HA2032 CORPORATE ACCOUNTING ASSIGNMENT 2 General Instructions: This is a group assignment whose members should not exceed three (3). It is required to be submitted in both soft and hard-copy by the...

HA2032 CORPORATE ACCOUNTING ASSIGNMENT 2 General Instructions: This is a group assignment whose members should not exceed three (3). It is required to be submitted in both soft and hard-copy by the Friday of Week 9. Total marks applied to this assessment are 20%. Please ensure that you attach an assignment submission sheet to your hard copy only. Late submissions draw a penalty of 5% per day of the value of the assessment (1 mark in this case) up to a maximum of fourteen (14) days. After that date, your assessment will not be accepted unless prior and special consideration has been granted. This is NOT a report but it is expected that your submission will be in an appropriate format. There is no word limit applied but you should ensure that each question is appropriately answered. Where references are used, ensure they are recognised (refer to student handbook or your lecturer if unsure). Part A and B are questions from our reference material entitled Company Accounting 5th edition by Peter Jubb, Stephen Haswell and Ian Langfield-Smith. Objectives: 1) Demonstrate an ability to provide eliminating as well as adjusting entries in the preparation of consolidated worksheets. 2) Understand the difference between pre-control and post-control transactions. 3) Evaluate the importance of AASB 127 “Consolidated and Separate Financial Statements” and AASB 101 “Presentation of Financial Statements”. Part A Chapter 19 Investing in Related Entities (Q19.6 p. 620) (2 marks) Compare the accounting treatment of dividends appropriated from pre-control and post control equities of a subsidiary. Consider the accounting by the companies paying and receiving the dividend, as well as by the corporate group. Part B Chapter 20 Intra-group Transactions (Q20.6 p. 666) (3 marks) In response to a question in an exam, a student stated: “Under AASB 101 there is a general prohibition against the offsetting of revenues and expenses and of assets and liabilities, yet under AASB 127 we offset assets and liabilities and revenues and expenses when eliminating the impact of intra-group transactions. How can the treatment required by AASB 127 be right?” Explain why the treatment in AASB 127 is consistent with the treatment required by AASB 101. Page 2 of 3 HA2032 Corporate Accounting Assignment 2 Term 3 12 Part C Chapter 18 Acquisition Method – Introduction & Substitution (15 marks) As part of the diversification program, the Board of Directors of Budget Airlines Ltd decided to buy all the shares of Food Ltd, a catering business, located in Australia. The purchase took place on 31 December 20x2, and the price of $40,000 is based on the fair value of Food’s assets at that date. The fair values differ from Food’s carrying amounts shown in the worksheet for two reasons. First, Food’s most recent financial statements are dated 30 November. Food’s estimated results for the month of December are: $ Profit for the month 200 Movements on net assets: Inventory increase 400 Accounts receivable decrease 200 Equipment decrease (due to depreciation) 500 Employee benefits provision increase 500 Accounts payable increase 200 Other assets increase 1200 Second, the following items are not at fair value in Food’s financial statements. Carrying amounts shown include adjustments made for Food’s estimated results for December: Carrying Amount Fair Value $ $ Inventory 8000 7000 Patent not recorded 6000 Equipment 5000 7000 Employee benefits provision 5500 7000 Property 12000 16000 Other information: a) Food Ltd has not yet adjusted its financial statements to include missing transactions. b) Food Ltd will be prevented by accounting standards from recognising an intangible asset. c) Food Ltd applies the cost model to its equipment asset and a switch to the revaluation model is not appropriate in its circumstances. The Budget Airlines group usually applies the revaluation model under AASB 116, but other group members do not have any equipment of the type used by Food. d) The employee benefits provision is based on the estimate of Bendzulla Actuarial Pty Ltd which will be taken up as an adjustment. e) Food applies the revaluation model to property, but as at the control date it had not made a recent appraisal of the property’s fair value. Page 3 of 3 HA2032 Corporate Accounting Assignment 2 Term 3 12 Required: a) Prepare the worksheet. b) Prepare consolidation journal entries in correct form. Consolidation Worksheet at 31 December 20X2: Balance sheet Qantas Food Adjustments Sum Eliminations Group Dr Cr Dr Cr Paid-up capital 20000 15000 Other reserves 10000 5000 FV reserve Retained profits 15000 4000 Owners’ equity 45000 24000 Accounts payable 5000 3000 Employee benefits provision 2000 Accumulated depreciation – Equipment 5000 Total equities and asset contras 50000 34000 Accounts receivable 3000 1000 Inventory 4000 7000 Equipment 9000 Identifiable intangible – Patent Investment in subsidiary 40000 Property 2000 12000 Consolidation goodwill Other assets 1000 5000 Total assets 50000 34000