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Financial Reporting 2nd Edition Janice Loftus ,Ken Leo ,Sorin Daniliuc ,Belinda Luke ,Hong Nee Ang ,Karyn Byrnes - Solutions
Undervalued assets, full goodwill method LO3, 4, 5, 6 On 1 July 2016, Liam Ltd acquired 60% of the issued shares of Charlie Ltd for $111 700 when the equity of Charlie Ltd consisted of: Share capital $120 000 General reserve 10 000 Retained earnings 30 000 At this date, the identifiable
Undervalued assets, partial goodwill method LO3, 4, 5, 6 On 1 July 2016, Eli Ltd acquired 75% of the issued shares of Flynn Ltd for $125 750 when the equity of Flynn Ltd consisted of: Share capital $80 000 General reserve 20 000 Retained earnings 40 000 At this date, all identifiable assets and
Undervalued assets, partial goodwill method, dividends LO3, 4, 5, 6 On 1 July 2016, Leo Ltd acquired 80% of the issued shares of Bobby Ltd for $240 000 when the equity of Bobby Ltd consisted of: Share capital $160 000 General reserve 10 000 Retained earnings 59 000 At this date, all
Undervalued assets, full and partial goodwill method LO3, 4, 5 On 1 July 2019, Ethan Ltd acquired 90% of the issued shares of James Ltd for $290 160. The equity of James Ltd at this date consisted of: Share capital $200 000 Retained earnings 80 000 The carrying amounts and fair values of the
Undervalued assets, full and partial goodwill method LO3, 4, 7 On 1 July 2019, Sugar Ltd acquired 90% of the shares of Glider Ltd for $435 240. At this date, the equity of Glider Ltd consisted of share capital of $300 000 and retained earnings of $120 000. All the identifiable assets and
Undervalued assets, full and partial goodwill method LO4, 7 On 1 July 2019, Adeline Ltd acquired 75% of the issued shares of Christina Ltd for $360 000. At this date, the equity of Christina Ltd consisted of share capital of $200 000 and retained earnings of $130 000. All the identifiable
Partial goodwill method, gain on bargain purchase LO4, 7 Black Ltd acquired 90% of the issued shares of Swan Ltd for $107 600 on 1 July 2019. At this date, the equity of Swan Ltd consisted of: Share capital $80 000 Retained earnings 40 000 At acquisition date, all the identifiable assets and
Full and partial goodwill method LO4 Swamp Ltd acquired 90% of the issued shares (cum div.) of Tortoise Ltd on 1 July 2018 for $237 000. At this date, the equity of Tortoise Ltd consisted of: Share capital $125 000 Asset revaluation surplus 30 000 Retained earnings 80 000 At acquisition date,
Full and partial goodwill method LO4 On 1 July 2019, Rainbow Ltd acquired 80% of the issued shares of Lorikeet Ltd for $165 000. At this date, the equity of Lorikeet Ltd was as follows. Share capital $100 000 General reserve 40 000 Retained earnings 50 000 At acquisition date, all the
INTRAGROUP TRANSACTIONS Because Joshua Cement Works Ltd has a number of subsidiaries, the accountant, Evelyn Chen, is required to prepare a set of consolidated financial statements for the group. She is concerned about the calculation of the NCI share of equity particularly where there are
CALCULATION OF NCI In December 2019, William Ltd acquired 60% of the issued shares of Thomas Ltd. The accountant for William Ltd, Nikki Romanov, is concerned about the approach she should take in preparing the consolidated financial statements for the newly established group. In particular, she is
REALISATION OF PROFITS The consolidated financial statements of Submarine Ltd are being prepared by the group accountant, Raz Putin. He is currently in dispute with the auditors over the need to adjust the NCI share of equity for intragroup transactions. He believes that would be unnecessary. He
CHOICE OF FULL OR PARTIAL GOODWILL METHODS The following statement appears in Note 1 of the annual report of Christina Ltd. On an acquisition‐by‐acquisition basis, the Group recognises any non‐controlling interest in the acquiree either at fair value or at the non‐controlling interest’s
CASE STUDY CLASSIFICATION OF THE NCI Len Inn is the accountant for Jack Trucks Ltd. This entity has an 80% holding in the entity Tyres‐R‐Us Ltd. Len is concerned that the consolidated financial statements prepared under AASB 10/IFRS 10 may be misleading. He believes that the NCI in
Identify the disclosures required in relation to the NCI.
