Te Hoe Pakihi
Department of Business
Bachelor of Applied Management
Graduate Diploma in Accounting
Assessment Two:
Assignment
Advanced Financial Accounting
AMFA700
Semester One 2016
Due date: Wednesday 18 May 2016
Time: 5.00 pm
Instructions:
This assignment must be completed individually or in pairs.
Your assignment must be word processed, on A4 paper, using Arial 11 pt font, singlespaced.
You must attach a completed and signed Department of Business assignment cover sheet to your assignment.
An electronic version of your assignment must be submitted using the Moodle drop box by the specified due date/time.
Only the printed copy of your assignment will be marked.
This assignment covers learning outcome three in the course outline.
TOTAL MARKS: 80
Student Name/ID ................................................................................................
Student Name/ID ................................................................................................
Ara Institute of Canterbury and its division members reserve the right to use electronic means to detect and help prevent plagiarism. Students agree that when submitting this assignment, it may be subject to submission for textual similarity review to Turnitin.com.
All assessments must be completed by the scheduled date unless alternative arrangements have been made with your lecturer. No late submissions will be accepted by the lecturer unless by prior arrangement. Any late submissions must be submitted by means of application to the Academic Manager for consideration and must include a letter of explanation as to why the assessment is late. Late penalties may apply.
This assignment is worth 35% of the total marks for this course.
This paper has six (6) pages including the cover sheet.
1 Horopito Limited acquired 80% of Sierra Limited on 1 April 2011. All of the assets of Sierra were considered to be fairly valued and the contributed capital and retained earnings of Sierra Limited at the date of acquisition were:
Contributed capital $1,960,000
Retained earnings $710,000
$2,670,000
2 Horopito Limited measures any non-controlling interest at fair value.
3 Horopito Limited acquired 25% of Andorra Limited on 1 April 2014 for $415,500. All of Andorra’s assets, except buildings, were considered to be fairly valued at the date of acquisition. The buildings, with a carrying amount of $730,000, had a fair value of
$910,000. The buildings have not been revalued in Andorra Limited’s records and are expected to have a useful life of twenty five years from 1 April, 2014.
The contributed capital and reserves of Andorra Limited at the date of acquisition were:
Contributed capital $800,000
Revaluation reserve $260,000
Retained earnings $230,000
$1,290,000
4 The financial statements of Horopito Limited and Sierra Limited are presented on pages 5 and 6.
5 For the financial year ended 31 March, 2015, Andorra Limited earned a profit of $84,000 after tax. On the 31 of March, 2015, it declared a dividend of $18,000 and revalued some of its non-depreciable non-current assets downwards by $70,000.
6 For the financial year ended 31 March, 2016, Andorra Limited incurred a net loss of $29,000. The company declared a dividend of $15,000, on 31 March, 2016. Andorra Limited revalued its buildings to $960,000 on 31 March, 2016.
7 Horopito Limited recognises dividends when the investee declares a dividend.
8 The transfer pricing charged for intragroup transactions is as follows:
• Horopito Limited applies a mark-up of 20% to the cost of inventory.
• Sierra Limited applies a mark-up of 25% mark-up to the cost of inventory.
• Andorra Limited applies a mark-up of 33 1/3% to the cost of inventory.
• The Interest rate for intragroup long-term borrowing is 9% per annum.
• As at 31 March, 2014, Sierra Limited still had $24,600 of inventory received from Horopito Limited in its inventory on hand.
9 For the year ended 31 March, 2015:
• Horopito Limited sold $180,000 of inventory to Sierra Limited;
• Sierra Limited sold $450,000 of inventory to Horopito Limited; and • Andorra Limited sold $240,000 of inventory to Sierra Limited.
• As at 31 March, 2015, Horopito Limited still had $236,250 of the inventory received from Sierra Limited.
• As at 31 March, 2015, Sierra Limited still had $44,000 of the inventory received from Andorra Limited and $168,750 of the inventory received from Horopito Limited in its inventory on hand.
10 For the year ended 31 March, 2016:
• Sierra Limited sold $787,500 of inventory to Horopito Limited; and • Andorra Limited sold $450,000 of inventory to Sierra Limited.
• As at 31 March, 2016, Horopito Limited still had $135,000 of the inventory received from Sierra Limited.
• As at 31 March, 2016, Sierra Limited still had $175,500 of the inventory received from Andorra Limited and $53,000 of the inventory received from Horopito Limited in its inventory on hand.
