Short Answer Questions

You are required to answer ALL five (5) problem/short answer questions.

This section is worth a total of sixty five (65) marks.

Please record your answers in the examination answer booklet provided.

Question 1
Face Ltd acquired 20% of the ordinary shares of Book Ltd on 1 July 2016. At this
date, all the identifiable assets and liabilities of Book Ltd were recorded at
amounts equal to their fair values. An analysis of the acquisition showed that
$3,200 of goodwill was acquired. Book Ltd was judged to be an associate of Face
Ltd.

Face Ltd has no subsidiaries, and records its investment in the associate, Book
Ltd, in accordance with AASB 128. In June 2017, Book Ltd declares a $16,000
dividend. The dividend is paid in September 2017 and recorded by Face Ltd on
that date. In the 2017–18 period, Book Ltd records a profit of $80,000, pays an
interim dividend of $8,000 in February 2018 and, in June 2018, declares a
further dividend of $12,000.

The following transactions have occurred between the two entities (all
transactions are independent unless specified).

(a) In September 2016, Book Ltd sold a non-current asset costing $160,000 to
Face Ltd for $180,000. Face Ltd applies a 10% p.a. on cost straight-line
method of depreciation.

(b) In November 2017, Book Ltd sold inventory to Face Ltd for $20,000. This
inventory had previously cost Book Ltd $15,000, and remains unsold by
Face Ltd at the end of the period.

(c) In February 2018, Face Ltd sold inventory to Book Ltd at a before-tax profit
of $2,500, which is still unsold on 30 June 2018.

The tax rate is 30%.

Required:

1. the amount of Face Ltd’s share of profit [an investor’s share of profit]
(7 marks)
2. Prepare the journal entries in the records of Face Ltd in relation to its
investment in Book Ltd for the year ended 30 June 2018.
(4 marks)

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Question 2 Joint operations

On 1 July 2016, Spot Ltd entered into a joint operation agreement with Light Ltd
to form an unincorporated entity to produce a new type of bike with an engine.
It was agreed that each party to the agreement would share the output equally.

Spot Ltd’s initial contribution consisted of cash of $600,000. Light Ltd contributed
machinery that was recorded in their records at $570 000. During the first year of
operation both parties each contributed a further $900 000 in cash on 31 January
2017. Joint operation depreciates machinery at 15% per annum on cost.

On 30 June 20176, the joint operation manager provided the following statements:
Costs incurred
for the year ended 30 June 2017

Wages $ 552,000
Supplies 960,000
Overheads 660,000
2,172,000
Cost of inventory 1,452,000
Work in progress at 30 June $ 720,000
2017

Cash Receipts and Payments

for the year ended 30 June 2017
Receipts:

Original contributions $ 600,000

Additional contributions 1,800,000
2,400,000
Payments:
Machinery (02/07/15) $ 240,000
Wages 540,000
Supplies 900,000
Overheads 630,000
Operating expenses 60,000
2,370,000
Closing Cash Balance $ 30,000

Question 2 continued

Question 2 continued

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 Statement of Financial Position
as at 30 June 2017
Assets
Cash $ 30,000
Machinery 840,000
Supplies 60,000
Work in 720,000
Progress
Total Assets $ 1,650,000

Liabilities
Accrued wages 12,000
Accounts 150,000
payable
Total Liabilities 162,000
Net Assets $ 1,488,000

Required:
In relation to the Joint operation, assume the line-by-line method of accounting is
used by each joint operator. Prepare the journal entry or entries for Light Ltd on 1
July 2016, 31 January 2017 and 30 June 2017.
(13 marks)

Question 3 Foreign Operation

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Lemon Ltd, an Australian company, acquired all of the shares of Ringo Ltd, a
company based in England, for GBP 290,000 on 1 July 2017. At that date, Ringo
Ltd’s Statement of Financial Position was as follows:-

Ringo Ltd
Statement of Financial Position
as at 1 July, 2017
Assets SG
Cash 13,000
Machinery (net) 262,000
Liabilities
Payables 15,000
Net assets 290,000

