Student Number: (enter on the line below)

EMV30242

Student Name: (enter on the line below)

SOURAV SHARMA

HI5020
CORPORATE ACCOUNTING
FINAL ASSESSMENT
TRIMESTER 2, 2021

Assessment Weight: 50 total marks

Instructions:
 All questions must be answered by using the answer boxes provided in this
paper.
 Completed answers must be submitted to Blackboard by the published due date
and time.

Submission instructions are at the end of this paper.

Purpose:
This assessment consists of six (6) questions and is designed to assess your level of
knowledge of the key topics covered in this unit

HI5020 Final Assessment T2 2021

Question 1 ( 7 marks)

Brandy Corporation owns 60 percent of Downer's voting shares. During 20X3, Brandy produced
50,000 computer desks at a cost of $82 each and sold 20,000 of them to Downer for $94 each.
Downer sold 14,000 of the desks to unaffiliated companies for $130 each prior to December 31,
20X3, and sold the remainder in early 20X4 for $140 each. Both companies use perpetual
inventory systems. Tax rate is 30 percent.
Required
(a) What amounts of cost of goods sold did Brandy and Downer record in 20X3? (1 marks)
(b) What amount of cost of goods sold must be reported in the consolidated income statement
for 20X3? (1 mark)
(c) Prepare the necessary journal entry to eliminate the intra-gorup sales and cost of goods sold.
(5 marks)

ANSWER: ** Answer box will enlarge as you type

a)

Calculate the cost of good sold :

Brandy corporation

Cost of goos sold = Number of desk sold* cost per desk

=20,000 desks*$82

=$1,640,000

Downer's:

Cost of goods sold = number of desk sold * cost per desk

=14,000 desk*$94

=$1,316,000

b)

Cost of good sold = Dsk sold by Downer's* Cost per desk to Brandy Corporation

HI5020 Final Assessment T2 2021

=14,000 desk *$82

=$1,148,000

c)

Sno Account title and explanation Debit Credit

1 Sales (20,000 desk*$94) $1,880,000

        Cost of goods sold ($1,880,000 -$72,000) $1,808,000

        Inventory (20,000-14,000)*(94-82) $72,000

(To record the consolidaton entry for sale of inventory)

HI5020 Final Assessment T2 2021

Question 2 (7 marks)
York Ltd. was registered on 1 July 2020. The next day, the directors issued a disclosure document
inviting applicants for 700,000 ordinary shares with an issue price of $1. The shares were payable
20¢on application and 40¢ on allotment. By the end of July, the company had received exactly
700,000 applications, together with the correct application monies. The directors allotted these
shares on 1 August. The correct allotment monies were received by the end of September. On 1
October 2020, the directors made a call of 25¢ per share. Call monies were due and payable by 31
October, and were received by then except in respect of one parcel of 10,000 shares.

Required:
(a) Prepare journal entries with explanations to record the transactions above. (6 marks)

(b) Prepare an extract from the balance sheet as at 31 October 2020, showing owners’ equity
(1 marks)

ANSWER:

(a)
Date Explanation Debit$ Credit$

Jul-31 Bank 1400000

Share Application 140000
Share application money received
Jul-31 Share application a/c 1400000
Share Capital 140000
Applicatio money transferred to share capital
Aug 01 Share allotment a/c 280000
Share capital 280000
Allotment made- 70000*.4
Sep30 Bank 280000
Share allotment 280000
Allotment money received
Oct 01 Share first call money 175000
Share Capital 175000
First call made 0.25*700000

HI5020 Final Assessment T2 2021

Oct 31 Bank 172500
Share first call money 172500
First cal money received except 10000 shares 690000*0.25
Oct31 Calls in arears 2500
Share first call money 2500
Filled shares transfer to calls arrear a/c

(b)
Assets
Current assets
Bank 592500
Total Assets 592000
Liabilities and equity
Owner’s equity
Share capital 595000
Less: Calls in arears -2500 592500
Total 592500

