MAA 716 Financial Accounting

WRITTEN ASSIGNMENT – TRIMESTER 1, 2014
PART 1 – QUESTION 3

Submission date and available mark

Due date: Friday 23 May 2014 before 11.59 pm
Marks: This Written Assignment represents 4 0% of the total mark for the unit and consists of three questions. Question 1 will be marked out of 40 and converted to a mark out of 15%.

Assignment instructions

1. Please monitor CloudDeakin for any instructions/announcements.
2. You will need to have completed Topic 8 and 9 to complete this question (Q3).

Submission instructions

1. This assignment is to be submitted ONLINE ONLY (You are NOT required to submit a hard copy).
2. You must type in your answer for each question.
3. The completed assignment question must be submitted into the allocated area on CloudDeakin under the Dropbox folder.
4. You are not required to upload an Assignment Cover Sheet. You will complete a Plagiarism declaration when you access the Dropbox.
5. Once submitted you cannot take your assignment back BUT you CAN SUBMIT another version. The most recent version submitted will be marked.

Trimester 1, 2014 1 | P a g e

A note on plagiarism and collusion

Plagiarism and collusion are forms of cheating and is considered a serious academic misconduct, a n d severe penalties are associated w i t h them. Please refer to the MAA 716 u n i t guide for your responsibilities w i t h regard t o plagiarism a n d other academic offences.

Penalties applied in this assignment
1. Assignment submitted after the due date will attract a penalty of 3 marks per day (out of the total of 40 marks for Question 3).
2. The final examination is the only hurdle requirement for the unit. If you choose not to submit this assignment you will score zero. There is no provision for the mark to be added to the final exam mark.

Discussion area for this assignment

There is a discussion area on CloudDeakin entitled ‘Assignment Discussion’. This area is for you to discuss the assignment. It is an area to help each other – it is NOT an area for the answer to be provided to each other.

Receiving your mark and suggested solution

Your mark for the assignment will be available in Grades within 15 working days from your assignment submission date.

Trimester 1, 2014 2 | P a g e

QUESTION 3
The consolidation date for this case study is 30 June 2014.
On 1st July 2012 P acquired 80% of the share capital and reserves of S for $611,400.
S Ltd
Statement of financial position as at 30 June 2011

Assets Liabilities
Cash at bank 484,000 Accounts payable 86,000
Accounts receivable 44,000 Debentures (10%) 52,000
Inventory 62,000 Mortgage 28,000
Office furniture & equipment 68,000 Shareholder’s Equity
Motor vehicles 92,000 Share capital 320, 000
Land 70,000 Revaluation surplus 98, 000
Buildings 40,000 Retained profits
30/6/2012 276, 000
$860,000 860, 000

On 30 June 2011, all the identified net assets of S were considered to be recorded at fair value in S’s Statement of financial position, except land, which had a fair value of $100 000. The land has not been revalued in S’s accounts.

During the year, P sold goods to S for $85,800 at a mark-up of 25% on cost. 30% of these goods are still on hand at the date of consolidation. During the year, S sold goods to P for $46,800 at a mark-up of 30% on cost. 20% of these goods are still on hand at the date of consolidation.
Opening stock of S contained $17,160 goods purchased from P at a profit to P of $4,000.
Opening stock of P contained goods purchased from S for $2,600. S marks up merchandise by 40%.
Intragroup loan interest levied by P during the year totalled $40,000, of which 10% remained outstanding as at consolidation date. Intragroup loan interest levied by S during the year totalled $24,000. None of this amount remained outstanding as at consolidation date.
During the year, the accountant of P designed and implemented a computerised accounting information system for S. S paid P a net consulting fee of $32,000 for the project. 20 % of this fee remained unpaid as at consolidation date. It had been agreed that the accountant’s salary costs of $110,000 were to be borne by S for the project duration.
On 30 June 2014, P Ltd declared a final dividend of $20 000. On the same day, S Ltd declared a final dividend of $10 000.
During the financial year ending 30 June 2014 P Ltd declared and paid and interim dividend of $8 000, while S Ltd paid $4 000.
Both P and S recognise dividend revenue prior to the receipt of cash.

If this case study involves goodwill on acquisition, you can assume the following:
(a) Goodwill on acquisition has been subject to annual impairment testing each year that the group entity has been in existence.
(b) For the current year, the goodwill on acquisition impairment test write down is 20% of the asset’s start of year carrying value.
(c) Accumulated impairment losses for goodwill on acquisition prior to the current year total 30% of the asset acquisition date carrying value.

Both P and S adopt Tax Effect Accounting. The current corporate tax rate is 30%.
Required:

You are working as an accountant for PS Group Ltd. Your directors have asked you to prepare the necessary consolidation journal entries (20 marks) and a report (20 marks) answering the following question about consolidation procedures, “Why is it necessary to make adjustments for the inter-company transactions?” When discussing please make necessary references to the adjusting entries pertaining to intra group sales, unrealised profit in opening stock and closing stock and intra group loan and interest.

As the majority of the directors do not have an accounting background, your report addressing the above must be written to convey a clear understanding of consolidation accounting concepts and the relevant accounting issues. Your answer should include examples where appropriate.

Please show all necessary workings to derive your answer.