Assessment 2
Assessment Type: Short report on consolidated financial statements and calculations - individual assessment.
Purpose: This assessment is designed to allow students to research and analyse accounting standards and interpret how they apply to various corporate groups. It enables students to identify and solve problems relating to accounting for consolidated groups. It allows students to communicate the financial affairs of a company to financial report users. This relates to learning outcomes a, b and c.
Value: 30% Due Date: Week 10 - Friday 8.00 pm.
Submission: Soft copy uploaded to Moodle via KOI’s Moodle subject homepage.
Topic: Consolidated worksheet, consolidated financial statements
Task Details: On 1 July 2016, Rock Ltd acquired (ex div.) all of the issued capital of Wallaby Ltd. The recorded equity of Wallaby Ltd at this date consisted of:
Share capital
General reserve Retained earnings
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At 1 July 2016, all the identifiable assets and liabilities of Wallaby Ltd were recorded at fair value except for the following assets:
Carrying amount Fair value
Land $100000 $130000
Inventories 78500 86100
Machinery (cost $86 000) 52000 56000
Vehicles (cost $58 000) 47000 53000
Additionally, Wallaby Ltd’s records showed a dividend payable at 1 July 2016 of $8000. This dividend was paid on 31 October 2016. The assets of Wallaby Ltd at acquisition date included goodwill recorded at $15 000 arising from a business combination transaction in 2012.
At 1 July 2016, Wallaby Ltd owned but had not recorded an internally generated brand name. This brand name was considered by Rock Ltd to have a fair value of $29 000 and an indefinite useful life. An impairment test conducted with respect to the brand name on 30 June 2019 concluded that its recoverable amount at that date was $2000 less than its carrying amount.
The vehicles and machinery were expected to have a further useful life of 6 and 8 years respectively, with benefits to be received evenly over those periods. Inventory on hand at 1 July 2016 was all sold by 31 January 2017. The land owned at 1 July 2016 was sold in September 2017 for $150 000. The machinery on hand at 1 July 2016 was sold on 1 January 2019 for $38 000.
Adjustments for the differences between carrying amounts and fair values of assets and liabilities on hand at acquisition date are recognised on consolidation. When assets are sold or derecognised, any related valuation reserves are transferred to retained earnings.
In June 2018, Wallaby Ltd paid a share dividend worth $20 000 from the general reserve on hand at 1 July 2016.
The trial balances of both companies at 30 June 2019 showed the following balances:
Debit balances
Cash $ 2 500 $ 1 250
Receivables 27 000 13000
Inventories 39 700 24 500
Other current assets 15200 8 200
Deferred tax assets 7 500 3 500
Vehicles 88 000 158 000
Equipment — 42 000
Land 140 000 180 000
Financial assets 68 000 14 800
Goodwill 28 000 15 000
Shares in Wallaby Ltd 250 000 —
Debentures in Rock Ltd — 25 000
Dividend paid 10000 5 000
Dividend declared 20 000 12 000
Transfer to general reserve 10000 5 000
Cost of sales 210 000 192 550
Income tax expense 30 000 32 000
Depreciation and other expenses 39 000 36 000
Carrying amount of machinery sold — 30 500
Carrying amount of equipment sold 21 000
$1 005 900 $798 300
Credit balances
Share capital $ 200 000 $140 000
General reserve 35 000 10000
Retained earnings (1/7/18) 51 300 67 500
Accounts payable 69 500 36 000
Loan payable (due 30/6/23) 25 000 15 000
Dividend payable 20 000 12 000
Provisions 12 500 9 300
Current tax liability 43 000 34 000
Deferred tax liability 11 800 5 000
Accumulated depreciation — vehicles 16 400 60 000
Accumulated depreciation — equipment — 34 500
8% Debentures (matures 30/6/22) 25 000 —
Sales revenue 450 000 320 000
Dividend revenue 17 000 —
Other income 11 400 17 000
Proceeds on sale of equipment 18000 —
Proceeds on sale of machinery $1 005 900 38 000
$798 300
Required: Prepare the consolidation worksheet journal entries for the preparation of the consolidated financial statements of Rock Ltd at 30 June 2019.
Interpretation and representation 20%
Calculations 50%
Analysis 10%
Assumptions 10%
Communication 10%
Total mark will be scaled to a mark out of 30 subject marks