Reference no: EM132687445

BAP32 Corporate Accounting - Universal Business School Sydney

COMPANY - COCA COLA AMATIL VS A2 MILK COMPANY LTD

Research Essay

You will be required to investigate 2 (two) ASX listed companies corporate reporting on Fair Value.

Instruction for the case study:
You are required to download the financial reports of any two selected companies and identify the required information from the notes on fair value disclosures. You need to compare as to how two companies' fair value disclosures are made.

In your answer, you need to identify and report on comparative fair value hierarchies and methods used for differing classes of assets by the selected two companies.

Case 1: Accounting by the acquirer

The trial balance of Packman Ltd at 1 January 2019 was as follows:

		Debit	Credit
Share capital
	Preference - 15 000 fully paid shares		15000
	Ordinary - 70 000 fully paid shares		70000
Retained earnings			43000
Equipment		84000
Accumulated depreciation - equipment			20000
Inventories		36000
Accounts receivable		33000
Investments		12000
Patents		7000
Debentures			8000
Accounts payable			16000
		172000	172000

At this date, all the assets and liabilities of Packman Ltd are sold to Zaba Ltd, with Packman Ltd going into voluntary liquidation. The terms of acquisition are:
(a) Zaba Ltd is to take over all the assets of Packman Ltd, as well as the accounts payable of Packman Ltd.
(b) Costs of liquidation of $700 are to be paid by Packman Ltd with funds supplied by Zaba Ltd.
(c) Preference shares in Packman Ltd are to receive two fully paid shares in Zaba Ltd for every three shares held, or alternatively, $0.80 per share in cash payable at the acquisition date.
(d) Ordinary shareholders of Packman Ltd are to receive two fully paid ordinary shares in Zaba Ltd for every share held or, alternatively, $2.50 in cash payable half at the acquisition date and half in one year's time.
(e) Debenture holders of Packman Ltd are to be paid in cash out of funds provided by Zaba Ltd. The debentures have a fair value of $102 per $100 debenture.
(f) All shares issued by Zaba Ltd have a fair value of $1.20 per share.
(g) Costs of issuing and registering the shares issued by Zaba Ltd amount to $80 for the preference shares and $200 for the ordinary shares.
(h) Legal and accounting costs associated with the acquisition of Packman Ltd amount to $2000.

The two parties agree on the terms of the arrangement, and holders of 6 000 preference shares and 10 000 ordinary shares elect to receive cash.

Zaba Ltd assesses the fair values of the identifiable assets and liabilities of Packman Ltd to be as follows:

Equipment	72000
Inventories	40000
Accounts receivable	29000
Patents	8000
Investments	12000
Accounts payable	16000

Zaba Ltd has an incremental borrowing rate of 10%.

Required
(a) Prepare the acquisition analysis in relation to the above acquisition by Zaba Ltd.
(b) Prepare the journal entries in the records of Zaba Ltd at the date of acquisition.
(c) Prepare the journal entry for the payment of the deferred consideration in one year's time.

Case 2: Consolidation worksheet, previously held investment in subsidiary

On 1 August 2018, ITP Syd Ltd acquired 10% of the shares in Peters Ltd for $8000. ITP Syd Ltd used the fair value method to measure this investment with movements in fair value being recognised in profit or loss. At 1 July 2017, the fair value of this investment was $15 400. The original investment in Peters Ltd was due to the fact that Peters Ltd was undertaking research into particular microbiological elements that could influence the profitability of ITP Syd Ltd. With the continuing success of this research, ITP Syd Ltd decided to acquire the remaining shares (cum div.) in Peters Ltd.

On 1 July 2017, ITP Syd Ltd made an offer to buy the remaining shares in Peters Ltd for $151 000 cash. This offer was accepted by the shareholders of Peters Ltd. On 1 July 2017, immediately after the business combination, the statement of financial position of Peters Ltd was as follows:

		ITP Syd Ltd	Peters Ltd
Share capital		130,000	90,000
General reserve		56,500	12,000
Retained earnings		93,500	36,000
	Total equity	280,000	138,000
Dividend payable		25,000	12,600
Other liabilities		75,000	25,000
	Total liabilities	100,000	37,600
Total equity and liabilities		380,000	175,600
Cash		11,000	20,600
Receivables		25,200	20,000
Other assets		10,000	8,000
Shares in	Peters Ltd	153,800	-
Inventories		55,000	42,000
Plan and equipment		210,000	107,000
Accumulated depreciation		-        85,000	-        22,000
Total assets		380,000	175,600

On analysing the financial statements of Peters Ltd, ITP Syd Ltd determined that all the assets and liabilities recorded by Peters Ltd were shown at amounts equal to their fair values except for:

The plant and equipment is expected to have a further 4-year life and is depreciated on a straight- line basis. The inventory was all sold by 30 June 2018.

Peters Ltd had expensed all the outlays on research and development. ITP Syd Ltd placed a fair value of $12 000 on this asset. Peters Ltd also had reported a contingent liability at 30 June 2017 in relation to claims by customers for damaged goods. ITP Syd Ltd placed a fair value of $3000 on these claims. The research and development is amortised evenly over a 10-year period. The claims by customers were settled in May 2018 for $2800.
The company tax rate is 30%.

Required
(a) Prepare the consolidated financial statements of ITP Syd Ltd at 1 July 2017, immediately after the business combination.
(b) Prepare the consolidation worksheet entries at 30 June 2018.

Case 3: Intragroup transactions

Ammi Ltd owns all of the shares of VStone Ltd. In relation to the following intragroup transactions, all parts of which are independent unless specified, prepare the consolidation worksheet adjusting entries for preparation of the consolidated financial statements as at 30 June 2019. Assume an income tax rate of 30%.
(a) On 1 January 2018, Ammi Ltd sold inventory costing $6000 to VStone Ltd at a transfer price of
$9000. On 1 September 2018, VStone Ltd sold half these items of inventory back to Ammi Ltd, receiving $3000 from Ammi Ltd. Of the remaining inventory kept by VStone Ltd, half was sold in January 2019 to Goanna Ltd at a loss of $200.
(b) On 1 January 2019, VStone Ltd sold an item of plant to Ammi Ltd for $2000. Immediately before the sale, VStone Ltd had the item of plant on its accounts for $3000. VStone Ltd depreciated items at 5% p.a. on the diminishing balance and Ammi Ltd used the straight-line method over 10 years.
(c) On 1 July 2018, Ammi Ltd sold a motor vehicle to VStone Ltd for $12 000. This had a carrying amount to Ammi Ltd of $9600. Both entities depreciate motor vehicles at a rate of 10% p.a. on cost.
(d) During the 2017-18 period, Ammi Ltd sold inventory to VStone Ltd for $9000, recording a before-tax profit of $1800. Half this inventory was unsold by VStone Ltd at 30 June 2018.
(e) VStone Ltd sells second-hand machinery. Ammi Ltd sold one of its depreciable assets (original cost $80 000, accumulated depreciation $64 000) to VStone Ltd for $10 000 on 1 January 2019. VStone Ltd had not resold the item by 30 June 2019.
(f) On 1 May 2019, VStone Ltd sold inventory costing $300 to Ammi Ltd for $380 on credit. On 30 June 2019, only half of these goods had been sold by Ammi Ltd, but Ammi Ltd had paid $280 back to VStone Ltd.

Attachment:- Corporate Accounting.rar