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Mark
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SCHO
OOL OF
F ACCO
OUNTIN
NG
ACCT 2542
2
COR
RPORATE
E FINANC
CIAL
REP
PORTING
G AND AN
NALYSIS
S
Sesssion 2, 20115
Final Examinattion
Time Allowed:
A
Readin
ng Time:
Number of Quesstions:
Length
h of exam paper
Final assessmen
a
nt

Q1

/ 15

Q2

/ 10

Q3

/ 15

Q4

/ 20

Q5

/ 10

Q6

/ 10

Q7

/ 10

Q8

/ 10

Total

/ 100

2 Hours
H
10 minutes
8
16 pages
55%
%

Answer AL
LL question
ns.
The questiions are NO
OT of equal value.
Questions 1 to 7 all answers muust be writteen in ink an
nd recorded in this exam
m
paper.
Question 8 - all answ
wers must bbe recorded on the Gen
neralised A
Answer Sheet in
pencil. En
nsure you record yourr student ID
D and full name on thhe Generallised
Answer Sh
heet
UNSW appproved elecctronic calcuulators may
y be used.
This paperr is NOT to be retainedd by the can
ndidate.
DO NO
OT OPEN THIS
T
PAP
PER UNTIL
L INSTRUC
CTED BY THE EXA
AM
SUPERVIISOR

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ORKINGS BUT THIS
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ARKED.

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ARKED

Question 1: Accounting for company income tax (15 marks)


On 1July 2014, Midson Ltd commenced operations in Australia where the
corporate tax rate is 30%.
The companys accounts show a profit before tax of $80 000 for the year
ended 30 June 2015.
Expenses that have been recognised in profit before tax include:
Parking and other fines $5000
Depreciation of plant $15 000
Interest expense $10 000
Annual leave expense $8000
Deductions for the year are:
Depreciation of plant for tax $25 000
Annual leave paid $2000
(a)

Prepare the current tax worksheet for 30 June 2015 (6 marks)

Profit before tax


Add:
Parking and other fines
Depreciation expense (accounts)
Interest expense
Annual leave expense
Less:
Depreciation expense (tax)
Annual leave paid
Taxable profit

(b)

80 000

5 000
15 000
10 000
8 000
25 000
2 000
91 000

Prepare the journal entry for current tax (1 mark)


Account name

Income tax expense


Current tax liability

Debit

Credit

27 300
27 300

5
An extract of the companys statement of financial position at 30 June 2015
shows:
Assets
Plant at cost
Accumulated depreciation

100,000
(15,000)

Liabilities
Provision for annual leave
Interest payable

(c)

85 000
5 000
10 000

Prepare the deferred tax worksheet for 30 June 2015 (6 marks)

(1)
Asset/Liability

(2)
Carrying
Amount

(3)
Deductible
Amount

(4)
Tax
Base

(5)
Taxable
TempDiff

Plant

85 000

75 000

75 000

10 000

Provn AL

5 000

5 000

5 000

Interest Pay

10 000

10 000

10 000

Total TD

10 000

DTL 30%

3 000

(6)
Deductible
TempDiff

15 000

DTA 30%

(d)

4 500

Prepare the journal entry for deferred tax (2 marks)


Account name

Deferred tax asset


Deferred tax liability
Income tax expense

Debit

Credit

4 500
3 000
1 500

Question 2: Wholly Owned Subsidiaries Topic (10 marks)


On 30 June 2015, Lear Ltd acquired all of the issued share capital of Regan
Ltd for cash consideration of $5000
(a)

Complete the consolidation worksheet for 30 June 2015 (8 marks)

Lear

Regan

Adjustments
Dr

Group

Cr

Cash

14 000

2000

16 000

Inventories

16 000

4000

20 000

Shares in Regan

5000

Total Assets

5000

35 000

6000

36 000

5 000

1000

6000

Share capital

10 000

5000

Retained profits

20 000

20 000

Total Liabilities
and Equity

35 000

6000

36 000

Trade Payables

5000

10 000

Show the worksheet entry to eliminate the investment asset (2 marks)


Account name

Share capital
Shares in Regan

Debit

Credit

5 000
5 000

Question 3: Wholly Owned Subsidiaries Topic (15 marks)


On 1 July 2014, Montague Ltd acquired all of the issued shares of Romeo Ltd
for $500 000. At this date, the equity of Romeo Ltd is comprised of:
Share capital
Retained earnings

$ 200 000
172 000

All identifiable assets and liabilities of Romeo Ltd were recorded at fair value
except for the following:
Book value
Fair value
Plant (cost $120 000)

$50 000

$90 000

The plant is expected to have a further 4 year life. The tax rate is 30%.
(a)

Prepare the acquisition analysis (4 marks)

Consideration

500 000

Share Capital
Retained earnings
BVINA

200 000
172 000
372 000

Plant [40 000 x (1-0.3)]

28 000

(b)

