ACC2115

Semester 1 2018

Revision Lecture
What is to be covered?
 Exam overview
 Details in each question
 Module 10 – Joint Operations
 Module 11 – Foreign operations
 Module 9 – Associates
 Module 6 –8 Consolidations
 Exam preparation
Exam overview
 RESTRICTED exam
 2 hours duration (10 min perusal)
 5 practical/theory questions (65 marks)
 Part A select one question
Module 6-8 (Consolidations)
Part B - 4 questions
 Module 9 (Associate),

 Module 10(Joint Operation),

 Module 11 (FC),

 Module 12 (Insolvency and Liquidation).

 Total 65 marks = 55% weighting

 Materials for RESTRICTED test

 Non-programmable calculators.
 Required to note the make and model of
calculator used.
 Writing materials only – e.g. pens,
pencils, erasers.
 NO paper and/or written materials are
permitted.
Revision

Worked examples in text

Self-assessment questions
Additional questions
Past exam questions
 Module 10 Overview
Joint Operations
Joint Operation for Revision
 Joint Operation Summary

 Jointly controlled Assets

 Contributions of Cash and/or Non-Current Assets

 Entity contributing NCA – recognises in JO at Carrying
Amount, other entity(s) recognise in JO at Fair Value
 Is Depreciation recognised by each operator or Joint
Operation in Financial Statements of JO?
 Provision of Services
 Management Fee
Joint operation for revision
 On 1 July 2016, 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 $2 000 000 cash and
Broome Ltd contributed machinery that was recorded in the
records of Broome Ltd at $1 900 000. During the first year of
operation both parties contributed a further $3 000 000
each.
 On 30 June 2017, the Joint operator manager provided the
following statements:
 Each joint operator depreciates machinery at 20% p.a.
on cost in its own records.

Receipts and Payments

for year ended 30 June 2017
Costs Incurred Receipts:
For the year ended 30 June 2017 Original contributions $ 2 000 000
Wages $1 840 000 Additional contributions 6 000 000
8 000 000
Supplies 2 800 000
Payments:
Overheads 2 200 000 $ 800 000
Machinery (2/7/16)
6 840 000 Wages 1 800 000
Cost of inventory (Finished goods) (4 840 000) Supplies 3 000 000
Work in progress at 30 June 2017 $ 2 000 000 Overheads 2 100 000
Operating expenses 200 000 7 900 000
Closing cash balance $ 100 000

Assets and Liabilities

at 30 June 2017

Assets
Cash $ 100 000
Machinery 2 800 000
400 000
Supplies
2 000 000
Work in progress
Total assets $ 5 300 000
Liabilities
Accrued wages 40 000
300 000
Creditors
Total liabilities $ 340 000
Net assets $ 4 960 000
Darwin Ltd
1 July 2016

Cash in J0 Dr 1 000 (2 000/2)

Machinery in J0 Dr 1 000 (2 000/2)
Cash Cr 2 000

Cash in J0 Dr 3 000
Cash Cr 3 000
Broome Ltd
1 July 2016

Cash in J0 Dr 1 000 (2 000/2)

Machinery in J0 Dr 950 (1 900/2)
Gain on sale of Machinery Cr 50 [(2 000-1 900)/2]
Machinery Cr 1 900

Cash in J0 Dr 3 000
Cash Cr 3 000
Broome Ltd depreciates machinery at 20% p.a.
30 June 2017
Machinery in J0 Dr 400 (2800/2 – 1 000) or (800,/2)

Supplies in J0 Dr 200 (400/2)

Work in progress in J0 Dr 1 000 (2 000/2)
Inventory Dr 2 420 (4 840/2)
Operating expenses Dr 100 (200/2)
Accrued wages in J0 Cr 20 (40/2)
Creditors in J0 Cr 150 (300/2)
Cash in J0 Cr 3 950 (100/2 – 4 000)

Depreciation expense- Inventory Dr 280 (20% x 1 400)

Accum. depreciation in JO Cr 280
 Module 9 Overview
Associate & Joint ventures
 Equity Accounting Summary

Investor, if a holding consolidated company

(parent of a group), will be required to prepare
consolidated financial statements and make the
adjustments for their share of investment in
associate in the consolidation worksheet

Otherwise, if investor is NOT a holding

consolidated group company, they are
required to recognise their share of the
investment in associate directly in their books
each year.
 Equity Accounting Summary
With regards to Dividends paid and/or declared by the
associate the journal entry required depends on whether or not
the investor is a holding company.

