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FACULTY OF BUSINESS
COURSE NO: ACC2115 / ACC5215
COURSE NAME: Company Accounting / Corporate Accounting
This examination carries 70% of the total Assessment for this course
Examination:
Current
Deferred/
Supplementary
x
x
Internal
Time Allowed:
Perusal:
Ten (10) minutes
External
x
x
Working:
Two (2) hours
Examination Date: June 2009
Special Instructions:
Communication of any kind about any matter between students by any means whatsoever is strictly prohibited from the time that students enter the examination room until they exit at the completion of the examination. This includes any temporary absence from the examination room during the examination. Any such communication will be deemed to be cheating and treated as serious academic misconduct under University Regulation 5.10.
This is a RESTRICTED examination.
Students are permitted:
to use non-programmable calculators. Students must note the make and model of the calculator used in the space provided above. This may be checked by the examination supervisor.
to write on the blue examination paper during perusal.
Students are not permitted:
to write in the answer booklet during perusal.
Please write your name and student number on all examination papers.
This examination consists of 2 parts:
Part Aconsists of ten (10) multiple choice questions to be answered on the examination answer sheetprovided.
Part Bconsists of four (4) practical questions to be answered in the answer booklet provided. Question 4 should be answered on the blue examination paper in the space provided.
Clearly number each question.
All examination question papers must be submitted to supervisors at the end of every examination and returned to USQ.
Any non-USQ copyright material used herein is reproduced under the provisions of Section 200 (1) (b) of the Copyright Amendment Act 1980.
ACC2115 / ACC5215 – Company Accounting / Corporate Accounting Page 1
June 2009
PART A Multiple Choice (20 marks)
Ten (10) questions worth two (2) marks each.
Please record your answers on the examination answer sheet provided.
Question 1
When assessing the materiality of a bad debtor, the accountant of Gold Limited concluded that in conformity with guidelines provided in AASB 1031 Materiality, it was not likely to be material as it:
· was more than 12% but less than 20% of total equity
· was more than 10% but did not exceed 50% of total bad debtors for the period;
· was less than 5% of total bad debtors for the reporting period;
· did not affect the cash flows for the period
Question 2
Under AASB 3 Business Combinations, an excess arises when the acquirers interest in the net fair value of the acquirees identifiable net assets and contingent liabilities is:
1 less than the carrying amount of the net assets acquired
2 less than the cost of the business combination
3 greater than the cost of the business combination
4 more than the book values of the identifiable assets acquired.
Question 3
As required by AASB 127 Consolidated and Separate Financial Statements, where there are transactions between members of the group, the effects of these transactions are:
adjusted partially in direct proportion to the level of control held by the parent
adjusted in full on consolidation
adjusted in proportion to the equity held by the minority interests in the subsidiary
not adjusted in the consolidation process
Question 4
According to AASB 127 Consolidated and Separate Financial Statements, the term minority interest means:
the total equity of the combined group
the equity in the parent entity other than the portion owned by the subsidiary entity
the equity in the economic entity other than that which can be attributed to the subsidiary entity
that portion of the net assets of a subsidiary attributable to equity interests that are not owned by the parent.
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ACC2115 / ACC5215 – Company Accounting / Corporate Accounting Page 2
June 2009
Question 5
Where an investor sells inventory to an associate and the inventory is still on hand at the end of the year the investors share of the associates profits is:
(1) not affected as unrealised profits are only considered to arise in a parent – subsidiary relationship
(2) not affected as the unrealised profit is in the books of the investor, not the associate
(3) increased by the investors share of the unrealised profit
(4) decreased by the investors share of the unrealised profit
Question 6
For the purposes of equity accounting for an investment in an associate, it is presumed that the investor has significant influence over the other entity where the investor holds:
(1) between 1% and 5% of the voting power of the investee;
(2) between 5% and 10% of the voting power of the investee.