Explain how the gain on bargain purchase affects the measurement of the NCI.
Explain how the adjustment for intragroup transactions affects the calculation of the NCI share of equity.
Explain whether an NCI adjustment needs to be made for all intragroup transactions.
What are two events that could occur between the acquisition date and the beginning of the current period that could affect the calculation of the NCI share of retained earnings?
Explain how business combination valuation entries may affect the calculation of NCI in step2 and step 3.
How does the existence of the NCI affect the pre‐acquisition entries?
How does the existence of the NCI affect the business combination valuation entries?
If a step approach is used in the calculation of the NCI share of equity, what are the steps involved?
Describe the disadvantages of the two methods prescribed by AASB 3/IFRS3 to measure NCI for users and preparers of financial information.
What is the impact on goodwill of the two methods prescribed by AASB 3/IFRS 3 to measure NCI?
Why is it necessary to change the format of the worksheet where the NCI exists in the group?
Describe the format of the consolidation worksheet prepared in the presence of the NCI.
For what lines in the financial statements is it necessary to provide a break‐down into parent entity share and NCI share?
Explain whether the NCI is entitled to a share of subsidiary equity or some other amount.
Explain whether the NCI is better classified as debt or equity.
What is meant by the term ‘non‐controlling interest’ (NCI)?
Operators share output LO4 After prospecting unsuccessfully for a number of years for gold, in November 2020 Greens Pool Ltd finally found an economically viable deposit. Realising that it did not have sufficient expertise to operate a gold mine successfully, Greens Pool Ltd formed an
Unincorporated joint operation managed by one of the operators LO4 During 2018, discussions took place between Broken Bay Ltd, a company concerned with the design of specialised tools and machines, and two companies, Armidale Ltd and Newcastle Ltd, which could potentially assist in the
Operators share output LO3, 4 On 1 July 2020, Toowoomba Ltd entered into a joint operation agreement with Miles Ltd to manufacture stevedoring equipment. It was agreed that each party to the agreement would share the output equally. To commence the operation, contributions were as
Share of output LO3, 4 Alice Ltd is a mining company operating in Victoria. Its main areas of mining are open‐pit gold mines and iron ore mines. In 2019 while exploring for ore the company discovered a major source of spring water suitable for bottling for human consumption. Alice Ltd
Operators share output LO4 Brisbane Ltd enters into an arrangement with another operator, Ipswich Ltd, to establish an unincorporated joint operation to produce a drug that assists both hayfever sufferers and those with sinus problems. To produce the drug requires a combination of the
Unincorporated joint operation LO3, 4 On 1 July 2018, Esperence Ltd entered into a joint agreement with Walpole Ltd to establish an unincorporated joint operation to manufacture timber‐felling equipment. It was agreed that the output of the operation would be shared in the proportions
Sharing output LO3, 4 On 1 July 2019, Darwin Ltd entered into a joint agreement with Broome Ltd to form an unincorporated entity to produce a new type of widget. It was agreed that each party to the agreement would share the output equally. Darwin Ltd’s initial contribution consisted of $2
Management Fees Supplied By One Of The Joint Operators LO4 On 1 July 2019, Broome Ltd and Kalbarri Ltd agreed to a joint operation that would be involved in the production of furniture. The contractual arrangement required both parties to invest $270 000 cash in the joint operation with each
Contribution of plant LO3, 4 On 1 July 2019, Tully Ltd and Cooktown Ltd signed a contractual agreement to form a joint operation for the manufacture of kitchen products. The agreement provided that Cooktown Ltd would contribute $240 000 in cash while Tully Ltd would provide $40 000 in cash as
Contributions of cash LO3, 4 Gold Ltd’s main area of interest is the production of glass products. Star Ltd manufactures products that require the employment of artists with skills in fine etchings. After negotiations, on 1 July 2019 the executives of both companies reached an agreement to
ACCOUNTING FOR AN ASSET USED BY A NUMBER OF COMPANIES Raby Ltd and Bay Ltd are companies that have newly discovered oil wells in a Middle‐Eastern country. There is some distance to the nearest port and, rather than build separate pipelines, they have agreed to jointly build a pipeline to the port
CLASSIFICATION OF A JOINT ARRANGEMENT Two smaller banks that operate in Australia are the Ballarat Bank and the St Martins Bank. These have in the past primarily offered domestic banking services to their customers. However, in recent times, these customers have made increasing demands for
EXISTENCE AND CLASSIFICATION OF A JOINT ARRANGEMENT The Chinese mining company Changchun Mining Ltd and the Australian mining company Gold Rush Ltd have agreed to set up a separate company, Dragon Rush Ltd, to mine for gold in Australia. The Australian government has issued permits to the
CASE STUDY CLASSIFICATION OF A JOINT ARRANGEMENT Falls Ltd and Creek Ltd decided to jointly undertake the manufacture of an electric car. They formed Silver Ltd, which will manufacture the car. Falls Ltd and Creek Ltd provide the various parts for the manufacture of the car, which is assembled by
How are joint operations accounted for?
