HBC221 & HBC221N

Corporate Accounting & Financial Accounting

Semester 2, 2010

Assignment B
THIS ASSIGNMENT IS TO BE UNDERTAKEN IN
GROUPS OF TWO (2)
Assignment B for Semester 2, 2010 carries 10% of the total marks in this
subject, and its importance is signified by the fact that students cannot
pass HBC221/N Financial Accounting without having successfully
attempted the assignment.

Students who have not submitted this assignment will have a DEFERRED
result posted at the end of the semester and this mark will only be
amended upon completion of the assignment.

The Question to be attempted is attached

Assignment Weighting = 10%

DUE DATE:
Friday 22nd October 2010
1 Mark will be deducted every day the
Assignment is late

PRESENTATION AND REFERENCING

It is a requirement that the assignment is properly presented and it should:
1. be submitted as a paper-copy in a folder and be typed [printed]
2. have a front cover / identification sheet, with all relevant details and the names
of the students in the group,
3. be your own work,
4. include a bibliography (where necessary)

Consolidations Assignment Page 1

HBC221/N Financial Reporting Semester 2, 2010

QUESTION: Heidi Ltd and Strider Ltd

On 1st July 2008, Heidi Ltd acquired 70% of the share capital (cum div) of
Strider Ltd for $3,500,000. At this date, Strider Ltd’s general ledger
included the following account balances:
Share capital (500,000 Ordinary Shares) $ 750,000
General reserve 850,000
Retained profits 2,100,000
Dividends payable 100,000

All of the identifiable net assets of Strider Ltd were recorded at fair value except
for Land which had a carrying amount of $800, 000 and a fair value of
$1,000,000.

The dividend payable on the date of acquisition was paid in August 2008. On the
1st April 2009, Strider Ltd paid a further cash dividend of $120,000 that was
appropriated from pre-acquisition profits. Although both these amounts was
recognised as revenue, the Financial Controller of Heidi Ltd felt that the
dividend had impaired the value of the company’s investment in Strider Ltd
and subsequently records an impairment of the Investment in Strider
Account for the amounts received as a dividend.

Additional Information

(a) In June 2009, Strider sold inventory to Heidi Ltd for $375,000, including a
mark-up on Strider’s cost of 25%. At 30th June 2010, 40% of this inventory was
still held in stock by Heidi Ltd.
(b) In January 2010, Heidi Ltd sold inventory to Strider Ltd for $640,000. The gross
profit before tax to Heidi on this transaction was $240,000. At 30th June 2010
Strider Ltd had half of this inventory on hand.
(c) On 31st December 2008, Strider Ltd sold an item of machinery to Heidi Ltd for
$600,000. The equipment had originally cost Strider $800,000 and its
accumulated depreciation at the date of sale was $150,000. The machinery
has a remaining useful life of 4 years and is depreciated using the straight-
line method by both companies.
(d) During financial year ending 30th June, 2010, Heidi Ltd received $200,000 of
consultancy fees from Strider Ltd for services performed in implementing an
extended performance measurement system.
(e) On 30th June 2010, Strider Ltd declared a dividend of $250,000 (from post-
acquisition profits), which is due to be paid in August 2010. Dividends are
recognised by Heidi before receipt of cash.
(f) Heidi Ltd extended a loan of $1,500,000 to Strider Ltd. This loan was issued on
1st September 2008 and the terms of the loan called for interest to be paid
at the rate of 8 per cent payable semi-annually on 1st March and 1st
September, with the loan principal repayable at the end of five years. Both
companies accrue interest expense and interest receivable at the end of
the financial year.

Consolidations Assignment Page 2

HBC221/N Financial Reporting Semester 2, 2010

(g) A goodwill impairment test in June 2010 revealed the need to impair
goodwill by $200,000.
(h) The corporate income tax rate is 30% and the companies in the group have
financial years from 1st July to 30th June.

Extracts from the financial statements at 30 th June 2010:

Extract from Statement of Financial Position
Heidi Ltd Strider Ltd
Cash and Cash Equivalents $1,230,000 $670,000
Other Current Assets $4,920,000 $1,890,000
Deferred Tax Asset $0 $35,000
Loans Receivable $1,500,000 $0
Investment in Strider Ltd (net) $3,346,000 $0
Plant & Equipment $11,104,000 $5,195,000
Less Accumulated Depreciation -$3,450,000 -$1,290,000
Machinery $6,930,000 $2,475,000
Less Accumulated Depreciation -$2,700,000 -$1,005,000
Land $2,500,000 $1,200,000
Patents $850,000 $0

Total Assets $26,230,000 $9,170,000

Current Liabilities $5,230,000 $2,160,000

Dividends payable $500,000 $250,000
Deferred Tax Liability $420,000 $0
Loans $5,950,000 $2,800,000
Other Non-Current Liabilities $475,000 $215,000
Total Liabilities $12,575,000 $5,425,000

Net Assets $13,655,000 $3,745,000

Shareholders’ Equity
Share Capital $3,500,000 $750,000
General Reserve $2,800,000 $900,000
Asset Revaluation Reserve $3,050,000 $0
Retained Profits (30 June 2010) $4,305,000 $2,095,000
Total Shareholders’ Equity $13,655,000 $3,745,000

Consolidations Assignment Page 3

HBC221/N Financial Reporting Semester 2, 2010

Extract from Statement of Comprehensive Income

Heidi Ltd Strider Ltd

Revenues (Sales and Other) $12,080,000 $4,907,220
Cost of Sales $5,712,000 $2,341,920
Operating Expenses $1,860,000 $948,600
Selling Expenses $940,000 $479,400
Finance Costs $238,000 $47,500
Other Expenses $980,000 $499,800

Net Profit before Income Tax $2,350,000 $590,000

Income Tax Expense $695,000 $175,000
Net Profit after Income Tax $1,655,000 $415,000
Retained Profits as at 1st July 2009 $3,800,000 $2,100,000
Amount Available for Appropriation $5,455,000 $2,515,000
Interim Dividends Paid $650,000 $170,000
Dividends Provided $500,000 $250,000

Retained Profits as at 30 June 2010 $4,305,000 $2,095,000

REQUIREMENTS:
(a) Prepare the consolidation journal entries to consolidate Heidi Ltd
and Strider Ltd for the year ended 30th June 2010.
(b) Prepare the consolidated work-sheet showing the consolidation
adjustments by setting up a spreadsheet using Excel, or any other
similar software package.
(c) Prepare the completed consolidated financial statements (Only
the statement of comprehensive Income and the Statement of
Financial Position).

Note: FORMAT of REPORTS for the ASSIGNMENT:

The consolidated financial statements should comply with the
requirement of Australian Accounting Standards. Students are
advised to refer, in particular, AASB 127 and AASB 101 when
preparing financial statements.

Consolidations Assignment Page 4