Reference no: EM132942496
ACCT6005 Company Accounting
Learning outcome 1: Prepare consolidated financial statements and related accounting entries for incorporated entities.
Learning outcome 2: Generate and communicate strategic recommendations in various inter-entity relationship scenarios with reference to relevant accounting standards.
Context:
• Assessment coverage: Module 1-2Fair Value adjustment and Intra group transactions.
• You are required to demonstrate: the assumed knowledge and skills from Module 1 Introduction and Principles of Consolidation;understanding and ability to account for fair value adjustments and intra group transactions.
• You are able to prepare: acquisition analysis, adjustment entries for group using the consolidation worksheet, and consolidated financial statements.
• You are able to recommend and communicate strategic recommendations regarding fair value adjustment entries.
Instructions:
• Show all relevant workings whererequired.
• Combine the answers for both Part A and Part B into one assessmentdocument.
Case Scenario
PART A
Galway Ltd acquired all the issued shares of Dublin Ltd for $240 000 cash on 1 July 2019.
The following information is available at this acquisition date:
The equity of Dublin Ltd is provided below:
Sharecapital
|
$95000
|
Retainedearnings
|
80000
|
Generalreserve
|
25000
|
All the identifiable assets and liabilities of Dublin Ltd were recorded at fair valuein the statement of financialposition.The company income tax rate is 30%.
The following transactions and events occurred during the year ended 30 June2020:
1. Goodwill: Goodwill related to the acquisition of Dublin Ltd was impaired by $5000.
2. Dublin Ltd sold inventories to Galway Ltd for $25 000, which hadoriginally cost Dublin Ltd $22 000. At 30 June2020, 75% of these inventories were sold externally.
3. On 1 July 2018, Galway Ltd sold one piece of its existing equipmentto Dublin Ltd for $120 000. Galway Ltd purchased the equipment for $160 000 on 1July 2016 and depreciated it over the original useful life of 10 years at zero residualvalue. Dublin Ltd plans to depreciate the equipment over its remaining useful life atzero residualvalue.
4. Dividends: Dublin Ltd paid $18 000 interim dividends in September 2019, andGalway Ltd declared$26 000 dividends in May 2020 (to be paid in October2020).
5. Galway Ltd charged Dublin Ltd $90000 for service fees.At 30 June 2020, 90% of this amount was paid by Dublin Ltd.
Required:
Analyse the completed worksheet attached for the Galway Group. Using the information provided in the worksheet, prepare an evaluation report, detailing each omission and error. For each error:
1. List the accounts and amounts, which are incorrect for each consolidation adjustment.
2. Explain WHY the entry is incorrect. Include formulas where possible in your explanation.
3. Provide the correct entry that should have been in the worksheet and explain each account and amount for this entry.
4. Explain the overall effect each error or omission will have (in amount) on the Group financial statements if it is not corrected.
Part A: Worksheet analysis
|
Galway
Ltd ($)
|
Dublin
Ltd ($)
|
Ref
|
Adjustments
|
Ref
|
Dr ($)
|
Cr ($)
|
Sales revenue
|
180 000
|
131 000
|
2
|
25 000
|
|
|
Cost of sales
|
(88 000)
|
(58 000)
|
|
|
22 000
|
2
|
Gross profit
|
92 000
|
73 000
|
|
|
|
|
Dividend revenue
|
24 000
|
--
|
4
4
|
18 000
26 000
|
|
|
Service fee revenue
|
90 000
|
|
5
|
90 000
|
|
|
Proceeds from sale of equipment
|
--
|
148 000
|
3
|
120 000
|
|
|
Depreciation
|
(12 000)
|
(8 000)
|
|
|
1 000
|
3
|
Impairment loss - Goodwill
|
--
|
--
|
1c
|
5 000
|
|
|
Carrying amount of equipment sold
|
--
|
(40 000)
|
|
|
118000
|
3
|
Service fee expense
|
|
(90 000)
|
|
|
90 000
|
5
|
Other expenses
|
(32 000)
|
(15 000)
|
|
|
|
|
Profit before tax
|
162 000
|
68 000
|
|
|
|
|
Less: Income tax expense
|
(48 600)
|
(20 400)
|
3
|
300
|
2 100
|
2
|
Profit for the year
|
113 400
|
47 600
|
|
|
|
|
Retained earnings (1/7/19)
|
72 000
|
80 000
|
1b
|
80 000
|
|
|
Dividend paid
|
--
|
(18 000)
|
|
|
18 000
|
4
|
Dividend declared
|
(26,000)
|
--
|
|
|
26 000
|
4
|
Retained earnings (30/6/20)
|
159400
|
109 600
|
|
|
|
|
Share capital
|
165 000
|
95 000
|
1b
|
95 000
|
|
|
General reserve
|
30 000
|
25 000
|
1b
|
25 000
|
|
|
BCVR
|
--
|
--
|
1b
|
45 000
|
45,000
|
1a
|
Shareholders' equity
|
354 400
|
229 600
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Accounts payable
|
37 000
|
3 000
|
|
|
|
|
Other Payables
|
24 600
|
9 000
|
|
|
|
|
Dividend payable
|
26 000
|
--
|
4
|
26 000
|
|
|
Deferred Tax Liability
|
50 000
|
11 000
|
|
|
|
|
Total liabilities
|
137 600
|
23 000
|
|
|
|
|
Total liabilities & Equity
|
492 000
|
252 600
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
Galway
Ltd ($)
|
Dublin
Ltd ($)
|
Ref
|
Dr ($)
|
Cr ($)
|
Ref
|
Cash
|
25 000
|
22 600
|
|
|
|
|
Accounts receivable
|
12 000
|
8 000
|
|
|
|
|
Dividend receivable
|
52 000
|
--
|
|
|
26 000
|
4
|
Other receivables
|
9 000
|
12 000
|
|
|
|
|
Inventories
|
45 000
|
22 000
|
|
|
3 000
|
2
|
Investment in Dublin Ltd
|
240 000
|
--
|
|
|
240 000
|
1b
|
Land
|
52 000
|
84 000
|
|
|
|
|
Equipment
|
60 000
|
78 000
|
|
|
2 000
|
3
|
Acc'ddepreciation
|
(38 000)
|
(26 000)
|
3
|
1 000
|
|
|
Buildings
|
55 000
|
62 000
|
|
|
|
|
Acc'ddepreciation
|
(20 000)
|
(15 000)
|
|
|
|
|
Goodwill
|
--
|
5 000
|
1a
|
45 000
|
|
|
Less: Acc'dimp'tloss - Goodwill
|
--
|
--
|
|
|
5 000
|
1c
|
Deferred tax asset
|
--
|
--
|
2
|
2 100
|
300
|
3
|
Total assets
|
492 000
|
252 600
|
|
|
|
|
|
|
|
|
|
|
|
PART B Worksheet
Required
Prepare the consolidation worksheet as at 30 June 2020, showing all entries including the corrected entries discussed in Part A. Round your answers to zero decimal places.