Shareholders’ equity
Share capital 160,000
Retained earnings 130,000
Total equity 290,000

At 30 June 2018, the financial statements of Ringo Ltd were as follows:

Ringo Ltd
Statement of Profit or Loss and Other Comprehensive Income
for the year ended 30 June, 2018
GBP
Sales 165,000
Less: Expenses (119,000)
Profit 46,000

Ringo Ltd
Statement of Financial Position
as at 30 June, 2018
Assets GBP
Cash 21,000
Machinery 380,000
Accumulated depreciation – (48,500)
Liabilities
Machinery
Payables 16,500
Net assets 336,000
Shareholders’ equity
Share capital 160,000
Retained earnings 176,000
Total Equity 336,000

Additional information:
 All the assets and liabilities were recorded at fair value.

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  Sales and expenses were incurred evenly throughout the 2017/2018
financial year.
 Tax is not considered in this exercise.
 The exchange rates applicable are as follows:

AUD $1 is equivalent to: GBP

Opening rate (01/07/17) 1.06
Closing rate (30/06/18) 1.03
Average for 2017/2018 financial 0.98
year

Required:

1. Translate the accounts of Ringo Ltd into the presentation currency of

Australian dollars (round to the nearest dollar). (10 marks)

2. Verify the translation adjustment. (5 marks)

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Question 4 Liquidation and Insolvency

Receipts and payments with final distribution to shareholders

Butterfly Ltd went into liquidation on 30 June 2018, its equity being as follows:

20 000 10% preference shares each fully paid at $1

10 000 1st issue ordinary shares each fully paid at $1
50 000 2nd issue ordinary shares issued for $1 and paid to 50c
Retained earnings (credit balance) $1500

The constitution states that preference shares carry the right to payment of
arrears of dividends whether declared or undeclared up to the commencement of
the winding up.

The last preference dividend was paid to 30 June 2017. To adjust the rights of
contributories, the liquidator made a call of 50c per share on the 2nd issue
ordinary shares.

All call money was received except that in respect of 500 2nd issue ordinary
shares. This money proved to be irrecoverable and the shares were
subsequently forfeited.

Claims admitted for payment amounted to $16 870, assets realised $30 000,
and liquidation expenses were $150.

Liquidator’s remuneration was fixed at 1% of gross proceeds from sale of assets.

Required
A. Prepare the liquidator’s final statement of receipts and payments.
B. Provide a statement showing the final distribution to shareholders, based
on the statement in the constitution that all shares, by number, rank equally on
distribution of final cash.

Assume cash available at

$35,430

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ACC5215 S1 2016 Final Exam marking guide Question 1 (13 marks) :

1. Calculate share of profit on investor’s share

Acquisition has occurred at 1 July 2016

Profit for the period: 2017-2018, at 30 June 2018 $80 000

Adjustments for inter-entity transactions:

+Realised profit [depreciation expense] (a) [180,-160, =20,]

[10% x $20 000 (1 – 30%)] [on Sep 2016] 1 400

-Unrealised after tax profit in ending inventory (b)

[$5 000 (1 – 30%)] [Nov 2017] (3 500)

- Unrealised after tax profit in ending inventory (c)

[$2 500 (1 – 30%)] [Feb 2018] (1 750)

[80,000+1.4-3.5-1.75] 76,150 c/f

Investor’s share – 20% [20% x 76 150] $15 230 #

2. Journal entries in records of Face Ltd:

Investment in Book Ltd Dr 15 230 #
Share of profit or loss of associates Cr 15 230 #
Cash Dr 4 800

Investment in Book Ltd Cr 4 800

(20% (dividends paid $8 000 + $16 000))

Dividend receivable Dr 2 400

Investment in Book Ltd Cr 2 400

(20% (dividends paid $12 0000))

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Q2 Joint Operation Answers

1-Jul-2015 Light Ltd

Cash in JO Dr 300,0 (600 / 2)
00
Machinery in JO Dr 285,0 (570 / 2)
00
Gain on Sale of Cr 15,000 (600/2-570/2)
Machinery
Machinery Cr 570,000
31 January 2016
Cash in JO Dr 900,00
0
Cash Cr 900,000