HI5020 Final Assessment T2 2021

Question 3 (7 marks)
The income statement of Price Ltd for the year ended 31 December 2020, reported the following
condensed information:
Revenue from fees $600,000
Operating expenses 360,000
Income from operations 240,000
Income tax expense 60,000
Net income $180,000

Price's balance sheet contained the following comparative data at December 31:

2020 2019
Accounts receivable $50,000 $45,000
Accounts payable 35,000 41,000
Income taxes payable 6,000 3,000

Price has no depreciable assets. Accounts payable pertains to operating expenses.

Required:

(a) Calculate:
i. Cash receipts from customers. (1 mark)
ii. Cash payments for operating expenses. (1 mark)
(b) Prepare the operating activities section of the statement of cash flows for 2020. (5 marks)

ANSWER:

a.
i. Cash Receipts from Customers = Beginning Accounts Receivable + Revenue earned - Ending
Accounts Receivable
= $45000 + 600000 - 50000 = $595,000

ii. Cash Payments for Operating Expenses = Beginning Accounts Payable + Operating Expenses -
Ending Accounts Payable
= $41000 + 360000 - 35000 = $366,000

HI5020 Final Assessment T2 2021

b.

Cash Flow Statement

Direct Method

Cash flow from Operating Activities

Cash Collected from customers $        595,000

Cash paid for Operating Expenses $      (366,000)

Cash paid for Income Tax Expense $        (57,000)

Net Cash from operating activities $       172,000

Working
Cash paid for income tax expense = Beginning Income Tax Payable + Income tax expense -
Ending Income Tax Payable
= $3000 + 60000 - 6000 = $57,000

HI5020 Final Assessment T2 2021

Question 4 (7 marks)
On 1 January 2016, Soft Ltd acquired 70% of share capital of Hard Ltd for $8,175,000. Equity of
st

Hard Ltd was:

Share capital $7,600,000
General reserve $2,100,000
Retained earnings $1,200,000
All assets of Hard Ltd were recorded at fair value on acquisition except for an item of marine
equipment that had a higher fair value of $360,000 than its carrying amount. Cost of the marine
equipment was $2,100,000 accumulated depreciation of $1,372,000.

Required:

(a) Use the worksheet below to compute Goodwill or Gain on acquisition and the Non-
controlling interest using net method. (3 marks)

(b) Provide the necessary journal entries for Soft Ltd (parent) to eliminate Hard’s share of
pre-acquisition capital and reserves. (2 marks)
(c) Prepare the journal entry to recognise the Non-controlling interest. (2 marks)

ANSWER:
Hard Ltd Soft Ltd 30% NCI
Elimination of investment in Hard Ltd (S) $,000 (P) $,000 $,000
8175  
Fair Value of consideration transferred
Less: FV of identifiable assets acquired and  
liabilities assumed
7600
Share capital on acquisition date
Revaluation surplus/General Reserve - 2100
acquisition date
Retained earnings-acquisition date 1200
360
Fair value adjustment
Goodwill / Gain on acquisition 293

NON-controlling interest 3378

HI5020 Final Assessment T2 2021

b.
Elimination of share capital and Reserves
Particulars Debit Credit
Share capital Account 5300000
(7600000*70%)
General Reserve A/c 1470000
(210000*70%)
Retained Earnings A/C 840000
(1200000*70%)
Investment in Hard Ltd A/C 7630000
(Being elimination of capital and reserves)

c.
Particulars Debit Credit
Net identifiable assets account 11260000
Goodwill account 293000
Equity Capital 8175000
Non-Controlling Interest 3378000
(Being non-controlling interest and Goodwill recognition)

Question 5 (11 marks)

Yellow River Ltd purchased a machine on 1 July 2016 at a cost of $1280,000. The machine is
expected to have a useful life of 4 years (straight line basis) and no residual value. For taxation
purposes, the ATO allows the company to depreciate the asset over 5 years.

