2000

     

Payables

6000

5000

Total

 

55000

Total

 

7000

     

Returns to Shareholders (b/f)

 

48000

 

 

 

END OF EXAMINATION

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