Holding Company (Parent entity):

Recognise the dividend paid/declared as Dividend Revenue at
time of payment/declaration
Adjustment then required in consolidation worksheet:

DR Dividend revenue
CR Investment in associate

NOT a Holding Company

Recognise the dividend paid/declared as a reduction in the
Investment in associate in their books at the time of the
receipt of cash

DR Cash
CR Investment in associate
Revision questions
On 1 July 2014, Hope Ltd acquires 20% of the ordinary issued shares
of Ryder Ltd for $80,000. All the identifiable net assets of Ryder Ltd
are stated at fair value, except for the following:

Carrying amount Fair value

Inventory $200,000 $250,000
PPE $240,000 $300,000
The opening share capital and reserves of Ryder Ltd at 1 July 2014
were:

Share capital $100,000

General reserve 20,000
Retained earnings 70,000

Complete the acquisition analysis and any required pre-

acquisition adjustments.
 Revision questions
Acquisition Analysis

Share capital 100,000

General reserve 20,000
Retained earnings 70,000
Inventory 35,000
PPE 42,000
Net FV $ 267,000

Net FV acquired (20%) $ 53,400

Consideration $ 80,000

Goodwill $ 26,600

Pre-acquisition (notional) adjustment

Inventory [50,*(1-30%)*20%] (7,000)
PPE [60,*(1-30%)*20%*] (2,100)
 Revision questions
The following transactions occurred between Hope Ltd and
Ryder Ltd :
a) On 1 January 2017, Ryder Ltd sold equipment to Hope Ltd
for $12,000. The equipment had a carrying amount of
$10,000. Hope Ltd applies depreciation at 25% using the
straight-line method.
[12,-10,=2, & 2,000*.7= $1,400] [2000*.7*.25*1/2=$175]
b) During May 2017, Hope Ltd sold inventory to Ryder Ltd for
$7,000. The inventory had originally Hope Ltd $6,000. By the
end of June 2017, 80% of this inventory had been sold by
Ryder Ltd.
[7,-6,=1, unrealised profit:1,000*.7 =700]; [sold: 1,000*.7*.8=560]
c)Tax rate is 30%
For the year ending 30 June 2017, Ryder Ltd recorded an
after-tax profit of $100,000.
Calculate Hope Ltd’s share of profit in their associate
Ryder Ltd for the year ended 30 June 2017.
 Revision questions
Hope Ltd’s share of profit in their associate Ryder Ltd for
the year ended 30 June 2017.
Share of associate's profit

Profit $ 100,000

Equipment (a)
less: unrealised profit [(12,-10,)*70%] (1,400)

add: realised profit for depn [1,4*25%*1/2] 175 (1,225)

Inventory (b)
less: unrealised profit [(7,-6,)*70%] (700)

add: realised profit external sale [(7,-6,)*70%*80%] 560 [(7,-6,)*70%*20%] (140)

Adjusted profit $ 98,635

Investor's share (@ 20%) $ 19,727

LESS: pre-acquisition adjustments

Inventory (7,000)
PPE (2,100)

Investor's share of associate $ 10,627

 Revision questions
The journal entry to be recorded by Hope Ltd to
record their share of their associate’s profit is:

DR Investment in Ryder Ltd 10,627

CR Share of profit of associate 10,627
Module 11 – Foreign Operations OK

Past Exam Questions to be completed in your tutorial

for Module 11
See Shannon Ltd Foreign currency M11 in Past exam
and practice questions
Wonder Ltd, an Australian company, acquired all
of the shares of Shannon Ltd, a company in
Ireland, for EUR 200,000 on 1 July 2017. At that
date, Shannon Ltd’s Statement of Financial
Position was as follows:

At 30 June 2018 the financial statements of

Shannon Ltd were as follows:
 Shannon Ltd
Statement of Profit or Loss and Other Comprehensive Income
for the year ended 30 June, 2018
EUR
Sales 165,000

Less: Expenses (157,000)

Profit 8,000

Shannon Ltd
Statement of Financial Position as at 30 June, 2018

Assets EUR
Cash 21,000
Machinery 240,000
Accumulated depreciation – Machinery (41,500)
Liabilities
Payables 11,500
Net assets 208,000

Shareholders’ equity
Share capital 160,000
Retained earnings 48,000
 EUR 1 is equivalent to: A$
Opening rate (01/07/17) 1.43
Closing rate (30/06/18) 1.11
Average for 2017/2018 financial year 1.25