FVINA

400 000

Goodwill

100 000

Prepare the fair value entry for the plant at 1 July 2014 (3 marks)
Account name

Accumulated Depreciation
Plant
Plant
Deferred tax liability
BCVR

Debit

Credit

70 000
70 000
40 000
12 000
28 000

8
(c)

Prepare the entry to record goodwill at 1 July 2014 (1 mark)


Account name

Goodwill

Debit

100 000
BCVR

(d)

Share capital
Retained profits
BCVR
Investment in Romeo

Debit

Credit

200 000
172 000
128 000
500 000

Prepare any depreciation adjustment for consolidation at 30 June 2015


(3 marks)
Account name

Depreciation expense
Accumulated depreciation
Deferred tax liability
Income tax expense

(f)

100 000

Prepare the pre-acquisition entry for consolidation at 1 July 2014


(3 marks)
Account name

(e)

Credit

Debit

Credit

10 000
10 000
3000
3000

Assume Montague had acquired the shares of Romeo cum-dividend


and the dividend was $20 000. How much would be the goodwill in
this case? (1mark)

$80 000

Question 4: Intragroup Transactions Topic (20 marks)


Gertrude Ltd owns 100% of the ordinary shares of Hamlet Ltd. For each of
the following intragroup transactions prepare the consolidation journal entry in
the space provided.
Assume the consolidation is being undertaken at 30 June 2015 and an
income tax rate of 30% applies.
(a)

Hamlet Ltd pays Gertrude Ltd an annual service fee of $35 000 at the
end of June each year. (2 marks)
Account name

Service revenue
Service expense

(b)

Credit

35 000
35 000

On 1 February 2015, Hamlet Ltd declared and paid an interim dividend


of $15 000. (2 marks)
Account name

Dividend revenue
Dividend paid

(c)

Debit

Debit

Credit

15 000
15 000

On 1 January 2015, Gertrude provided a loan of $200 000 to Hamlet


Ltd. The loan is interest-free and due to be repaid on 30 June 2020.
(2 marks)
Account name

Loan payable
Loan receivable

Debit

Credit

200 000
200 000

10
(d)

On 20 May 2010, Gertrude Ltd transferred land to Hamlet Ltd in


exchange for cash consideration of $120 000. The land had originally
cost Gertrude $20 000. The land is still on hand at 30 June 2015.
(3 marks)
Account name

Retained earnings
Deferred tax asset
Land

(e)

Credit

70 000
30 000
100 000

Hamlet Ltd had inventory on hand at 30 June 2014 purchased from


Gertrude Ltd. The unrealised profit in opening inventory is $12 000.
(3 marks)
Account name

Retained earnings
Income tax expense
COGS

(f)

Debit

Debit

Credit

8 400
3 600
12 000

Hamlet Ltd sold inventory to Gertrude Ltd for $70 000 during the year
to 30 June 2015. The original cost of the inventory to Hamlet Ltd was
$50 000. On 30 June 2015, Gertrude Ltd still has all of this inventory
still on hand. (3 marks)
Account name

Debit

Sales revenue
COGS
Inventory

70 000

Deferred tax asset


Income tax expense

6 000

Credit

50 000
20 000

6 000

11
(g)

On 1 July 2014, Gertrude Ltd transferred an item of plant to Hamlet Ltd


for cash consideration of $50 000. In Gertrude Ltds records, the plant
had a book value of $10 000 before the transfer (original cost $30 000).
The plant had a remaining useful life of two years at the date of
transfer. On 30 June 2015, the plant is still on hand. (4 marks)
Account name

Debit

Gain on sale
Plant
Accumulated depreciation

40 000

Deferred tax asset


Income tax expense

12 000

Accumulated depreciation
Depreciation expense

20 000

Income tax expense


Deferred tax asset

6 000

(h)

Credit

20 000
20 000

12 000

20 000

6 000

Assume Gertrude only owns 80% of the ordinary shares of Hamlet Ltd.
Would this affect the required journal entries in (a) to (g) above. Briefly
discuss. (1 mark)

The only entry that would change is (b) the intercompany dividend

12

Question 5: Translation of financial statements (10 marks)


On 1 July 2014, Austco Ltd incorporated a subsidiary in the United States,
Hilary Inc. Details of exchange rates for the first year of operations are as
follows:
1 July 2014
6 August 2014
12 January 2015
30 June 2015
1/7/14 to 30/6/15

$U.S. 1 = $A 1.00
$U.S. 1 = $A1.20
$U.S. 1 = $A1.40
$U.S. 1 = $A2.00
$U.S. 1 = $A1.50

Beginning of year
Equipment bought
Cash received
End of year
Average for year

Hilary Inc. has a functional currency of $U.S.


(a)

Translate the statement of financial position of Hilary Inc. as at 30 June


2015 into $A using the current rate method. (7 marks)
$U.S.

