Accounting Standards Boar

Acquisition of Saban Ltd

On 1st January 2010, Habiki Ltd acquired 90% of the share capital (ex div) of Saban Ltd for $14,500,000. At this date, the accounts of Saban Ltd included the following balances:

Share capital (9,000,000 shares) $9,000,000

General reserve 2,100,000

Retained profits 1,050,000

Dividends payable 900,000

All of the identifiable net assets of Saban Ltd were recorded at fair value except for Patents which had a fair value of $1,180,000 above the carrying amount. Adjustments for the differences are made on consolidation and tax-effect entries are needed. On the 15 June 2011, Saban Ltd paid a cash dividend of $450,000 (appropriated from pre-acquisition profits). This amount was recognised as revenue by Habiki Ltd. The Financial Controller of Habiki Ltd felt that the dividend had impaired the value of the company’s investment in Saban Ltd and subsequently records an impairment of the Investment in Saban Account for the applicable amounts received as a dividend.

(a) On 1st October 2014, Saban sold inventory to Habiki Ltd for $1,350,000, at a mark-up of 20%. At 31stDecember 2014, $778,000 of this inventory was still on hand

(b) On 28th November 2013, Habiki Ltd sold some inventory to Saban Ltd for $980,000, at a profit before tax of $530,000. This was still on hand in Saban Ltd at 31st December 2013, but was all sold by 31st December 2014.

(c) On 1st July 2014, Saban Ltd sold an item of equipment to Habiki Ltd for $2,680,000 at a before tax loss of $985,000. The equipment has a useful life of 5 years and is depreciated using the straight-line method by both companies.

(d) During the year Habiki Ltd paid $165,000 of Staff Training Fees to Saban Ltd. This amount is disclosed under General Administrative Expenses by Habiki Ltd.

(e) Habiki Ltd extended a loan of $700,000 to Saban Ltd. This loan was issued on the 1st March 2012 payable over 10 years, with an interest rate on the loan of 5.5% pa. Interest is paid on the 1st April and 1st October every year.

(f) A goodwill impairment test in December 2014 revealed the need to impair goodwill by $221,600. No other impairment of goodwill has been recorded. For consolidation purposes the partial goodwill method is used.

(g) All dividends are recognised before receipt of cash.

(h) The corporate income tax rate is 30% and the companies in the group have financial years from 1st January to 31st December.

REQUIRED:

Consolidate Habiki Ltd and Saban Ltd:

(a) Prepare the consolidation journal entries, with narrations, and the consolidated worksheet (using Excel) to consolidate HABIKI Ltd and SABAN Ltd for the year ended 31st December 2014.

(b) Produce the completed Consolidated Financial Reports (Statement of Comprehensive Income and Statement of Financial Position) for the year ended 31stDecember 2014. You are advised to comply with AASB standards and the requirements in the Australian Corporations Legislation when determining the structure and presentation requirements for the financial reports in preparing the financial statements for this assignment.

Accounts	Habiki Ltd	Saban Ltd
	31/12/2014	31/12/2014
Balance Sheet Accounts
Cash and Cash equivalents	$4,628,890	$2,545,890
Accounts Receivable	$6,199,250	$3,409,588
Allowance for Doubtful Debts	$491,000	$270,050
Accruals & Other Receivables	$259,934	$142,964
Short term Cash Investments	$0	$0
Inventory	$999,034	$549,469
Goodwill	$1,222,893	$672,591
Prepayments	$2,270,953	$1,249,024
Loans Receivable	$700,000	$385,000
Motor Vehicles	$2,220,075	$1,221,041
Accumulated Depreciation - Vehicles	$333,011	$183,156
Marketable Securities	$370,013	$203,507
Investment in Saban Ltd	$14,500,000	$0
Accumulated Impairment of Investment	$405,000	$0
Dividend and Interest Receivable	$955,866	$525,726
Trademarks & Patents (net of amortisation)	$17,584,782	$9,671,630
Debentures in Westfield Ltd	$82,940	$0
Deferred Tax Asset	$2,524,226	$1,388,324
Property, Plant and Equipment	$13,875,469	$7,631,508
Accumulated Depreciation - PPE	$4,625,156	$2,543,836
Land	$8,247,972	$4,536,383
TOTAL	$70,788,130	$31,135,603
Deferred Tax Liability	$1,034,924	$569,208
Tax Payable	$1,051,309	$578,220
Dividends Payable (Ordinary Shares)	$1,739,059	$956,482
Accounts Payable	$7,510,999	$3,772,800
Other Liabilities & Provisions	$4,739,506	$2,561,111
Loans	$0	$700,000
Debentures (3.5%)	$2,368,080	$1,302,444
General Reserve	$5,979,988	$3,703,718
Other Capital Reserve	$22,868,796	$4,675,588
Issued Share Capital ($1 ORD A shares)	$17,374,500	$9,000,000
Issued Share Capital ($1 Preference shares)	$550,000	$302,500
Retained Profits (c/b)	$5,570,969	$3,013,532
Total Liabilities & Equity	$70,788,130	$31,135,603
Profit and Loss Accounts	Habiki Ltd	Saban Ltd
	31/12/2014	31/12/2014
Sales Revenue	$16,934,239	$9,313,831
Stack at Start	$555,019	$305,260
Purchases	$7,250,100	$3,987,555
Stock at end	$999,034	$549,469
Cost of Goods Sold	$6,806,085	$3,743,346
Gross Profit	$10,128,154	$5,570,485
Less Expenses
Expenses from Operations	$2,655,457	$1,460,501
General Administration Expenses	$808,476	$444,662
Depreciation and Amortisation Expenses	$2,778,794	$1,528,337
Impairment Expenses	$415,000	$87,000
Finance Costs	$103,604	$56,982
Total Expenses	$6,761,331	$3,577,482
Add Other Income
Dividend and Interest Revenue	$1,756,157	$415,886
Other Income	$235,000	$487,500
	$1,991,157	$903,386
Net Profit before Tax	$5,357,980	$2,896,389
less Income Tax Expense	$1,051,309	$578,220
Net Profit after Tax	$4,306,671	$2,318,169
Add
Retained Profits (o/b)	$4,388,491	$2,413,670
Total Available	$8,695,162	$4,731,839
Less Appropriations
Interim Dividends Paid	$868,725	$477,799
Transfer to General Reserve	$518,018	$284,910
Dividends (Ordinary) Proposed	$1,737,450	$955,598
Total Appropiations	$3,124,193	$1,718,307
Retained Profits (c/b)	$5,570,969	$3,013,532