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Topic 1 Part A (75%) 

 

FMCG Ltd (who is in retail business) has to prepare its consolidated financial statements at 30 June 2019. FMCG Ltd had acquired its 85% interest in RG Ltd on 1 July 2017, that is, two years earlier. At that date the capital and reserves of RG Ltd were: 

Share capital $200,000 Retained earnings $170,000 

 

At the date of acquisition all asset of RG Ltd considered to be fair valued. 

The financial statements of FMCG Ltd and its subsidiary RG Ltd at 30 June 2019 are as follows: 

Statement of financial position 

Description  FMCG Ltd ($000) RG Ltd ($000) Current assets   Accounts receivable 60 62 Inventory 90 30 Non-current assets   Land and buildings 225 325 Plant-at cost 300 356 Accumulated depreciation (86) (140) Investment in RG Ltd 360 – Total  949 633    Current liabilities   Accounts payable 56 45 Taxation payable 42 24 Non-current liabilities   Loans payable 175 118 Shareholders’ equity   Share capital 350 200 Retained earnings 326 246 Total 949 633 

 

Detailed reconciliation of opening and closing retained earnings 

Description  FMCG Ltd ($000) RG Ltd ($000) Sales revenue 700 575 Cost of goods sols (465) (235) Gross profit 235 340 Expenses   Administration expenses (30) (40) Management fee expenses – (26) Depreciation (25) (55) Other expenses (102) (76) Other income   

 

Management fee income 26 – Dividends from RG Ltd 75 – Gain on sale of plant 35 – Profit before tax 214 143 Tax expense (65) (43) Profit for the year 149 100 Retained earnings- 30 June 2018 315 240  464 340 Dividends paid (138) (94) Retained earnings- 30 June 2019 326 246 

 

Following are the list of transactions between FMCG Ltd and its subsidiary RG Ltd during the year 1 July 2018 to 30 June 2019: • RG Ltd paid $26,000 in management fee to FMCG Ltd. • FMCG management determined that the goodwill is impaired by $5,000 in the current financial year. Previous accumulated impairment amounted to $22,000. • During the year FMCG Ltd made total sales to RG Ltd of $60,000, while RG Ltd sold $50,000 in inventory to FMCG Ltd.  • The opening inventory in FMCG Ltd as at 1 July 2018 included inventory acquired from RG Ltd for $40,000 that had cost RG Ltd $33,000 to produce.  • The closing inventory in FMCG Ltd includes inventory purchased from RG Ltd at a cost of 33,000. The cost of this inventory to RG Ltd was $27,000. • The closing inventory of RG Ltd includes inventory acquired from FMCG Ltd at a cost of $12,000. This cost FMCG Ltd $9,000 to produce. • On 1 July 2018, FMCG Ltd sold an item of equipment to RG Ltd for $120,000 when its carrying value in FMCG Ltd was $80,000 (cost of $132,000, accumulated depreciation of $52,000). Remaining useful life for this equipment is being assessed as six years. • Management of FMCG Ltd values any non-controlling interest at the proportionate share of RG Ltd’s identifiable net assets. • Applicable tax rate is 30%. • All calculated amounts are to be rounded to the nearest whole dollar. 

 

Required: Prepare the consolidation eliminations journals necessary and required before preparation of consolidated financial statements of FMCG Ltd and its subsidiary (state narrations to journals, provide clear workings and explanations). Also prepare a calculation of non-controlling interest at acquisition date, between acquisition date and the beginning of the reporting period and for current reporting period.  (30 marks)  

 

Topic 1 

 

Part B (12.5%) 

 

The consolidated financial statements of FMCG Ltd and RG Ltd were presented to the Board. The Board is alarmed that the economic entity’s balance sheet (consolidated balance sheet) shows a deferred tax balance, when the accounts for FMCG Ltd had no deferred tax asset or deferred tax liability. 

