Financial report

Objective: Apply selected accounting standards to practical problems from topic 8

Submit your assignment to the link provided in the “Assessment Details” on the BB site.

The link to submit an assignment will be open 4–5 weeks before the due date. After the due

date, a separate link will be available for late submission with approved extension. This

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include (in order) your surname and your student number. For example:

‘Parker1235456'. Your assignments must be submitted as .docx or .xlsx documents. If you

wish to submit in any other file format please discuss this with your lecturer before the

assignment submission date.

1

The financial statements of Pacific Ltd and its subsidiary Sea Ltd contained following

information at 30 June 2014. Information extracted from the Statement of Comprehensive Income:

Information extracted from the Statement of Financial Position:

Pacific Ltd acquired all the shares of Sea Ltd on 1 July 2012 for $880,000. The shareholders’

equity of Sea Ltd consisted of share capital $360,000, general reserve $120,000 and retained

earnings $230,000 at the acquisition date.

2 ( Pacific Ltd Sea Ltd $ $ Assets Current Assets cash 71,000 112,000 Inventory 104,000 173,000 Non-Current Assets Plant and Equipment 660,000 560,000 Less : Accumulated depreciation 132,000 148,000 Investment in Sea Ltd 880,000 Accumulated impairment of investment in Sea Ltd 75,000 Total Assets 1,508,000 697,000 Liabilities Accounts payables 89,000 37,000 Dividends payable 180,000 Loan 135,000 79,000 Shareholders' equity Retained earnings at 30 June 2014 394,000 101,000 Share capital 560,000 360,000 General reserve 150,000 120,000 Total liabilities and Shareholders' Equity 1,508,000 697,000 )

( Pacific Ltd Sea Ltd $ $ Sales 436,000 236,000 Cost of Goods Sold 105,000 73,000 Gross profit 331,000 163,000 Dividend revenue 210,000 Other income 85,000 Depreciation expense 66,000 76,000 Impairment loss - investment in Sea Ltd 75,000 Salaries and administrative expense 82,000 68,000 Income tax expense 35,000 28,000 Profit after tax 368,000 -9,000 )

Other information:

1) Sea Ltd paid 2012/2013 final dividends of $75,000 on 7 September 2013, dividends

were paid from profits earned before acquisition.

2) Sea Ltd paid interim dividends of $135,000 on 15 February 2014. Dividends were

paid from profits earned since 1 July 2012.

3) Pacific Ltd declared final dividends of $180,000 on 30 June 2014. Final dividends

were unpaid at the reporting date.

4) During 2013/2014 financial year, Sea Ltd sold inventory to Pacific Ltd for $55,000.

The inventory was valued $31,000 in Sea Ltd. Half of the inventory was still on hand

at the end of June 2014.

5) Pacific Ltd sold an item of equipment to Sea Ltd at a price of $200,000 on 1 July

2013. The remaining useful life of this equipment is 5 years. Its original cost was

$210,000 in Pacific Ltd and accumulated depreciation was $35,000.

6) Retained earnings and dividends information were available as below:

7) The income tax rate is 30%. Straight-line depreciation method is used in Pacific Ltd

and Sea Ltd. The reporting date is 30 June.

Required:

a) Is there any goodwill to be recognised as per the requirements of AASB 3 (FP)

Business Combinations (for for-profit entities)? Discuss? (5 marks)

b) Will goodwill be amortised according to AASB 138 [FP] Intangible Assets (for for-

profit entities)? Discuss the measurement of goodwill after the recognition as per the

requirements of AASB 138 [FP] Intangible Assets (for for-profit entities) (5 marks)

c) Discuss and explain the accounting treatment of dividends paid from pre-acquisition

earnings and after-acquisition earnings. (6 marks)

d) Provide the definition of an intragroup transaction and give two examples of

intragroup transactions. Discuss the treatment of intragroup transactions in

consolidation (you can use the examples you identified to explain) (7 marks)

e) Prepare consolidation journal entries for events recoded from 1) to 5) at the end of 30

June 2014. (28 marks)

f) Prepare a consolidated worksheet. (52 marks)

g) Prepare a Consolidated Statement of Financial Position, a Statement of

Comprehensive Income and a Statement of Changes in Equity for the year ended 30

June 2014. (39 marks)

3 ( Pacific Ltd Sea Ltd $ $ Retained earnings at 30 June 2013 206,000 320,000 Less dividends paid and declared 180,000 210,000 Retained earnings at 30 June 2014 394,000 101,000 )