ACCTG 211 Financial Accounting Assignment 4 Questions S2, 2026 | TUA

QUESTION 1  

PART A

A recent accounting graduate, employed by Investor Ltd, is helping to prepare the financial statements for the financial year ended 31 March 2024. The graduate is unsure about how to treat an equity investment asset when an investor has significant influence.

You have been provided with the following information for the purposes of advising this graduate.

On 1 April 2007 Investor Ltd acquired 20 percent of the equity in Associate Ltd for $175,000. At that date the identifiable net assets were considered to be fairly valued and the equity of Associate Ltd comprised:

The following account balances were extracted from the financial statements of Associate Ltd at 31 March 2024:

On the 27 December 2022 Associate Ltd made sales to Investor Ltd of $25,000 and recognised a profit of $3,600. Investor Ltd had not sold this purchase of inventory as at 31 March 2023.

On the 23 December 2023 Associate Ltd made sales to Investor Ltd of $54,000 and recognised a profit of $7,800. The inventory Investor Ltd had on hand at 31 March 2024. included this purchase from Associate Ltd.

Required:

(a) Prepare the notional journal entry, as at 31 March 2024, to account for Investors Ltd’s investment in Associate Ltd using the equity method as required by NZ IAS 28 Investments in Associates.  The tax rate is 28%.  Show all workings.

(b) Determine the amount at which the asset ‘Investment in Associate’ will be measured at, after being equity accounted for, in the financial statements as at 31 March 2024.

PART B

(a) There is one distinctive asset account that will appear in the balance sheet of the parent entity but will not appear in the subsidiary entity’s separate financial statements or in the consolidated balance sheet of the group.

There is one distinctive equity account that may appear in the consolidated balance sheet of a group but will not appear in the parent entity’s or subsidiary entity’s separate financial statements.

Required: Name the equity account and the asset account, respectively.

(b)  Parent Ltd acquired equity in Sub Ltd on 1 April 2012. At that date the identifiable net assets were considered to be fairly valued and the equity of Sub Ltd comprised:

Share capital: $100,000
Retained earnings: 30,000

Additional information:

• Prior years’ impairment of total goodwill amounted to $26,000. For the current year ended 31 March 2024 the directors of Parent Ltd believe that the total goodwill has been further impaired by $4,000.
• During the financial year ended 31 March 2023 Sub Ltd made sales to Parent Ltd of $30,000 and recognised a profit of $5,000. Parent Ltd had not sold this purchase of inventory as at 31 March 2023.
• During the financial year ended 31 March 2024 Parent Ltd made sales to Sub Ltd of $7,000 and recognised a profit of $3,200.
• This purchase remained in the inventory of Sub Ltd as at 31 March 2024.
• Sub Ltd billed Parent Ltd $2,100 for consulting advice provided on 25 March 2024.  This transaction had been recorded by both entities; it remained unpaid as at 31 March 2024.

The equity of Sub Ltd as at 31 March 2024 comprised:

Question 1 Part B (b) continued:

Required:

Assume Parent Ltd acquired 100% of the equity in Subsidiary Ltd for $200,000 on 1 April 2012. Complete the consolidation worksheet in the assignment answer book for Parent Ltd for the financial year ended 31 March 2024 in accordance with NZ IFRS 10 Consolidated Financial Statements and NZ IFRS 3 Business Combinations.                                  

Question 1 Part B

(c) Assume Parent Ltd acquired 80% of the equity in Sub Ltd for $160,000 on 1 April 2012.

Required:

Prepare the notional journal entry as at 31 March 2024 to identify the non-controlling interest (NCI), in Subsidiary Ltd, to be reported in the group accounts. The directors of Parent Ltd require the NCI to be measured at fair value (FV).
Prepare the notional journal entry as at 31 March 2024 to identify the NCI, in Subsidiary Ltd, to be reported in the group accounts. The directors of Parent Ltd nowrequire the NCI to be measured at the NCI’s proportionate share of the acquiree’s identifiable net assets.

Reconcile your NCI measured at FV in (i) to your NCI measured not at FV in (ii).

QUESTION 2

On 1 April 2014 Parent Ltd acquired 60% of the equity in Subsidiary Ltd for $100,000.  At this date the equity of Subsidiary Ltd comprised:

At the date of acquisition the Subsidiary’s property, plant and equipment had a book value of $136,000 and a fair value of $146,000. Subsidiary Ltd also had an unrecognised internally generated intangible of $7,000 and a contingent liability of $8,000.

Question 2 continued:

Additional information:

(i)During March 2023 Subsidiary Ltd made sales to Parent Ltd and realised a profit of $2,000. This profit was considered to be realised for group purposes.
(ii) During March 2024 Subsidiary Ltd made sales to Parent Ltd and realised a profit of $3,000. This profit was considered to be unrealised for group purposes.
(iii) During March 2024 Parent Ltd made sales to Subsidiary Ltd and realised a profit of $2,000. This profit was considered to be unrealised for group purposes.
(iv)Goodwill arising on acquisition was impaired by $450 for the year ended 31 March 2019 and by $670 for the year ended 31 March 2024.