(3) 20% or more of the voting power of the investee;
(4) 50% or more of the voting power of the investee;
Question 7
Bruce Limited acquired a 30% investment in George Limited for $21 000. George Limited declared and paid a dividend of $15 000. Bruce Limited does not prepare consolidated financial statements. The appropriate entry for Bruce Limited to record this dividend is:
a)
DR
Investment in associate
$4 500
CR
Dividend revenue
$4 500
b)
DR
Cash
$4 500
CR
Investment in associate
$4 500
c)
DR
Dividends received
$10 500
CR
Cash
$10 500
d)
DR
Cash
$10 500
CR
Dividend revenue
$10 500
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ACC2115 / ACC5215 – Company Accounting / Corporate Accounting Page 3
June 2009
Question 8
Dave Limited acquired a 25% interest in Joe Limited for $30 000 on 1 July 2009. Dave Limited is part of a consolidated group. For the financial year ending 30 June 2010, Joe Limited had generated a profit before tax of $45 000. Tax rate is 30%. At this date, Joe Limited took the following action:
revalued assets up to fair value by $10 000 declared a dividend of $5 000
The balance in the investors account Shares in associate, after equity accounting has been applied, is:
– $30 000
– $40 875
– $39 625
– $41 250
Question 9
In relation to the order of priority of payment of debts upon liquidation, which statement is correct?
– ordinary unsecured creditors rank before preferential unsecured creditors;
– preferential unsecured creditors rank before deferred creditors;
– deferred creditors rank before ordinary unsecured creditors;
– deferred creditors rank before secured creditors.
Question 10
When translating financial statements into the presentation currency the reserve transfers are:
a shown at the translated amount based upon the rates that were applicable when the transferred amounts were first recognized in equity
b shown at the translated amount based upon the rates at the balance date
c shown at the translated amount based upon the average rates for the current period
d not required to be transferred
End of Part A
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ACC2115 / ACC5215 – Company Accounting / Corporate Accounting
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June 2009
PART B Practical Questions (80 marks)
Four (4) practical questions answer all questions.
Please record your answers in the answer booklet provided.
Question 1 (15 marks)
Orbost Ltd, an Australian company, acquired all of the shares of Clarkesville Ltd a US company for US$320,000 on 1 January 2009. At that date, Clarkesville Ltds balance sheet was as follows:-
Clarkesville Ltd
Balance Sheet
as at 1 January 2009
Assets
USD ($US)
Cash
200,000
Equipment
200,000
Liabilities
Creditors
80,000
Net assets
320,000
Shareholders equity
Share capital
200,000
Retained earnings
120,000
Total equity
320,000
All the assets and liabilities were recorded at fair value.
At 31 December 2009 the financial statements of Clarkesville Ltd were as follows:
Clarkesville Ltd
Income statement
for the year ending 31 December, 2009
USD ($US)
Sales
300,000
Expenses
160,000
Profit
140,000
Retained earnings (1/1/2009)
120,000
Retained earnings (31/12/09)
260,000
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ACC2115 / ACC5215 – Company Accounting / Corporate Accounting
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June 2009
Clarkesville Ltd
Balance Sheet
as at 31 December, 2009
USD ($US)
Assets
Cash
340,000
Equipment
200,000
Accumulated depreciation
(40,000)
Liabilities
Creditors
40,000
Net assets
$460,000
Shareholders equity
Share capital
200,000
Retained earnings
260,000
Total Equity
$460,000
Additional information:
Tax is not considered in this exercise.
The exchange rates applicable are as follows:
1 AUD ($A) is equivalent to:
1 January 2009
0.75 US
31 December 2009
0.65 US
Average for 2009
0.70 US
Sales and expenses were incurred evenly throughout the 2009 year.
Required:
(1) Translate the accounts of Clarkesville Ltd into the presentation currency of Australian dollars (round to the nearest dollar).
(2) Verify the translation adjustment.
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ACC2115 / ACC5215 – Company Accounting / Corporate Accounting
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June 2009
Question 2 (15 marks)
North Ltd is expanding its share of the market for security doors and has negotiated to take over the operations of South Ltd on 1 March 2009. The balance sheets for the two companies as at 28 February 2009 were as follows:
North Ltd
South Ltd
Cash
17,250
9,000
Accounts receivable
18,750
26,025
Inventory
26,625
20,700
Buildings (net)
45,000
22,500
Furniture and Fittings (net)
48,750
34,500
Land
62,500
75,000
Goodwill
18,750
1,500
$237,625
$189,225
Accounts payable
42,000
32,625
Debentures
62,500
17,500
Share capital – 75 000 shares
75,000
–
– 45 000 shares
–
45,000
General reserve
21,375
20,100
Retained earnings
36,750
74,000
$237,625
$189,225
The assets of South Ltd are recorded at fair value except for:
Fair Value
Inventory
24 000
Buildings
30 000
Furniture & Fittings
36 000
North Ltd is to acquire all of the assets of South Ltd except cash. North Ltd is required to provide South Ltd with enough extra cash to allow South Ltd to repay all of its outstanding debts plus liquidation costs of $2,500. North Ltd must also provide two fully paid shares in North Ltd for every three shares held in South Ltd. The fair value of shares in North Ltd is $3.50 per share.
