Accoutning

MAA716 Financial Accounting

Assignment – Part C

T1 2016

(35 marks/13%)

This assessment task is designed to test a student’s achievement of learning objectives set in MAA716 Unit Guide. It is an individual assessment task. This assignment must be submitted for the successful completion of this unit. It will count to a maximum of 13% towards the final mark. The Assignment Part C is consisted of two sections: Section One (27 marks) – Consolidation (Journal entries) Section Two (8 marks) – Concept of control (Theoretical discussion) You will need to have completed Topics 8 and 9 to complete this assignment. Submission Assignment Part C is due 5:00pm, Monday 23 May 2016 (Week 11). The completed assignment must be submitted into the allocated area in CloudDeakin under the Dropbox folder. The Dropbox will remain open for late submission. A penalty of 30% per day will be applied to late submission. When uploading your assignment, give the document a name using the following syntax: <MAA716 Assignment Part C, T1 2016.doc (or ‘.docx’), followed by student name and ID. You must type your answer in the proforma provided. If the proforma is not used, your submission will not be marked. Should you requires a time extension in relation to this assignment, you need to contact the Unit Chair via email ([email protected]) prior

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to the due date of the assignment, supported by documentation, e.g. medical certificate. No extension will be granted if you don’t provide supporting documents. Please note that extensions will only be given for exceptional and unusual circumstances outside the student’s control. The final examination is the only hurdle requirement for the unit. If you choose not to submit this assignment you will be scored zero. There is no provision for the mark to be added to the final exam mark. Releasing of result and suggested solution Suggested solution will be released to CloudDeakin on Friday 27 May, 2016 (Week 11). We will try our best to return marks to you asap, in order to help you with your final exam preparation. Please monitor CloudDeakin announcement. CloudDeakin discussion A particular discussion forum for the Assignment Part C has been created in CloudDeakin to facilitate peer discussion. Feel free to post queries if you need to seek further clarification from teaching staff. CloudDeakin discussion forum however is not an area for the answer to be shared among students. A note on plagiarism and collusion Plagiarism and collusion are forms of cheating and is considered a serious academic misconduct, and severe penalties are associated with them. Please refer to the MAA716 Unit Guide for your responsibilities with regard to plagiarism and other academic offences.

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Section One

Consolidation Journal Entries

Dean Ltd acquired all the issued share capital of Diane Ltd on 1 January 2012 for cash $200,000. On the acquisition date, the equity of Diane Ltd is consisted of:

• Share capital - $125,000

• General reserve - $31,250

• Retained earnings - $25,000

All the identifiable assets and liabilities of Diane Ltd were recorded at fair value except for some depreciable plant and machinery, which had a carrying amount of $106,250 (cost $125,000) and fair value of 112,500. The remaining useful life was 10 years. The fair value adjustments would be made on consolidation rather than on Diane’s own accounting book.

Additional information shows:

1. During the current period, Dean Ltd sold inventory to Diane Ltd for $25,000. This had originally cost Dean Ltd $22,750 to manufacture. By 31 December 2016, Diane sold half of the inventory to Brit Ltd for $15,388.

2. Dean Ltd’s opening inventory includes inventory purchased from Diane Ltd for $109,000. The inventory had originally costed Diane Ltd $89,000 to purchase.

3. At 1 January 2016, Diane Ltd sold a machine to Dean Ltd for $180,000. This item had a carrying amount at time of sale to Diane Ltd of $120,000 (original cost $200,000, accumulated depreciation $80,000). The remaining useful life of the machine is 12 years for both entities.

4. Dean Ltd provided computer services cost $36,000 to Diane Ltd during the current financial year. At 31 December 2016, $3,000 remained unpaid.

5. On 1 January 2015, Diane Ltd sold a plant to Dean Ltd for $22,000. Diane Ltd recorded a profit of $8,000 before tax. The remaining useful life was 10 years at the time of this intra-group transaction.

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6. Diane Ltd declared final dividend of $10,000 from its current year’s profit.

7. Goodwill had been impaired by 10% in the first year following the acquisition. During the year ended 31 December 2016 it was considered that the goodwill has been further impaired by an amount of $3,000.

8. The tax rate is 30%. Required: Prepare all necessary consolidation adjusting journal entries for the year ended 31 December 2016, according to the requirements of AASB 10 Consolidation Financial Statements (no narrations required for journal entries), assuming the financial year for Dean Ltd and Diane Ltd is as same as the calendar year.

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Section Two

Concept of Control

Ord Ltd owns 40% of the shares of Derwent Ltd, and holds the only substantial block of shares in that entity, no other party owning more than 3% of the shares. The annual general meeting of Derwent Ltd is to be held in a month’s time.

Scenario 1:

Ord Ltd will be able to elect a majority of Derwent Ltd’s board of directors as a result of exercising its votes as the largest holder of shares. As only 75% of shareholders voted in the previous year’s annual meeting, Ord Ltd may have the majority of the votes that are cast at the meeting.

Scenario 2:

By obtaining the proxies of other shareholders and, after meeting with other shareholders who normally attend general meetings of Derwent Ltd, by convincing these shareholders to vote with it, Ord Ltd may obtain the necessary votes to have its nominees elected as directors of the board of Derwent Ltd, regardless of the attendance at the general meeting.

Required:

Discuss the potential for Derwent Ltd being classified as a subsidiary of Ord Ltd in each separate scenario above, according to the requirement of AASB 10 Consolidation Financial Statements.

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