Required:

(a) Following the requirements of NZ IFRS 3 Business Combinations and NZ IFRS 10 Consolidated Financial Statements prepare the notional journal entry on consolidation to offset the carrying amount of the asset Investment in Subsidiary Ltd and the parent’s portion of equity in Subsidiary Ltd.

(b) Following the requirements of NZ IFRS 3 Business Combinations and NZ IFRS 10 Consolidated Financial Statements prepare the notional journal entry to identify the non-controlling interest (NCI) in Subsidiary Ltd to be reported in the group accounts as at 31 March 2024. Parent Ltd measures the NCI in Subsidiary Ltd at the NCI’s proportionate share of the acquiree’s identifiable net assets i.e. not at fair value.

(c) Paragraph 19 of NZ IFRS 3 Business Combinations allows a choice of measurement for the acquirer to use when measuring any NCI in the acquiree. In (b) above you identified the NCI in Subsidiary Ltd measured not at fair value; use this amount as a starting point to determine the NCI in Subsidiary Ltd measured at fair value.

On 1 April 2015 Parent Ltd acquired 75% of the equity in Subsidiary Ltd.  Parent Ltd has provided you with their incomplete consolidation worksheet for the year ended 31 March 2024.

At the date of acquisition the equity of Subsidiary Ltd comprised:

• During March 2023 Subsidiary Ltd made sales to Parent Ltd and realised a profit of $2,000. This inventory remained in Parent Ltd’s inventory at year end.
• During March 2024 Subsidiary Ltd made sales to Parent Ltd and realised a profit of $6,000. Parent Ltd had not sold this inventory at year end.
• During March 2024 Parent Ltd made sales to Subsidiary Ltd and realised a profit of $2 500. The inventory of Subsidiary Ltd at year end contained this purchase from Parent Ltd.

Goodwill arising on acquisition has been impaired by the following amounts:

(vi) In relation to the identifiable net assets (INA) of Subsidiary Ltd as at the date of acquisition:

Scenario 1: The identifiable net assets were considered to be fairly valued.

Scenario 2:  The identifiable net assets were not considered to be fairly valued.  Property, plant and equipment had a carrying amount of $180 000 but a fair value of $200 000. Subsidiary Ltd also had an unrecognised intangible asset of $10 000 and a contingent liability of $3 000.

Required:

(a) For each of the two independent scenarios described above in (vi) prepare the notional journal entry on consolidation to offset the carrying amount of the asset Investment in Subsidiary Ltd and the parent’s portion of equity in Subsidiary Ltd.

(b) For each of the two independent scenarios described above in (vi) prepare the notional journal entry to identify the non-controlling interest (NCI) in Subsidiary Ltd to be reported in the group accounts as at 31 March 2024.

Firstly assume Parent Ltd measures the NCI in Subsidiary Ltd at fair value and then assume

Parent Ltd measures the NCI in Subsidiary Ltd at the NCI’s proportionate share of the acquiree’s INA.

QUESTION 4

Ascot Coal Ltd requested a review of the treatment of the following material events on its financial statements for the year ended 31 March 2024. It authorised the said financial statements for issue on 15 May 2024.

(i) 27 April 2024:  On 20 December 2023, a customer initiated legal proceedings against the company in relation to a breach of contract.

Scenario (a): On 23 February 2024, the company’s legal advisers informed the directors that it was unlikely that the company would be found liable; therefore no provision has been made in the financial statements for the year ended 31 March 2024, but a contingent liability of $350 000 has been disclosed.  On 27 April 2024, the court found Ascot Coal Ltd liable on a technicality and is now required to pay damages of $560 000.

Scenario (b): On 23 February 2024, the company’s legal advisers informed the directors that it was likely the company would be found liable; therefore a provision of $400 000 was included in the financial statements for the year ended 31 March 2024.  On 27 April 2024, the court found Ascot Coal Ltd liable on a technicality and is now required to pay damages of $560 000.

Scenario (c): On 23 February 2024, the company’s legal advisers informed the directors that it was likely the company would be found liable; therefore a provision of $600 000 was included in the financial statements for the year ended 31 March 2024.  On 27 April 2024, the court found Ascot Coal Ltd liable on a technicality and is now required to pay damages of $560 000.

(ii) 28 April 2024: Ascot Coal Ltd paid the final dividend on 28 April  2024. This final dividend of $230 000 (500 000 shares x 46 cents per share) had been declared on 28 March 2024.

Alternative scenario for 28 April 2024: Ascot Coal Ltd paid the final dividend on 28 April 2024. This final dividend of $230 000 (500 000 shares x 46 cents per share) had been declared on 01 April 2024.

(iii) 09 May 2024: Ascot Coal Ltd received $5 million cash on 9 May 2024; this was the proceeds from the sale of a piece of mining equipment on 2 February 2024. This piece of mining equipment had a carrying value of $4 million on 2 February 2024.

(iv) 13 May 2024: On 13 May 2024, a customer called Energy Ltd was declared bankrupt.

On 31 March 2024, Energy Ltd owed Ascot Coal Ltd $290 000 for credit sales; Energy Ltd was not considered doubtful at balance date.

Required:

Prepare a report for the Ascot Coal Ltd managing director to explain the treatment of the above events according to NZ IAS 10 Events after the Reporting Period.

Note: You must use the Topic 6 Example Document Report Flowchart.