Rate

$A

20 000

2.00

40 000

Trade receivables

4 000

2.00

8 000

Equipment

8 000

2.00

16 000

Cash

Total assets

32 000

Accounts payable

5 000

Retained profits

12 000

Share capital

15 000

64 000
2.00

18 000
1.00

FCTR

15 000
21 000

Total liabilities and equity

(b)

10 000

32 000

64 000

Translate the statement of profit or loss of Hilary Inc. for 30 June 2015
into $A using the current rate method. (3 marks)
$U.S.

Rate

$A

20 000

1.50

30 000

Employee expenses

6 000

1.50

9 000

Depreciation

2 000

1.50

3 000

Sales

Profit for the year

12 000

18 000

13

Question 6: The equity method of accounting (10 marks)


Desdemona Ltd holds 20% of the ordinary shares of Othello Ltd. The profits
and dividends of Othello Ltd are as follows:
30 June 2015
Profit after tax
Dividend paid
(a)

$ 200 000
60 000

30 June 2014
$ 100 000
20 000

Desdemona does NOT prepare consolidated financial statements.


Prepare the entries to apply the equity method for 30 June 2015
(4 marks).
Account name

Debit

Investment in Othello
Share of profit of associate

40 000

Cash

12 000

40 000

12 000

Investment in Othello

(b)

Credit

Desdemona does prepare consolidated financial statements. Prepare


the entries to apply the equity method for 30 June 2015.
Account name

Debit

Investment in Othello
Retained earnings

16 000

Investment in Othello
Share of profit of associate

40 000

Dividend revenue
Investment in Othello
(20% x $30 000)

12 000

Credit

16 000

40 000

12 000

14

Question 7: Interest in joint operation (10 marks)


On 1 July 2014, Viola Ltd and Sebastian Ltd enter into a 50:50 joint operation
to explore for gold.
Viola initially contributes cash of $40 000. Sebastian Ltd initially contributes
land with a fair value of $40 000.
The accounting records of the joint operation for 30 June 2015 show the
following:
Cash
Land
Exploration asset
Accounts payable
(a)

$ 10 000
40 000
36 000
6 000

What is a key difference between a joint operation and joint venture?


(2 marks)

A joint venture is structured through a separate vehicle

(b)

Prepare the journal entries of Viola Ltd to account for its interest in the
joint operation in the financial statements for 30 June 2015 (8 marks)
Account name

Debit

Land in JO
Cash in JO
Cash

20 000
20 000

Exploration asset in JO
Accounts payable in JO
Cash in JO

18 000

Credit

40 000

3 000
15 000

15

Question 8: Various Topics (10 marks)


Answers for this question must be in the generalized answer sheet.
1. In Australia, the body responsible for the enforcement of accounting
standards is:
A)
B)
C)
D)
E)

Australian Accounting Standards Board


Australian Securities Investments Commission
Australian Securities Exchange
CPA Australia
International Accounting Standards Board

2. Comprehensive income includes:


A)
B)
C)
D)
E)

Translation gain or loss


Gain on sale of land
Revaluation increment for land
Income tax attributable to revaluation of land
All of the above

3. In accounting for intangible assets:


A)
B)
C)
D)
E)

Internally generated goodwill is recognised


Intangible assets with indefinite useful lives are amortised
Intangible assets are subject to annual impairment
Subsequent measurement at fair value requires an active market
All of the above

4. If there is an impairment loss of $40 000 on a cash generating unit (CGU)


and the CGU has land of $50 000 and plant of $30 000, then the
impairment loss allocated to land is:
A)
B)
C)
D)
E)

$50 000
$40 000
$30 000
$25 000
$15 000

5. An example of a non-adjusting event is:


A)
B)
C)
D)
E)

Discovery of manufacturing defects


Issue of a court judgment
Changes in prices
Insolvency
All of the above

16
6. An investor controls an investee when it has:
Exposure to or rights
to variable returns
X
X

A)
B)
C)
D)
E)

Ability to affect returns


X
X
X

Power over the


investee
X
X
X
X

7. The financial statements would be adjusted for the following:


A)
B)
C)
D)
E)

Error in disclosure of a contingent asset


Error in classification of a non-current liability
Change in the auditor
Lower expected future sales
All of the above

8. A complete set of financial statements includes:

A)
B)
C)
D)
E)

Statement of
Financial
Position

Statement of Profit
or Loss and Other
Comprehensive
Income

Statement of
Changes in
Equity

Statement of
Cash Flows

X
X
X
X

X
X
X

X
X

X
X

X
X
X

9. Fair value for an asset means:


A) The value that is fair according to an accounting standard
B) The price that would be received to sell an asset in an orderly
transaction between market participants at the measurement date
C) The entry price to buy an asset
D) Net realisable value
E) Recoverable amount

10. Continuous disclosure refers to:


A) The way corporations are managed and governed.
B) Disclosures in the annual financial report
C) Immediate disclosure of any information that a reasonable person
would expect to have a material effect on share price
D) Disclosures required by the ASX Corporate Governance Principles
E) Disclosures that are continuously evolving from changing regulations