EUR Rate A$
Sales 165,000 1.25 206,250 1
Expenses -157,000 1.25 -196,250 1
Profit 8,000 10,000
Retained earnings (01/07/14) 40,000 1.43 57,200 1
Retained earnings (30/06/15) 48,000 67,200
Share capital 160,000 1.43 228,800 1
Creditors 11,500 1.11 12,765 1
Foreign currency translation reserve 0 -65,120 2
219,500 243,645

Cash 21,000 1.11 23,310 1

Machinery 240,000 1.11 266,400 1
(Accumulated depreciation - Mach) -41,500 1.11 -46,065 1
$219,500 $ 243,645

If students multiply instead of divide, deduct 2 marks

1
Total l 0
Profit 8,000 EUR

Profit as translated 10,000 AUD c/f

Profit @ closing rate (EUR 8,000*1.11) 8,880 AUD 1

Translation gain (loss) 0.5 -1,120 AUD 1

Net investment at 1 July 2017 200,000

Net investment @ opening rate

(EUR 200,000 *1.43) 286,000 AUD 1

Net investment @ closing rate

(EUR 200,000 * 1.11) 222,000 AUD 1

Translation gain (loss) 0.5 -64,000 AUD c/f

-65,120
Module 6-8 Overview
Consolidations
 Consolidations: Summary of Steps
Steps for consolidations:
0. Acquisition analysis (full vs partial goodwill methods)
1. Business Revaluation Reserve entries
2. Pre-acquisition elimination entries (Parent & NCI)

3. Eliminate Intra-group transactions

 Upstream – NCI impact (not for downstream)

4. Non-Controlling Interest adjustments:

NCI step1: At acquisition (see above Step 2)
NCI step 2: Adjustment of “Retained earnings” after
acquisition until the beginning of current year
NCI step 3: Adjustment of “Profit” at the current period
Extra: Additional entries for Dividend paid to Parent from NCI
Revision questions –
full goodwill method
How is the goodwill recognised in the consolidation worksheet
when using the full goodwill method?

NCI recognises Fair value such as Q29.9 Anderson Ltd measures

any NCI in Thruster Ltd at fair value:

(d) Non-controlling interests and goodwill on acquisition date

Dr Share capital 900 000 [3,000,*30%]
Dr Retained earnings 420 000 [1,400,*30%]
Dr Goodwill 394 286
[1,714,286-(900,+420,)=1,714,286-1,320=394,286]
Cr Non-controlling interest 1 714 286
[Consideration Transfer 4,000*30/70 =1,714,286]

Recognising non-controlling interests at Fair value (use

proportion of CT) and goodwill on acquisition date
Revision questions –Intra-group
transactions
In April 2014, Boat Ltd sold inventory to Ship Ltd for $10,000.
The inventory had originally cost Boat Ltd $8,000. By the 30
June 2014 60% of this inventory had been sold by Ship Ltd to
external parties.
What is the consolidation worksheet journal entry required to
eliminate this intragroup transaction for the year ending 30 June
2014?
Dr Sales revenue 10,000

CR COS (8,000 + [2,000x0.6]) 9,200

CR Inventory [2,000x0.4] 800

DR Deferred tax asset 240

CR Income tax expense 240

DR NCI 140

CR NCI Share of profit(loss) 140

(10,000-9,200-240) x 25%
Revision questions –
Intra-group transactions
On the 30 June 2014, Boat Ltd sold machinery to Ship Ltd for
$65,000. The machinery’s carrying amount at that date was
$60,000. The machinery had a remaining useful life of 2
years.

What is the consolidation worksheet journal entry to eliminate

this intra-group transaction?
Revision questions –
Intra-group transactions
Provide the consolidation worksheet journal entries to adjust
for the dividend paid by Boat Ltd during the year ending 30
June 2014.
Parent’s share of dividend paid:

DR Dividend Revenue 22,500

CR Dividend Paid 22,500
(75% x $30,000)

NCI’s share of dividend paid:

Revision questions –
Intra-group transactions
Provide the consolidation worksheet journal entries to adjust
for the dividend paid by Boat Ltd during the year ending 30
June 2014.
Parent’s share of dividend paid:

DR Dividend Revenue 22,500

CR Dividend Paid 22,500
(75% x $30,000)

NCI’s share of dividend paid:

DR NCI 7,500
CR Dividend Paid 7,500
(25% x $30,000)
 Thank you

We wish you all the

very best for the final
exam!!