2.Journal entries in records of Light

Ltd
30-Jun-16

Machinery in JO Dr 120,00 (840 / 2)-(600/2)

0 or240/2
Supplies in JO Dr 30,00 (60 / 2)
0
Work in Progress in JO Dr 360,00 (720 / 2)
0
Inventory Dr 789,000 (1452 / 2)
*726,000 +63,000
*(1452)/2
Operating expenses Dr 30,00 (60/2)
0
Accum depreciation in Cr 63,000 840/2*15%
JO
Accrued wages in JO Cr 6,00 (12/ 2)
0
A/cs Payable in JO Cr 75,00 (150 / 2)
0
Cash in JO Cr 1,185,00 (30/2) –
0 (900,+300,)

Adjustment for depreciation being based on carrying amount

rather than fair value
Accum depreciation in Dr 2250 See calculations
JO
Inventory Cr 1545
Work in progress in JO Cr
705

Working

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 Inventory 789, 68.66% 1545
Work in Progress in JO 360, 31.33%704.9=705
1,149, 2,250

*If each operator depreciates:

1-Jul-2015 Light Ltd no change.

2.Journal entries in records of Light

Ltd
30-Jun-16

Machinery in JO Dr 120,00 (840 / 2)-

0 (600/2) or240/2
Supplies in JO Dr 30,00 (60 / 2)
0
Work in Progress in JO Dr 360,00 (720 / 2)
0
Inventory Dr 726,000 (1452 / 2)

Operating expenses Dr 30,00 (60/2)

0
Accrued wages in JO Cr 6,000 (12/ 2)
A/cs Payable in JO Cr 75,000 (150 / 2)
Cash in JO Cr 1,185,000 (30/2) –
(900,+300,)

Inventory -Dep exp Machinery Dr 60,750

Accum Dep in JO Cr 60,750

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Question 3 Requirement 1.

SGD Rate AUD

Sales 165,000 0.98 168,367
Expenses 119,000 0.98 121,429
Profit 46,000 46,939
Retained earnings (1/7/16) 130,000 1.06 122,642
Retained earnings (30/6/17) 176,000 169,580
Share capital 160,000 1.06 150,943
FCTR 5,690
Total equity 336,000 326,214

Cash 21,000 1.03 20,388

machinery 380,000 1.03 368,932
accumulated depreciation - 48,500 1.03 - 47,087

creditors - 16,500 1.03 - 16,019

Net assets 336,000 326,214

Profit 46,000
Profit as translated 46,939
Profit @ closing rate
49,/1.03 =44,600 44,660
Translation gain (loss) -2,279

Net investment at 1 July 2017 290,000

Net investment @ opening rate
290,/1.06 273,585
Net investment @ closing rate
290,/1.03 281,553
Translation gain (loss) 7,968

Total FCTR 5,690

Question 4 Ex33.11

A.

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 Liquidator's Statement of Receipts and Payments

Receipts $'000 Payments $'000

Proceeds on sale of 30 000 Liquidation expenses 150
assets
Call on 2nd issue 24 750 Liquidator's 300
ordinary remuneration
Other Claims 16 870
Arrears of preference 2 000
dividend
Payment to:
Preference 8 913
First issue ordinary 4 457
Second issue ordinary 22 060

54 750 54 750

B. Share of cash (after forfeiture of 500 2nd issue ordinary shares)

No of Paid to Notional Notional ActualDeficiency
Shares Call Refund Refund share
44.566c (Call)
$ $ $ $ $
Preference 20 000 20 000 - 8 913 8 913 11 087
1st issue ordinary 10 000 10 000 - 4 457 4 457 5 543
2nd issue ordinary 49 500 49 500 - 22 060 22 060 27 440
79 500 79 500 - 35 430 35 430 44 070
Cash available (35 430) 35 430
Deficiency 44 070 .
Total notional cash 35 430

Total notional cash per share = $35 430 ÷ 79 500 = 44.566c per share

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