FMCG management is also planning to acquire another entity ABC Investments Ltd in the near future. Management pointed out to the Board that on acquisition, the financial results of this new subsidiary (ABC Investments Ltd) will also be consolidated in the economic entity financial statements. 

One of the Board members noted that the new business to be acquired by FMCG Ltd is an investment company. Its financial statements should not be consolidated because it is involved in investments industry, whereas all of the other companies in the economic entity are involved in retail industry. 

Required: 

As the financial accountant you are requested to prepare a response to the following questions: 

(a) Why does the economic entity have a deferred tax balance? (2.5 marks) 

 

(b)  Should the financial statements of proposed acquired business, ABC Investments Ltd, be consolidated into the economic entity and why? (2.5 marks) 

 

Please note that in your response you must make reference to relevant paragraphs of the Accounting Standard and/or AASB Framework and to other sources of material. 

  

 

Topic 2 (12.5%) 

Paragraph 23 of an earlier version of IAS 38 Intangible Assets states that: 

The Board’s view, consistently reflected in previous proposals for intangible assets, is that there should be no difference between the requirements for: (a) intangible assets that are acquired externally; and (b) internally generated intangible assets, whether they arise from development activities or other types of activities. 

Required: Evaluate the above view, identify and explain inconsistencies between this view and the current requirements of AASB 138. (5 marks) 

1

Topic 1 has two following parts:

• Part A is the preparation of all consolidation elimination journals necessary before

preparation of consolidated set of financial statements for year ending 30 June 2019, for an

economic entity comprising a parent and subsidiary. Also prepare a calculation of non-

controlling interest at acquisition date, between acquisition date and the beginning of the

reporting period and for current reporting period. (30 marks)

• Part B is an explanation of the outcome of the consolidation process. (5 marks)

Topic 2 has only one following part:

1) Evaluate a statement in view of AASB 138. (5 marks)

Please refer pages 2, 3 4 and 5 for further details.

Due Date: 11:59pm Study week 11 Sunday

Assessment Value:

30%

Topic 1: Accounting for Group structures: Part A (75%) Part B (12.5%)

Topic 2: Intangible Assets (12.5%)

Length for Topic 1:

2,500 words maximum (comprising calculations and working papers in Part A equivalent to 2000 words and a written component of 500 words in Part B). All consolidation workings, journals and explanations need to be performed on Excel spreadsheet. Students should develop, name and use at least one macro for Excel spreadsheet calculation purpose. Points will be awarded for: correct format of journals, correct journal entries including narrations, correct and clearly referenced workings and explanations. Part B should be submitted using Microsoft Word document.

Length for Topic 2:

500 words maximum This should be submitted using Microsoft Word document.

Other instructions

Submission should include ‘cover page’.

APA referencing style should be followed.

2

Topic 1

Part A (75%)

FMCG Ltd (who is in retail business) has to prepare its consolidated financial statements at 30 June

2019. FMCG Ltd had acquired its 85% interest in RG Ltd on 1 July 2017, that is, two years earlier. At

that date the capital and reserves of RG Ltd were:

Share capital $200,000

Retained earnings $170,000

At the date of acquisition all asset of RG Ltd considered to be fair valued.

The financial statements of FMCG Ltd and its subsidiary RG Ltd at 30 June 2019 are as follows:

Statement of financial position

Description FMCG Ltd ($000) RG Ltd ($000)

Current assets

Accounts receivable 60 62

Inventory 90 30

Non-current assets

Land and buildings 225 325

Plant-at cost 300 356

Accumulated depreciation (86) (140)

Investment in RG Ltd 360 –

Total 949 633

Current liabilities

Accounts payable 56 45

Taxation payable 42 24

Non-current liabilities

Loans payable 175 118

Shareholders’ equity

Share capital 350 200

Retained earnings 326 246

Total 949 633

Detailed reconciliation of opening and closing retained earnings

Description FMCG Ltd ($000) RG Ltd ($000)

Sales revenue 700 575

Cost of goods sols (465) (235)

