Reference no: EM132662965

BAO2203 Corporate Accounting - Victoria University

CASE STUDY - Consolidation, impairment and Intragroup Transactions

PART A: CONSOLIDATIONS AND INTER-COMPANY TRANSACTIONS

The financial information for Master Ltd and its 100% owned subsidiary, Chef Ltd, for the period ended 31 December 2022 is as follows:

Master Ltd acquired its shares in Chef Ltd at 1 January 2022 for $90 000 on a cum div. basis. At that date, Chef Ltd recorded share capital of $40 000. Chef Ltd had declared prior to the acquisition a dividend of $9 000 that was paid in April 2022.

At 1 January 2022, all identifiable assets and liabilities of Chef Ltd were recorded at fair value except for inventories, for which the carrying amount was $800 less than fair value. There was a fall in sales due to some negative google reviews and hence, 10% of inventories was still on hand at 31 December 2022. Inventories on hand in Chef Ltd at 31 December 2022 also includes some items acquired from Master Ltd during the period ended 31 December 2022. These were sold by Master Ltd for $16 000, at a profit before tax of $6 000.

Half of the goodwill on acquisition of Chef Ltd by Master Ltd was written off as the result of an impairment test on 31 December 2022.

During March 2022, Master Ltd provided some management services to Chef Ltd at a fee of $8 500 paid by 31 December 2022.

On 1 July 2022, Chef Ltd sold equipment to Master Ltd for a gain of $14 000. This equipment had a carrying amount to Chef Ltd of $70 000, and was considered by Master Ltd to have a 5-year life. By 31 December 2022, the financial assets acquired by Master Ltd and Chef Ltd from external entities increased in value by $6 000 and $2 000 respectively with gains and losses being recognised in other comprehensive income.

The income tax rate is 30%.

With your group partners you are required to:
1. Prepare the acquisition analysis at 1 January 2022.
2. Prepare the business combination valuation entries and pre-acquisition entries at 1 January 2022.
3. Prepare the business combination valuation entries and pre-acquisition entries at 31 December 2022.
4. Prepare the consolidation worksheet journal entries to eliminate the effects of intragroup transactions at 31 December 2022.
5. Discuss the concept of ‘realisation' using the intragroup transactions in this question to illustrate the concept.
6. Prepare the consolidation worksheet for the preparation of the consolidated financial statements for the period ended 31 December 2022.
7. Prepare the consolidated Statement of Profit or Loss and Other Comprehensive Income for Master Ltd and its subsidiary, Chef Ltd, at 31 December 2022.

PART B: (1000 words): Virgin Australia and administration

Read the attached article and download other relevant articles to gain some background information on the collapse of Virgin Australia and answer the following questions:

Article - Virgin Australia confirms collapse into administration

1. Describe the main differences between voluntary administration, receivership and liquidation.

2. What was the reason (s) for the collapse of Virgin Airlines? Are these reasons relevant for other airlines? Then why have these other airlines not collapsed?

3. Download the Financial Statements of Virgin Airlines for the last 3 years (2017, 2018 and 2019) and identify material items, how they have changed over the three years, and whether these help explain the circumstances in which Virgin finds itself in now. Calculating some relevant ratios would be useful for this analysis.

Harvard referencing

Attachment:- Corporate Accounting.rar