ACCOUNTING

Semester 2, 2020

Section B

Answer all questions.

3 questions – 40 marks in total

QUESTION ONE (12 Marks)

Kelly Mills Ltd was wound up on 22nd August 2020.

Kelly Mills Ltd

Trial Balance

as at 22nd August 2020

The following information is relevant

(a) The assets were sold and realised the following cash amounts:

Inventories $624 000

Plant and machinery $728 000

(b) The Alliance Bank took possession of the land and buildings, sold them for $468 000 and after the debt was cleared paid any excess funds to the liquidator.

(c) Liquidation costs were $98 800.

(d) The liquidator paid all liabilities.

Required

Prepare the JOURNAL ENTRIES to wind up the affairs of Kelly Mills Ltd and to calculate any deficiency and distribution to the shareholders.

T accounts are NOT required.

[Type Answer Here]

QUESTION TWO (11 Marks)

The Humpty Doo Rare Earths Mining Company started mining operations on 1 July 2019. In the year to the 30th June 2020 three areas were explored, Europium, Gadolinium, and Terbium. The following costs were incurred:

Rare earths were discovered at Europium on 17th January 2020. In April 2020 after a review of the prospects for the Gadolinium site it was decided to abandon operations there. Exploration was still a work in progress at the Terbium site, but no decision had been made about the commercial potential of that site. Development of the Europium site had continued during the year and at 30th June 2020 $36 million had been incurred. These costs are to be written off on a production basis.

This cost relates to the construction of plant and equipment. It is estimated that there are 150,000 tonnes of rare earth which has a current sale price of $3,500 per tonne. By the 30th June 2020 15,000 tonnes had been extracted at a production cost of $6 million of which 12,000 tonnes were sold.

Required

Record this first year’s transactions by journal entry using the area of interest method.

[Type Answer Here]

QUESTION THREE (17 Marks)

On 1 July 2019 Prometheus Ltd acquired 90% of the shares of Unbound Ltd for $326 430. At this date the equity of Unbound Ltd consisted of share capital of $225 000 and retained earnings of $90 000. All the identifiable asset and liabilities of Unbound Ltd were recorded at amounts equal to fair value except for:

The plant was considered to have a further 10-year life. All the inventory was sold by 30 June 2020. The tax rate is 30%. Prometheus Ltd uses the partial goodwill method.

During the 2019–20 period Unbound Ltd recorded a profit of $22 500.

Required

Prepare the consolidation worksheet journal entries for the preparation of the consolidated financial statements of Prometheus Ltd at 30 June 2020. (round to the nearest dollar, worksheets are not required).

[Type Answer Here]

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