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TRIMESTER 1, 2021
Assessment Weight: 50 total marks
• All questions must be answered by using the answer boxes provided in this paper.
• Completed answers must be submitted to Blackboard by the published due date and time.
Submission instructions are at the end of this paper.
This assessment consists of six (6) questions and is designed to assess your level of knowledge of the key topics covered in this unit
Question 1 ( 7 marks)
(a) Differentiate between the ‘definition of assets’ and ‘recognition criteria of assets’ provided in the conceptual framework of accounting. (3.5 marks)
ANSWER: ** Answer box will enlarge as you type
(b) Can an entity include an asset in its balance sheet that it does not legally own? Explain your answer in relation to the definition of the assets and recognition criteria of assets. (3.5 marks)
ANSWER: ** Answer box will enlarge as you type
Question 2 (7 marks)
Pheonix Limited made an offer to the public via a prospectus of 1,000,000 shares with an issue price of $1.00 per share. The shares were payable as $0.50 on application and a further $0.20 on allotment and $0.30 on call. Applications closed on 1 March 2020 and 1,500,000 applications were received (an oversubscription of 500,000 shares). Allotment was made on 20 March 2020. The company allotted 1,000,000 shares and the excess application monies were retained against allotment and call amounts. The call money was due on 1 October 2020. All monies to be paid have been received on time except 100,000 shareholders who could not pay the call money. These 100,000 shares were forfeited by the management on 20 November 2020.
Prepare the journal entries to record the above.
Question 3 (7 marks)
You are provided with the following information:
Sales for the year $400 000
Discounts provided during the year to customers for early payment $10 000
Doubtful debts expense for the year $5 000
Opening balance of accounts receivable $90 000
Closing balance of accounts receivable $80 000
Opening balance of the provision for doubtful debts $9 000
Closing balance of the provision for doubtful debts $8 000
Cost of goods sold for the year $60 000
Purchases for the year (on credit terms) $80 000
Discounts received for early payment to suppliers $2 000
Stock write-offs owing to water damage caused by melting ice in the Antarctic $5 000
Opening balance of trade creditors $40 000
Closing balance of trade creditors $35 000
Opening balance of inventory $10 000
Closing balance of inventory $25 000
(a) Calculate the cash receipts from customers during the year. (3.5 marks)
(b) Calculate the cash payments to suppliers during the year. (3.5 marks)
Question 4 (7 marks)
Assume that Company A acquires 70 per cent of Company B for a cash price of $14 million when the share capital and reserves of Company B are:
Share capital $8 million
Retained earnings $2 million
(a) What amount of goodwill will be shown in the consolidated statement of financial position pursuant to AASB 3 assuming that any non-controlling interest in the acquirer is measured at fair value? (1 marks)
(b) What amount of goodwill will be shown in the consolidated statement of financial position pursuant to AASB 3 assuming that any non-controlling interest in the acquirer is measured at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets? (1 marks)
(c) Pass the necessary consolidation journal entries and the journal entries to record the non-controlling interest if the non-controlling interest in the acquirer is measured at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. (4 marks)
(d) What are some of the implications of allowing the group to have two options in accounting for goodwill on consolidation? (1 marks)
ANSWER (a) to (d):
Question 5 (11 marks)
Large Ltd owns 100% of the shares of Small Ltd. These shares were acquired on 1 July 2019 for $1 million when the shareholders’ funds of Small Ltd were:
Share capital $500,000
Retained earnings $400,000
All assets of Small Ltd were fairly stated at acquisition date, except for a land that had a fair value $50000 more than carrying value.
During the 2019/2020 financial year, Small Ltd sold inventory to Large Ltd at a sales price of $200,000. The inventory cost Small Ltd $120,000 to produce. At 30 June 2010 half of the stock was still on hand with Large Ltd. In addition, Small Ltd paid an interim dividend of $40,000 out of post-acquisition profits to Large Ltd during the 2009/2010 financial year. The tax rate is 30%.
Based on the above information, prepare the consolidation journal entries that Large Ltd will need to pass on 30 June 2020.
Question 6 (11 marks)
(a) Explain the concepts of Local Currency, Functional Currency and Presentation Currency with suitable examples. (3 Marks)
(b) Explain the rule for translating the Financial Statements of Foreign Operations from Local Currency to Functional Currency. (4 Marks)
(c) Explain the rule for translating the Financial Statements of Foreign Operations from Functional Currency to Presentation Currency. (4 Marks)
END OF TUTORIAL ASSIGNMENT
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