South Ltds liquidator discovered that an amount of $2,400 for Accounts Payable had not been recorded and is outstanding at 28 February 2009.
The debentures issued by South Ltd are to be redeemed at a 3% premium. The costs of issuing the shares were $2,400.
Required:
Prepare the acquisition analysis and journal entries to record the business combination in the records of North Ltd. (Do not include narrations).
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ACC2115 / ACC5215 – Company Accounting / Corporate Accounting Page 7
June 2009
Question 3 (30 marks)
Golden Ltd purchased 75% of the capital of Compass Ltd for $210,000 on the 1 July 2007. The Equity of Compass Ltd at 1 July 2007 included:
Share Capital
$
120,000
Retained Earnings
$
65,000
General Reserve
$
25,000
The carrying amounts and fair values of identifiable assets and liabilities in Compass Ltd were:
Item
Carrying Amount
Fair Value
Inventory
$
95,000
$ 103,000
Plant and Equipment (cost $130,000)
$
105,000
$ 120,000
Land
$
125,000
$ 155,000
Differences between carrying amounts and fair values are recognised on consolidation. Compass Ltd had not recorded any goodwill. The plant and equipment has a remaining useful life of 5 years.
One quarter of the inventory on hand at 1 July 2007 was sold by 30 June 2008.
The applicable tax rate is 30%.
Additional Information
Compass Ltd paid a dividend of $15,000 out of 2007-2008 profits.
Compass Ltd sold Golden Ltd an item of equipment for $20,000 on the 30th June 2008. The carrying amount of this equipment at that time was $18,000.
Compass Ltd made a profit of $60,000 for the 2007-2008 period.
Required
Prepare the consolidation journal entries for Golden Ltd and its subsidiary Compass Ltd at 30 June 2008. Do not prepare a consolidated worksheet. No journal narrations required.
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ACC2115 / ACC5215 – Company Accounting / Corporate Accounting
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June 2009
Question 4 (20 marks)
The trial balance below is of Springsure Ltds accounts as at 30 June 2010:
SPRINGSURE LTD
Trial Balance
as at 30 June 2010
Debit
Credit
Cash at Bank
37,500
Inventory
78,000
Accounts Receivable
54,000
Buildings
225,000
Accumulated Depreciation – Buildings
45,000
Land
150,000
Goodwill
37,500
Mortgage Payable
165,000
Unsecured Creditors
63,000
Calls in Arrears (15,000 shares)
4,500
Share Capital
375,000
Retained Earnings
67,500
Asset Revaluation Reserve
6,000
$
654,000
$ 654,000
Share capital consisted of 375 000 ordinary shares fully issued and called to $1.
It was decided on 30 June 2010 to wind up the company. Additional information is as follows:
a) Estimated realised amounts are:
Land
$147 000
Buildings
129 000
Inventory
67 500
Accounts Receivable
37 500
Calls in Arrears
2 500
Goodwill
0
b) Unsecured creditors include:
Accounts Payable
$42 000
GST
5 250
Directors Salary
6 750
PAYG tax instalments
9 000
$63 000
* There is an impending lawsuit against the company. If the company is found guilty they will be required to pay $27 000 in damages.
* The mortgage is secured over the buildings.
Required
Complete the following Summary of Affairs that is required to be presented to the creditors of Springsure Ltd.
Note: You are required to complete the following table on this blue examination paper.
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ACC2115 / ACC5215 – Company Accounting / Corporate Accounting Page 9
June 2009
SPRINGSURE LTD
COMPANIES FORM 509
SUMMARY OF AFFAIRS
Assets and Liabilities as at 30 June 2010
Estimated
Valuation Realisable
Value
1. Assets not specifically charged:
2. Assets subject to specific charges:
Total Assets
Total Estimated Realisable Value
(3) Less preferential creditors entitled to priority over the holders of a floating charge
(4) Less amounts owing and secured by floating charge over company’s assets
(5) Less preferential creditors
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ACC2115 / ACC5215 – Company Accounting / Corporate Accounting Page 10
June 2009
Estimated amount available for unsecured creditors
6. Unsecured Creditors
(7) Balances owing to partly secured creditors
(8) Contingent Assets
(9) Contingent Liabilities
Estimated Surplus (Deficit)
Share Capital
Issued:
Paid-up:
End of Examination
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