The profit before tax for the company for the year ending 30 June 2017 is $1200,000. To calculate
this profit the company has deducted $120,000 government-imposed penalties expense, and
$160,000 wages expense that has not yet been paid. Also, the company has included $140,000
interest as income that the company has not yet received. During the year, the company has

HI5020 Final Assessment T2 2021

received $40000 in advance revenue that has not yet been earned. The company qualifies for off-
setting deferred tax assets against deferred tax liabilities. The tax rate is 30%.

Required:
(a) Calculate the company’s taxable profit and hence its tax payable for 2017. (3 marks)
(b) Determine the deferred tax liability and/or deferred tax asset that will result. (4 marks)
(c) Prepare the necessary journal entries at 30 June 2017. (4 marks)

ANSWER:
a..
Computation of taxable income for the year ended June 30, 2017
Pre-tax financial income 1200000
Permanent differences:
Add: Penalty expense 120000 (disallowed( expense)
1320000
Temporary differences:
Excess depreciation in book 64000 as per working below
Wages Expense 160,000 allowed on actual payment basis only
Advance Revenue 40000 taxable on actual receipt basis
1584000
Less: interest Income -140000 taxable on actual receipt basis
Taxable income 1444000

Income taxes payable 1444000

Current tax rate 30%
Income tax payable 433200

Working Notes
Books Tax Excess
Cost of asset 1280000 1280000
Estimated useful life in years 4 5
Depreciation expense per year 320000 256000 64000
Excess depreciation claimed in books is not allowed

HI5020 Final Assessment T2 2021

b.
Net deferred tax asset
Deferred tax asset 79200
Less: deferred Tax liability 42000
Net deferred tax asset 37200
It is evident from the following working that the net deferred tax asset recognised in this case is
higher thant he deferred tax liability.
Calculation of deferred tax liability
Interest income 140000
Future applicable tax rate 30%
Deferred tax liability 42000

Cal6culation of deferred tax asset

Excess depreciation 64000
Wages expense 160000
Advance revenue 40000
Total timing difference 264000
Future applicable tax rate 30%
Deferred tax asset 79200

C. journal Entry
June 30 2017 Dr Income tax expense 396000
Dr deferred tax asset 37200 as per above working
Income tax payable 433200
(To record income tax expense)

HI5020 Final Assessment T2 2021

Question 6 (11 marks)
(a) Following are descriptions of several independent situations. ( 1.5*4=6 marks)
1. Rockford Company has a subsidiary in Argentina. The subsidiary does not have much
debt because of the high interest costs resulting from the average annual inflation rate
exceeding 100 percent. Most of its sales and expense transactions are denominated in
Argentinean pesos, and the subsidiary attempts to minimize its receivables and payables.
Although the subsidiary owns a warehouse, the primary asset is inventory that it receives
from Rockford. The Argentinean government requires all companies located in Argentina
to provide the central government with a financial report using the Argentinean system of
accounts and government-mandated forms for financial statements.

2. JRB International, located in Dallas, Texas, is the world’s largest manufacturer of

electronic stirrups. The company acquires the raw materials for its products from around
the world and begins the assembly process in Dallas. It then sends the partially completed
units to its subsidiary in Mexico for assembly completion. Mexico has been able to hold
its inflation rate under 100 percent over the last three years. The subsidiary is required to
pay its employees and local vendors in Mexican pesos. The parent company provides all
financing for the Mexican subsidiary, and the subsidiary sends all of its production back
to the warehouse in Dallas, from which it is shipped as orders are received. The subsidiary
provides the Mexican government with financial statements.

3. Huskie Inc. maintains a branch office in Great Britain. The branch office is fairly
autonomous because it must find its own financing, set its own local marketing policies,
and control its own costs. The branch receives weekly shipments from Huskie Inc., which
it then conveys to its customers. The pound sterling is used to pay the subsidiary’s
employees and to pay for the weekly shipments.