11 Impairment testing of goodwill reveals the following information:
Description Recoverable amount as at
1 April, 2014 Recoverable amount as at
31 March, 2015 Recoverable amount as at
31 March, 2016
Goodwill on acquisition
of 80% of Sierra
Limited’s net assets $171,000 $160,000 $142,000
Goodwill on acquisition
of 25% of Andorra
Limited’s net assets $72,000 $65,000 $61,000
12 On 1 April, 2013 Sierra Limited sold an item of plant to Horopito Limited for $186,000. Sierra Limited had purchased this item on 1 April, 2012 for $280,000 and determined that it had an estimated useful life of 8 years. Both companies use the straight-line method of depreciation. Upon sale of the plant, Horopito Limited determined the remaining useful life of the asset to be 4 years. There will be no residual value recoverable at the end of the useful life of the plant.
13 Horopito Limited provides administrative services to Sierra Limited. The annual administration fee was $50,400 for the financial year ending 31 March, 2015 and $51,912 for the financial year ending 31 March, 2016.
You are required to:
Prepare the consolidation journal entries necessary to prepare the consolidated financial statements for Horopito Limited, its subsidiary and associated company at:
• 31 March, 2015 and • 31 March, 2016.
All relevant accounting standards should be complied with.
Narrations are not required for journal entries.
Round all calculations to one (1) dollar.
The tax rate is 28%.
(80 marks)

Horopito Limited
INCOME STATEMENT
For the year ending
Sales 31 March 2016
($)
(7,043,800)
31 March 2015
($)
(6,230,000)
Cost of goods sold:
Inventory (opening)
Purchases
Inventory (closing)
402,500 410,400
4,313,600 3,964,060
(452,600) (402,500)
4,263,500 3,971,960
Gross Profit (2,780,300) (2,258,040)
Other revenue
Dividends (234,150) (180,500)
Other income (127,650) (114,550)
Other Expenses
Selling and distribution expense 381,700 283,000
Administrative expenses 1,510,000 651,400
Finance expenses 163,200 67,000
Total expenses 2,054,900 1,001,400
Surplus before tax (1,087,200) (1,551,690)
Income tax 304,416 434,473
Surplus after tax (782,784) (1,117,217)
Retained Earnings (opening) (2,289,217) (1,832,000)
Interim dividend paid 380,000 400,000
Final dividend proposed 220,000 260,000
Retained earnings (closing) (2,472,001) (2,289,217)
BALANCE SHEET
Current Assets
Cash 297,950 869,500
Accounts receivable 932,050 911,430
Dividends receivable 99,750 68,500
Inventory 452,600 402,500
Non-Current Assets
Investments in Sierra and Andorra Limited 2,731,500 2,731,500
Property, plant and equipment
Cost
Accumulated depreciation
1,840,000 1,385,600
(514,000) (374,560)
1,326,000 1,011,040
Total assets 5,839,850 5,994,470
Shareholders' Equity
Capital (2,300,000) (2,300,000)
Retained earnings (2,472,001) (2,289,217)
Liabilities
Dividend payable (220,000) (260,000)
Tax payable (221,760) (434,473)
Loan (170,000) (170,000)
Accounts payable (456,089) (540,780)
Total liabilities and equity (5,839,850) (5,994,470)
Sierra Limited
INCOME STATEMENT
For the year ending
31 March 2016
($)
31 March 2015
($)
Sales (4,518,000) (4,380,500)
Cost of goods sold:
Inventory (opening)
Purchases
Inventory (closing)
301,600 391,600
3,086,400 2,941,000
(528,000) (301,600)
2,860,000 3,031,000
Gross Profit (1,658,000) (1,349,500)
Other revenue
Dividends (82,000) (135,200)
Interest (12,000) (14,000)
Other income (41,200) (36,800)
(135,200) (186,000)
Other Expenses
Selling and distribution expense 246,400 187,240
Administrative expenses 493,100 348,600
Finance expenses 438,200 265,960
Loss on disposal of asset 39,870
Total expenses 1,177,700 841,670
Surplus before tax (615,500) (693,830)
Income tax 172,340 194,272
Surplus after tax (443,160) (499,558)
Retained Earnings (opening) (1,174,680) (895,122)
Interim dividend paid 168,000 140,000
Final dividend proposed 120,000 80,000
Retained earnings (closing) (1,329,840) (1,174,680)
BALANCE SHEET
Current Assets
Cash 445,680 702,000
Accounts receivable 682,160 612,880
Dividend receivable 14,400 43,200
Inventory 528,000 301,600
Non-Current Assets
Loan 170,000 170,000
Property, plant and equipment
Cost
Accumulated depreciation
4,090,000 2,675,240
(1,829,000) (858,400)
2,261,000 1,816,840
Total assets 4,101,240 3,646,520
Shareholders' Equity
Capital (1,960,000) (1,960,000)
Revaluation reserve (310,000)
Retained earnings (1,329,840) (1,174,680)
Liabilities
Dividend payable (120,000) (80,000)
Tax payable (163,880) (194,272)
Accounts payable (217,520) (237,568)
Total liabilities and equity (4,101,240) (3,646,520)