How are joint ventures accounted for?
What are the key steps in classifying a joint arrangement into joint ventures and joint operations?
How does a joint venture differ from a joint operation?
How does joint control differ from control as used in classifying subsidiaries?
What is meant by ‘joint control’?
What is a joint arrangement?
Sale of shares in subsidiary by parent resulting in loss of control LO5 Insomnia Ltd acquired 80% of the issued shares of Sleepy Ltd on 1 July 2018 for $20 375 when the shareholders’ equity of Sleepy Ltd consisted of: Share capital $12 500 Retained earnings 10 000 All the identifiable
Sale of shares in subsidiary by parent without loss of control LO5 Pretty Ltd acquired 80% of the issued shares of Smart Ltd on 1 July 2018 for $20 375 when the shareholders’ equity of Smart Ltd consisted of: Share capital $12 500 Retained earnings 10 000 All the identifiable assets and
Acquisition of additional shares in a subsidiary by parent LO5 Peter Ltd acquired 80% of the issued shares of Sam Ltd on 1 July 2018 for $32 000 when equity of Sam Ltd consisted of: Share capital $20 000 Retained earnings 16 000 All the identifiable assets and liabilities of Sam Ltd were
Acquisition of additional shares in subsidiary by parent LO5 On 1 July 2020, K Ltd acquired 60% of the issued shares of L Ltd for $66 000 cash when the equity of L Ltd consisted of share capital of $80 000 and retained earnings of $20 000. All the identifiable assets and liabilities of L
Sale of shares with loss of control LO5 X Ltd acquired 80% of the issued shares of Y Ltd for $700 000 on 1 July 2020 when the equity of Y Ltd consisted of $400 000 capital and $300 000 retained earnings. At this date the carrying amounts of Y Ltd’s identifiable assets and liabilities were
Sale of shares with no loss of control LO5 On 1 July 2020, A Ltd acquired 80% of the shares issued by B Ltd for $85 000. At this date, the shareholders’ equity of B Ltd consisted of share capital of $80 000 and retained earnings of $20 000. All identifiable assets were recorded at amounts
Consolidated financial statements, multiple subsidiaries, acquisitions on the same date LO3 On 1 July 2020, United States Ltd acquired 60% of the issued shares of Peru Ltd for $108 000. On the same day, Peru Ltd acquired 80% of the issued shares (cum div.) of Canada Ltd for $71 600. At
Consolidation worksheet entries, analysis of non‐controlling interest, sequential acquisitions LO2, 3, 4, 5 A client of yours is the chief accountant of Comoros Ltd which, at 30 June 2020, has two subsidiaries, Cook Islands Ltd and Chile Ltd. He is unsure how to prepare the
Consolidation worksheet entries, non‐sequential acquisitions LO3, 4 On 1 July 2019, Indonesia Ltd acquired 75% of the issued shares of India Ltd for $320 000. At this date the statement of financial position of India Ltd was as follows. Current assets $ 20 000 Non‐current assets 500
Consolidation worksheet entries, sequential acquisitions LO3 On 1 July 2019, Brunei Ltd acquired (ex div.) 80% of the issued shares of Bhutan Ltd for $146 400. At this date, the equity of Bhutan Ltd consisted of: Share capital $100 000 General reserve 50 000 Retained earnings 20 000 In the
Consolidation worksheet, consolidated financial statements, multiple subsidiaries, acquisitions on the same date LO3 On 1 July 2020, Vanuatu Ltd acquired 80% of the issued shares in Vietnam Ltd (cum div.) for $44 760. At this date, Vietnam Ltd had not recorded any goodwill and all its
Consolidation worksheet entries, multiple subsidiaries, acquisitions on the same date LO3 The statements of financial position of Tonga Ltd, Thailand Ltd and Tuvalu Ltd for the year ended 30 June 2020 are as follows. Tonga Ltd Thailand Ltd Tuvalu Ltd Share capital $150 000 $50 000 $21 000