4. Hola Company has a foreign subsidiary located in a rural area of Switzerland, right next
to the Swiss–French border. The subsidiary hires virtually all its employees from France
and makes most of its sales to companies in France. The majority of its cash transactions
are maintained in the European euro. However, it is required to pay local property taxes
and sales taxes in Swiss francs and to provide annual financial statements to the Swiss
government.

Required
HI5020 Final Assessment T2 2021
 For each of these independent cases, determine
I.The foreign entity’s recording currency in which its books and records are maintained.
II.The foreign entity’s functional currency.
III.The process to be used to restate the foreign entity’s financial statements into the
reporting currency of the U.S.-based parent company.

(b) Wahl Company’s 20X5 consolidated financial statements include two wholly owned
subsidiaries, Wahl Company of Australia (Wahl A) and Wahl Company of France (Wahl F).
Functional currencies are the U.S. dollar for Wahl A and the European euro for Wahl F. (5
marks)
Required
I. What are the objectives of translating a foreign subsidiary’s financial statements? (1
mark)
II. How are gains and losses arising from the translation or remeasurement of each
subsidiary’s financial statements measured and reported in Wahl’s consolidated financial
statements? (2 marks)
III. What exchange rate is used to incorporate each subsidiary’s equipment cost, accumulated
depreciation, and depreciation expense in Wahl’s consolidated financial statements? (2
marks)

ANSWER:
a. Functional currency indicators are: Cash flows, sales prices, sales markets, expenses,
financing, and intercompany transactions and arrangements. Therefore the following is the
foreign entity's recording currency:

Foreign reporting currency

Case 1 Arentinean peso

Case 2 Mexican peso

Case 3 British pound

Case 4 Swiss franc

b. The foreign entity's functional currency.

Foreign Functional currency

Case 1 U.S. dollar

HI5020 Final Assessment T2 2021

Case 2 U.S. dollar or peso

Case 3 British pound

Case 4 European euro

c. The process to be used to restate the foreign entity's financial statements into the reporting
currency of the U.S.-based parent company.

Re-statement to U.S. dollar

Case 1 re-measurement

Case 2 Either dollar or peso

Case 3 Traslation

Case 4 Re-measurement from franc to euro, then from euro to dollar

b.

1):-

The translation of the financial statements of each should fulfill both of the following
purposes:

i. Provide information generally compatible with the expected economic effects of the
exchange rate change on the cash flows and equity of the reporting entity

And

ii. Reflect in consolidated statements the financial results and relationships of the individual
consolidated entities in terms of their functional currencies conforming with he generally
accepted accounting practice of the home country.

(2):-

When a firm presents its financial statements in a different presentation currency than its
functional currency, then the rules are dependent on if the corporate is operatign in a non-
hyperinflationary economy or not.

So, if the firm is operating in a country where there is no huyper inflation, then it should
translate:

HI5020 Final Assessment T2 2021

All assets and liabilities as well as the goodwill and equity for each statement of financial
position presented according to the the closing rate at the balance sheet date.

Whole of the resultant exchange differences should be recognized in other comprehensive

income.

But, if the firm disposes its foreign operations, then the total exchange rate difference relevant
to those operations should be reclassified to the profit or loss as the gain and loss would be
recognised on disposal.

On the other hand, if the economy is suffering from hyperinflation, then the financials should
be remeasured considering the reporting parent’s reporting currency as the functional currency
while the resultant exchange differences are to be reported through the income.

(3):-

• Every account which is related to W’s equipment cost, accumulated depreciation and

depreciation expense are to be re-measured at the exchange rates that existed between

Australian and U.S. dollars at the later of the following mentioned dates:

• The date at which WC acquired its investment in W

• The date when the equipment was being purchased by W

• The exchange rate mentioned above is the historical rate.

HI5020 Final Assessment T2 2021