Corporate Accounting

Q1. A compulsory winding up in insolvency order was issued by the court in respect of Rock Bottom Ltd.

The company had a capital of 65 000 fully paid ordinary shares of $1 each. The liquidator took possession of the company’s assets which raised $873 145 on sale. Included in the sale proceeds was $221 000 from the disposal of the land and buildings.

The creditors submitted their claims and the following debts were admitted as proven:

Liquidation expenses $3 900

Liquidator’s remuneration 10 400

Mortgage loan secured on land and buildings 130 000

Additional mortgage loan on land and buildings 104 000

Employees’ wages 5 employees for 2 weeks at $520 per week 5 200

Secretary’s salary — 3 weeks at $314 per week 942

Employees’ holiday pay 6 500

Sales commission 650

Managing director’s salary — 4 weeks at $780 per week 3 120

Directors’ fees 3 900

Trade creditors 104 000

Unsecured loan stock 130 000

Debentures (secured by circulating security interest) 390 000

PAYG tax instalment 1 014

Fringe benefits tax 2 600

GST 2 586

Required

Show the order of priority of payment of debts for Rock Bottom Ltd and calculate the amount payable to the company’s ordinary unsecured creditors.

(total 30 marks)

Q2. a) With relation to associate companies what do you understand to be significant

influence and how would you identify it? Include in your answer illustrative examples.

(10 marks)

b) How are inter-entity transactions dealt with when accounting for associate companies?

Give examples.

(7 marks)

c) How would an investor account for losses made by an associate company?

(13 marks)

(total 30 marks)

Q3. Mandora Cement Pty Ltd owns 90% of Wagait Sand Supplies Pty Ltd and the accountant William Cox is having difficulty understanding the adjustments that are required for the non-controlling interest. He is particularly confused over the need to adjust for intragroup transfers and cannot understand the treatment when it comes to plant and machinery, inventory and a charge from Mandora Cement for management services.

Required

Write a business report to William Cox setting out the reason for the adjustments, explaining the treatment of the different transfers and any difference between them.

(14 marks)

The report should take the format of a formal business report, written by your firm with yourself as lead author. Marks will be awarded for presentation style and an appropriate business format.

(16 marks)

(total 30 marks)