|
Galway
Ltd ($)
|
Dublin
Ltd ($)
|
Ref
|
Adjustments
|
Ref
|
Group ($)
|
Dr ($)
|
Cr ($)
|
|
Sales revenue
|
180 000
|
131 000
|
|
|
|
|
|
Cost of sales
|
(88 000)
|
(58 000)
|
|
|
|
|
|
Gross profit
|
92 000
|
73 000
|
|
|
|
|
|
Dividend revenue
|
14 000
|
--
|
|
|
|
|
|
Service fee revenue
|
90 000
|
|
|
|
|
|
|
Proceeds from sale of equipment
|
--
|
148 000
|
|
|
|
|
|
Depreciation
|
(12 000)
|
(8 000)
|
|
|
|
|
|
Impairment loss - Goodwill
|
--
|
--
|
|
|
|
|
|
Carrying amount of equipment sold
|
--
|
(40 000)
|
|
|
|
|
|
Service fee expense
|
|
(90 000)
|
|
|
|
|
|
Other expenses
|
(22 000)
|
(15 000)
|
|
|
|
|
|
Profit before tax
|
162 000
|
68 000
|
|
|
|
|
|
Less: Income tax expense
|
(48 600)
|
(20 400)
|
|
|
|
|
|
Profit for the year
|
113 400
|
47 600
|
|
|
|
|
|
Retained earnings (1/7/19)
|
72 000
|
80 000
|
|
|
|
|
|
Dividend paid
|
--
|
(18 000)
|
|
|
|
|
|
Dividend declared
|
(26,000)
|
--
|
|
|
|
|
|
Retained earnings (30/6/20)
|
159400
|
109 600
|
|
|
|
|
|
Share capital
|
165 000
|
95 000
|
|
|
|
|
|
General reserve
|
30 000
|
25 000
|
|
|
|
|
|
BCVR
|
--
|
--
|
|
|
|
|
|
Shareholders' equity
|
354 400
|
229 600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Accounts payable
|
37 000
|
3 000
|
|
|
|
|
|
Other Payables
|
24 600
|
9 000
|
|
|
|
|
|
Dividend payable
|
26 000
|
--
|
|
|
|
|
|
Deferred Tax liability
|
50 000
|
11 000
|
|
|
|
|
|
Total liabilities
|
137 600
|
23 000
|
|
|
|
|
|
Total liabilities & Equity
|
492 000
|
252 600
|
|
|
|
|
|
|
Galway
Ltd ($)
|
Dublin
Ltd ($)
|
Ref
|
Dr ($)
|
Cr ($)
|
Ref
|
Group ($)
|
Assets
|
|
|
|
|
|
|
|
Cash
|
25 000
|
22 600
|
|
|
|
|
|
Accounts receivable
|
12 000
|
8 000
|
|
|
|
|
|
Dividend receivable
|
52 000
|
--
|
|
|
|
|
|
Other receivables
|
9 000
|
12 000
|
|
|
|
|
|
Inventories
|
45 000
|
22 000
|
|
|
|
|
|
Investment in Dublin Ltd
|
240 000
|
--
|
|
|
|
|
|
Land
|
52 000
|
84 000
|
|
|
|
|
|
Equipment
|
60 000
|
78 000
|
|
|
|
|
|
Acc'ddepreciation
|
(38 000)
|
(26 000)
|
|
|
|
|
|
Buildings
|
55 000
|
62 000
|
|
|
|
|
|
Acc'ddepreciation
|
(20 000)
|
(15 000)
|
|
|
|
|
|
Goodwill
|
--
|
5 000
|
|
|
|
|
|
Less: Acc'dimp'tloss - Goodwill
|
--
|
--
|
|
|
|
|
|
Deferred tax asset
|
--
|
--
|
|
|
|
|
|
Total assets
|
492 000
|
252 600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attachment:- Assessment - Case Study Brief.rar