Consolidated financial statements, multiple subsidiaries, acquisitions on the same date LO3 On 1 July 2016, the following balances appeared in the ledgers of the following three companies. Russia Ltd Samoa Ltd Singapore Ltd Retained earnings $20 000 $10 000 $ 5 000 General reserve 8 000 2
Consolidated financial statements, multiple subsidiaries, acquisitions on the same date LO3 Pakistan Ltd acquired 75% of the issued shares of Peru Ltd on 1 July 2016 for $1 900 000. The identifiable assets and liabilities of Peru Ltd were recorded at fair value at acquisition date. The
Calculation of the non‐controlling interest, multiple subsidiaries, acquisitions on the same date LO3 On 1 July 2019, Nauru Ltd acquired 60% of the issued shares of Nepal Ltd for $300 000, and Nepal Ltd acquired 80% of the issued shares of New Zealand Ltd for $190 000. It was considered that
Consolidation worksheet entries, multiple subsidiaries, acquisitions on the same date LO3 On 1 July 2017, Laos Ltd acquired 70% of the issued shares of Maldives Ltd for $100 000 and Maldives Ltd acquired 60% of the issued shares of Malaysia Ltd for $70 000. The equity of the companies at 1 July
Calculation of the non‐controlling interest, multiple subsidiaries, acquisitions on the same date LO3 On 1 July 2017, Fiji Ltd acquired 75% of the issued shares of India Ltd at a cost of $280 000 and India Ltd acquired 80% of the issued shares of Japan Ltd at a cost of $135 000. At
Consolidation worksheet entries, multiple subsidiaries, acquisitions on the same date LO3 On 1 July 2018, Canada Ltd acquired 80% of the issued shares of China Ltd and China Ltd acquired 75% of the issued shares of Chile Ltd. All shares were acquired on a cum div. basis. The equity of China Ltd
CHANGES IN OWNERSHIP INTERESTS At 1 July 2018, Christina Ltd acquires 60% of the issued shares of Adeline Ltd, enough to give Christina Ltd control. At 30 June 2019, Christina Ltd acquires a further 10%. One year later, on 30 June 2020, Christina Ltd sells 20% of the issued shares of Adeline Ltd,
DIVIDENDS AND NON‐CONTROLLING INTERESTS Andrew Brown is the group accountant for P Ltd. P Ltd owns 60% of A Ltd which owns 70% of B Ltd. He has just completed the preparation of the consolidated financial statements of the group, and is discussing issues raised by the auditors. The auditors have
CASE STUDY NON‐CONTROLLING INTEREST P Ltd owns 20% of the issued shares of B Ltd. In recent months it has been in takeover discussions with A Ltd, and agreement has finally been reached between the different parties on the acquisition by P Ltd of 60% of the issued shares of A Ltd. One of the
What are the disclosure requirements relating to changes in ownership interest by a parent in a group?
Explain how to account for changes in ownership interests by a parent in a group that result in loss of control.
Explain how to account for sales of shares by a parent in a subsidiary that do not result in loss of control.
Explain the effects on the consolidation process when the acquisition is non‐sequential.
Explain sequential and non‐sequential acquisitions.
What effect does the existence of a direct and an indirect NCI have on the adjustments for dividends paid within a group?
What effect does the existence of a direct and an indirect NCI have on the adjustments for intragroup transactions?
Why does the indirect NCI receive a share of only post‐acquisition equity?
Explain the difference in the calculation of the direct and indirect NCI.
Discuss the two types of NCI that may exist in a multiple subsidiary group structure.
