Question 1 - NCI

Consider the following group structure:

4 marks

Dunphy Ltd holds 70.0% in Claire Ltd

Claire Ltd holds 60.0% in Phil Ltd

Phil Ltd holds 64.0% in Haley Ltd

Phil Ltd holds 40.0% in Alex Ltd

Alex Ltd holds 60.0% in Luke Ltd

Required:

Based on the group structure information provided, answer the following questions.

If necessary, round your answer to two decimal places.

a) What proportion of Claire Ltd’s dividends are attributable to the shareholders of Dunphy Ltd?

b) Determine the INCI of Luke Ltd in the group structure.

c) If Alex Ltd pays a dividend of $20,000, how much will the parent company receive?

d) Determine the indirect parent interest in Phil Ltd.

Question 2 - NCI

12 marks

The following information relates to Adele Ltd. Since the date of acquisition, Adele Ltd has held interests in multiple subsidiaries totalling DNCI of 25%, and INCI of 15%. The following summarised financial information is provided:

Retained earnings at DOA                                           $236,000

Retained earnings at 1/7/2020                                   $476,000

Current period profit for year ended 30/6/2021     $117,000

Required:

a) Based on the financial information you have available, prepare the journal entries

to record the allocation to NCI upon consolidation on 30 June, 2021. Your workings and narrations will be awarded marks.

b) Briefly explain what effect these journal entries have on the consolidated financial reports.

Question 3 – Joint operations

12 marks

Jisoo  Limited and  Lisa  Pty  Limited entered  into a joint operation,  BPink  Bags  Ltd, at the beginning of the financial year to produce and sell luggage.

The joint operation agreement  indicates the  parties will share output, contributions and costs, and hold the joint operation assets as tenants in common, with the respective interests being 55% Jisoo Limited and 45% Lisa Pty Limited.

Jisoo Limited contributed the plant which has a book value of $220,000 and a fair value at the date of contribution of $352,000 whilst Lisa Pty Limited contributed cash of $288,000. Jisoo Limited chose  not to  revalue their  remaining  interests  in the  contributed assets  in their separate records.

Jisoo Limited has been appointed the manager of BPink Bags Ltd and will receive an annual fee of $460,000 for performing the role. The estimated cost to of providing the services is 80% of that amount. The monthly invoice has been recognised as management fee revenue during the year.

Required:

For each of the following three scenarios relating to Jisoo Ltd’s investment in the joint operation, state whether the accounting treatment is CORRECT or INCORRECT, and provide a brief statement explaining your answer.

Explanations should be no more than one sentence long.

1. Using the line-by-line method, consistent with AASB 11 Joint Arrangements, Jisoo Limited has recorded a gain on sale of $72,600 on their contribution of the plant to the joint operation.

Advise Jisoo whether this is the correct accounting treatment.

2. Using the line-by-line method, consistent with AASB 11 Joint Arrangements, Jisoo Ltd has recorded their interest in assets of the joint operation immediately after the contribution of the assets to the joint operation as:

Plant $121,000; Cash $158,400.

Advise Jisoo whether this is the correct accounting treatment.

3. Using the line-by-line method, consistent with AASB 11 Joint Arrangements, Jisoo Limited has recorded a debit to Management fee revenue of $460,000 in relation to the annual fee paid to them.

Advise Jisoo whether this is the correct accounting treatment.

Question 4 – Equity accounting

12 marks

Ted Ltd, an ultimate parent reporting entity, holds a 24% interest in the voting shares of Lasso Ltd. Equity accounting is applied to the interest held in Lasso Ltd.

Additional information:

Lasso Ltd paid a dividend of $20,000 during the year.

At the date of acquisition of the shares in Lasso Ltd, Lasso Ltd owned an item of plant

which was recorded at $60,000 less than its fair value. The remaining useful life of the asset at the date of Ted Ltd’s acquisition of the interest in Lasso Ltd was 4 years.

During the second year of operation Lasso Ltd sold some inventory to Ted Ltd at a

selling price of $40,000. The cost of the inventory to Lasso Ltd was $30,000.  Ted Ltd held 60% of the inventory on hand at the end of the second year.

Required:

a) Prepare the appropriate consolidation adjusting journal in respect of Lasso Ltd’s dividend.

b) Prepare the appropriate consolidation adjusting journal, 2 years after the acquisition of Lasso Ltd shares by Ted Ltd, in respect of Lasso Ltd’s undervalued item of plant.

c) Prepare the appropriate consolidation adjusting journal in respect of Lasso Ltd’s sale of inventory. In no more than two sentences, briefly explain why this journal entry is necessary and what effect this journal entry has on the value of the investment.

Question 5 - Liquidation

10 marks

You are in the process of preparing the Shareholder Distribution Table for the group Zachary Ltd.  You have the following information:

Share class          No. of shares                 Paid to      Notional Call              Notional           Actual           Deficiency

Refund Refund /(Call) share

Preference                   500,000              500,000                           0              500,000 A

‘A’ Ordinary              9,996,000           7,497,000           2,499,000           8,734,896 B

‘B’ Ordinary              1,000,000           1,000,000           1,000,000              873,839 C

Total

10,108,735