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(Answered)-ACCT2006 Assignment - Semester 1, 2016 On 1 July 2015, Victoria


ACCT2006 Assignment ? Semester 1, 2016
On 1 July 2015, Victoria Ltd acquired 70% of the shares of Melbourne Ltd for $526,000 on a cum div.
basis. Victoria Ltd had acquired 30% of the shares of Melbourne Ltd two years earlier for $180,000.
This investment, classified as an available-for-sale investment, was recorded at a fair value on 1 July
2015 of $226,000. At 1 July 2015, the equity and liability sections of Melbourne Ltd?s statement of
financial position showed the following balances:
Share Capital?????????????????????????????????????????????????? 460,000
General Reserve????????????????????????????????????????????? 50,000
Retained Earnings?????????????????????????????????????????? 100,000
Other liabilities??????????????????????????????????????????????? 100,000
Dividend payable??????????????????????????????????????????? 30,000


At acquisition date, all the identifiable assets and liabilities of Melbourne Ltd were recorded at
amounts equal to fair value except for:

Land
Vehicle (@ cost 40,000)
Equipment (@ cost 420,000)
Inventory

Carrying Amount
95,000
35,000
294,000
98,000

Fair Value
100,000
39,000
309,000
101,000

The Vehicle, which was estimated to have a further four year life at acquisition date, was sold on 1
January 2018. The equipment had a further five year life at acquisition date and was expected to be
used evenly over that time. Any adjustments for differences between carrying amounts at acquisition
date and fair values are made on consolidation.
Melbourne Ltd had not recorded an internally developed patent. Victoria Ltd valued this patent at
$90,000 and was assumed to have a ten year life. In May 2017, Melbourne sold this patent to an
external party for $100,000. It also had a contingent liability of $19,000 that Victoria Ltd considered
to have a fair value of $15,000. This liability was settled in July 2017.
The dividend liability was paid on 1 September 2015. All inventories on hand at acquisition date were
sold by June 2016. The land was sold on 1 June 2018 to Peters Ltd. Any valuation reserves created are
transferred on consolidation to retained earnings when assets are sold or fully consumed.
On 30 May 2017, Melbourne Ltd transferred $8,000 from the general reserve (pre-acquisition) to
retained earnings. A bonus dividend of $10,000 was paid in December 2017 out of pre-acquisition
profits.
Goodwill was tested annually for impairment. For the year ended 30 June 2017, an impairment loss
on goodwill of $4,000 was recorded.


ACCT2006 Assignment ? Semester 1, 2016
Additional information:
(i)

Melbourne Ltd sold a warehouse with a carrying amount of $82,000 to Victoria Ltd for
$100,000. The transaction took place on 1 January 2017. Victoria Ltd charges depreciation at
5% p.a. on a straight-line basis.

(ii)

On 31 March 2017, Victoria Ltd sold some land to Melbourne Ltd. The land had originally
cost Victoria Ltd $64,000, but was sold to Melbourne Ltd for $63,000. To help Melbourne Ltd
pay for the land, Victoria Ltd gave Melbourne Ltd an interest-free loan of $29,000.
Melbourne Ltd has as yet made no repayments on the loan.

(iii)

In April 2017, Victoria Ltd sold inventory to Melbourne Ltd for $12,000, at a mark-up of 20%
on cost. One quarter of this inventory was unsold by Melbourne Ltd at 30 June 2017. The
remaining inventory was sold in the following three months.

(iv)

On 1 October 2017, Victoria Ltd issued 1,000 15% debentures of $100 at nominal value.
Melbourne Ltd acquired 400 of these. Interest is payable half-yearly on 31 March and 30
September. Accruals have been recognised in the legal entities? accounts.

(v)

On 18 February 2018, interim dividend was paid by Melbourne Ltd from profits before
acquisition date. The final dividend was from current year profits. Shareholder approval is not
required in relation to dividends.

(vi)

On 1 April 2018, Melbourne Ltd transferred an item of plant with a carrying amount of
$32,000 to Victoria Ltd for $41,000. Victoria Ltd treated this item as inventory. The item was
still on hand at the end of the year. Melbourne Ltd applied a 20% depreciation rate to this
plant.

(vii)

During the year ending 30 June 2018, Melbourne Ltd sold inventory to Victoria Ltd for
$60,000, recording a before-tax profit of $16,000. One quarter of this inventory was unsold
by Victoria Ltd at 30 June 2018.

(viii)

The tax rate is 30%.


ACCT2006 Assignment ? Semester 1, 2016
On 30 June 2018 the trial balances of Victoria Ltd and Melbourne Ltd were as follows:

Cost of sales
Other expenses
Income tax expense
Interim dividend paid
Final dividend declared
Cash
Dividend receivable
Other receivables
Inventory
Deferred tax assets
Vehicles
Plant & equipment
Land
Warehouses
Debentures in Victoria Ltd
Shares in Melbourne Ltd
Goodwill
Loan to Melbourne Ltd

Sales
Other revenue & income
Share capital
Share options
General reserve
Retained earnings (1/7/2017)
Final dividend payable
Current tax liabilities
Other liabilities
Debentures
Loan from Victoria Ltd
Accumulated depreciation ? P & E
Accumulated depreciation ? Vehicle
Accumulated depreciation ? Warehouses

Victoria Ltd
338,000
80,000
41,000
21,000
22,000
181,000
20,000
206,000
244,000
35,000
82,000
648,000
130,000
180,000
722,000
74,000
29,000
3,053,000

Melbourne Ltd
307,000
72,000
40,000
14,000
15,000
90,000
227,000
132,000
72,000
380,000
123,000
90,000
40,000
30,000
1,647,000

480,000
79,000
874,000
80,000
84,000
490,000
22,000
8,000
96,000
400,000
388,000
25,000
27,000
3,053,000

437,000
56,000
470,000
72,000
228,000
20,000
7,000
60,000
29,000
228,000
22,000
18,000
1,647,000


ACCT2006 Assignment ? Semester 1, 2016
Required
a)

Prepare the acquisition analysis as at 1 July 2015. (3 Marks).

Marking guide: total of 12 ticks / 4 = 3 marks.
Consequential errors will be penalised.
b)

Prepare the BVCR and pre-acquisition worksheet entries ONLY as at 30 June 2016. (5 marks)

Marking guide: total of 41 ticks / 8.2 = 5 marks.
Journal entry ? 1 tick for each correct line entry ? i.e. correct account description AND amount (NO
TICK for correct description only or correct amount only.)
Consequential errors will not be penalised.
c)

Prepare full consolidation worksheet entries as at 30 June 2018. (12 marks)

Marking guide: total of 82 ticks / 6.83 = 12 marks.
Journal entry ? 1 tick for each correct line entry ? ie correct account description AND amount (NO
TICK for correct description only or correct amount only.)
Consequential errors will not be penalised.

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