Consolidation with differences between carrying amount and fair value at acquisition date and intragroup transactions LO3, 4, 5, 6, 7 Zoe Ltd purchased 100% of the shares of Matilda Ltd on 1 July 2017 for $50 000. At that date the equity of the two entities was as follows. Zoe Ltd Matilda Ltd
Consolidation with differences between carrying amount and fair value at acquisition date, impairment of goodwill and intragroup transactions LO1, 2, 3, 4, 5, 6, 7 Financial information for Kaija Ltd and its 100% owned subsidiary, Helena Ltd, for the period ended 31 December 2020 is provided
Consolidation worksheet with pre-acquisition equity transfers and intragroup transactions LO3, 4, 5, 6, 7 On 1 January 2017, Olivia Ltd acquired all the share capital of Chloe Ltd for $300 000. The equity of Chloe Ltd at 1 January 2017 was as follows. Share capital $200 000 Retained earnings 50
Intragroup transfers of inventories, non-current assets, services and borrowings LO2, 3, 4, 5, 7 Judith Ltd owns all the share capital of Mary Ltd. The income tax rate is 30%. The following transactions took place during the periods ended 30 June 2019 or 30 June 2020. (a) On 1 May 2019,
Intragroup transfers of inventories, non-current assets, services and dividends LO2, 3, 4, 5, 6 Karen Ltd owns all the share capital of Anne Ltd. The income tax rate is 30%. The following transactions took place during the periods ended 30 June 2018 to 30 June 2020. (a) In February 2018, Karen
Current and prior period intragroup borrowings LO2, 7 Tony Ltd owns all the share capital of Sean Ltd. The following transactions are independent. (a) Sean Ltd gives $50 000 as an interest-free loan to Tony Ltd on 1 July 2018. Tony Ltd made a $20 000 repayment by 30 June 2019. (b) Sean Ltd
Current and prior period intragroup debentures LO2, 7 Pedro Ltd owns all the share capital of Juan Ltd. The following transactions are independent. (a) On 1 January 2019, Juan Ltd issues 10 000 debentures at the nominal value of $10 with an interest rate of 8% p.a., payable half-yearly on
Current and prior period intragroup dividends LO2, 6 Maggie Ltd owns all the share capital of Peggy Ltd. The following intragroup transactions took place during the periods ended 30 June 2019 or 30 June 2020. (a) During the period ended 30 June 2019, Peggy Ltd paid an interim dividend of $10
Current and prior period intragroup services LO2, 5 Alice Ltd owns all the share capital of Isabella Ltd. The following intragroup transactions took place during the periods ended 30 June 2019 or 30 June 2020. (a) Isabella Ltd paid $20 000 during the period ended 30 July 2019 and $40 000 during
Current period intragroup transfers of inventories and non-current assets LO2, 3, 4 Isolde Ltd owns all the share capital of Annabelle Ltd. The income tax rate is 30%. During the period ended 30 June 2020, the following transactions took place. (a) Annabelle Ltd sold inventories costing $50 000
Current and prior periods intragroup transfers of non-current assets LO2, 4 Fred Ltd owns all the share capital of Toby Ltd. The income tax rate is 30%. The following transactions took place during the periods ended 30 June 2019 or 30 June 2020. (a) Toby Ltd sold some land to Fred Ltd in
Current and prior periods intragroup transfers of non-current assets LO2, 4 Sophie Ltd owns all the share capital of Ruby Ltd. The income tax rate is 30%. The following transactions took place during the periods ended 30 June 2019 or 30 June 2020. (a) On 1 July 2018, Sophie Ltd sold a motor
Current and prior periods intragroup transfers of inventories LO2, 3 Charlotte Ltd owns all the share capital of Aloise Ltd. The income tax rate is 30%. The following transactions took place during the periods ended 30 June 2019 or 30 June 2020. (a) On 1 May 2019, Charlotte Ltd sold inventories
Current and prior periods intragroup transfers of inventories LO2, 3 Amani Ltd owns all of the share capital of Rebecca Ltd. The income tax rate is 30%. The following transactions took place during the periods ended 30 June 2019 or 30 June 2020. (a) In January 2020, Amani Ltd sells inventories
DEPRECIATION EXPENSE At the beginning of the current period, Jessica Ltd sold a depreciable asset to its wholly owned subsidiary, Amelie Ltd, for $80 000. Jessica Ltd had originally paid $200 000 for this asset, and by the time of sale to Amelie Ltd had charged accumulated depreciation of $150
CASE STUDY CONSOLIDATION ADJUSTMENTS Jessica Ltd sold inventories during the current period to its wholly owned subsidiary, Amelie Ltd, for $15000. These items previously cost Jessica Ltd $12 000. Amelie Ltd subsequently sold half the items to Ningbo Ltd, an external entity, for $8000. The income
Are adjustments for post-acquisition intragroup dividends different from those for pre-acquisition intragroup dividends? Explain.
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