Gross profit 235 340

Expenses

Administration expenses (30) (40)

Management fee expenses – (26)

Depreciation (25) (55)

Other expenses (102) (76)

Other income

3

Management fee income 26 –

Dividends from RG Ltd 75 –

Gain on sale of plant 35 –

Profit before tax 214 143

Tax expense (65) (43)

Profit for the year 149 100

Retained earnings- 30 June 2018

315 240

464 340

Dividends paid (138) (94)

Retained earnings- 30 June 2019

326 246

Following are the list of transactions between FMCG Ltd and its subsidiary RG Ltd during the year 1

July 2018 to 30 June 2019:

• RG Ltd paid $26,000 in management fee to FMCG Ltd.

• FMCG management determined that the goodwill is impaired by $5,000 in the current

financial year. Previous accumulated impairment amounted to $22,000.

• During the year FMCG Ltd made total sales to RG Ltd of $60,000, while RG Ltd sold $50,000

in inventory to FMCG Ltd.

• The opening inventory in FMCG Ltd as at 1 July 2018 included inventory acquired from RG

Ltd for $40,000 that had cost RG Ltd $33,000 to produce.

• The closing inventory in FMCG Ltd includes inventory purchased from RG Ltd at a cost of

33,000. The cost of this inventory to RG Ltd was $27,000.

• The closing inventory of RG Ltd includes inventory acquired from FMCG Ltd at a cost of

$12,000. This cost FMCG Ltd $9,000 to produce.

• On 1 July 2018, FMCG Ltd sold an item of equipment to RG Ltd for $120,000 when its

carrying value in FMCG Ltd was $80,000 (cost of $132,000, accumulated depreciation of

$52,000). Remaining useful life for this equipment is being assessed as six years.

• Management of FMCG Ltd values any non-controlling interest at the proportionate share of

RG Ltd’s identifiable net assets.

• Applicable tax rate is 30%.

• All calculated amounts are to be rounded to the nearest whole dollar.

Required: Prepare the consolidation eliminations journals necessary and required before

preparation of consolidated financial statements of FMCG Ltd and its subsidiary (state narrations to

journals, provide clear workings and explanations). Also prepare a calculation of non-controlling

interest at acquisition date, between acquisition date and the beginning of the reporting period and

for current reporting period. (30 marks)

4

Topic 1

Part B (12.5%)

The consolidated financial statements of FMCG Ltd and RG Ltd were presented to the Board. The

Board is alarmed that the economic entity’s balance sheet (consolidated balance sheet) shows a

deferred tax balance, when the accounts for FMCG Ltd had no deferred tax asset or deferred tax

liability.

FMCG management is also planning to acquire another entity ABC Investments Ltd in the near

future. Management pointed out to the Board that on acquisition, the financial results of this new

subsidiary (ABC Investments Ltd) will also be consolidated in the economic entity financial

statements.

One of the Board members noted that the new business to be acquired by FMCG Ltd is an

investment company. Its financial statements should not be consolidated because it is involved in

investments industry, whereas all of the other companies in the economic entity are involved in

retail industry.

Required:

As the financial accountant you are requested to prepare a response to the following questions:

(a) Why does the economic entity have a deferred tax balance? (2.5 marks)

(b) Should the financial statements of proposed acquired business, ABC Investments Ltd, be

consolidated into the economic entity and why? (2.5 marks)

Please note that in your response you must make reference to relevant paragraphs of the

Accounting Standard and/or AASB Framework and to other sources of material.

5

Topic 2 (12.5%)

Paragraph 23 of an earlier version of IAS 38 Intangible Assets states that:

The Board’s view, consistently reflected in previous proposals for intangible assets, is that there

should be no difference between the requirements for: (a) intangible assets that are acquired

externally; and (b) internally generated intangible assets, whether they arise from development

activities or other types of activities.

Required: Evaluate the above view, identify and explain inconsistencies between this view and the

current requirements of AASB 138. (5 marks)