110.804 ADVANCED FINANCIAL ACCOUNTING AND REPORTING SEMESTER TWO 2021
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit
EXAMINATION FOR
110.804 ADVANCED FINANCIAL ACCOUNTING AND REPORTING
SEMESTER TWO 2021
SECTION A: FOREIGN CURRENCY
Scenario Information
You are a trainee accountant at SP Ltd, a New Zealand listed company. The senior financial accountant, Arthur Anderson, asks you to translate the financial statements of ET Ltd, a wholly-owned subsidiary of SP, which is based in Italy.
On 1 January 2020, SP acquired all of ET’s issued shares. ET prepares its financial statements using its local currency, the Euro (€). ET’s balance sheet as at 1 January 2020 is as follows:
Contributed Capital
Retained Earnings
Accounts Payable
Total Liabilities and Equity
Plant Assets (net)
Inventory
Cash and accounts receivable
Total Assets
€1,000,000
100,000
100,000
1,200,000 |
950,000 50,000 200,000 |
1,200,000 |
ET’s financial statement as at 31 December 2020 (its fiscal year end), as well as the relevant exchange rates, are provided in the answer box for this question.
Additional information:
• Relevant exchange rates were as follows:
1 January 2020: €1.00 = NZ$2.0
13 July 2020: €1.00 = NZ$1.7
1 December 2020: €1.00 = NZ$1.5
31 December 2020: €1.00 = NZ$1.4
Average 2020 financial year: €1.00 = NZ$1.6
• Dividends were declared and paid on 13 July 2020.
• The opening inventory was on hand at the time of the acquisition of ET. The closing inventory was acquired on 1 December 2020.
• The plant assets (net) account relates to plant assets that were on hand at the time of the acquisition.
• Sales, purchases, and other expenses were incurred evenly throughout the financial year.
Question 1
Refer to the scenario information in Section A and answer the following question:
Using the template provided in the answer box, translate ET’s financial statements into New Zealand dollars (NZ$) assuming:
a. The NZ dollar is the functional currency of ET.
b. The Euro (€) is the functional currency of ET.
(8 marks) (8 marks)
[TOTAL: 16 MARKS]
Table to be inserted in Stream to answer Question 1 (if possible)
|
Local Currency |
1. NZ dollar is the Functional Currency |
2. The Euro (€) is the Functional Currency |
||
Income statement for 2020 |
€ |
Exchange rate |
$NZ |
Exchange rate |
$NZ |
Sales revenue |
1,250,000 |
|
|
|
|
Opening Inventory |
-50,000 |
|
|
|
|
Purchases |
-350,000 |
|
|
|
|
Ending inventory |
75,000 |
|
|
|
|
Cost of Goods Sold |
-325,000 |
|
|
|
|
Gross Profit |
925,000 |
|
|
|
|
Depreciation - plant assets |
-95,000 |
|
|
|
|
Other expenses |
-100,000 |
|
|
|
|
Tax |
-50,000 |
|
|
|
|
-/+ foreign exchange gain/loss (if applicable) |
|
|
|
|
|
|
|||||
|
|
|
SECTION B: CONSOLIDATIONS
Scenario Information
Short Ltd purchased 90% of the issued capital and in the process gained control over Long Ltd on 1 July 2018 for a cash consideration of $1,850,000. At that date the fair values of the net assets of Long Ltd were:
Share capital $1,610,000
Retained earnings $ 370,000
$1,980,000
During the year ended 30 June 2020:
1. The management of Short Ltd measures any non-controlling interest at the
proportionate share of Long Ltd’s identifiable net assets.
2. Long Ltd had an operating profit of $20,500 and opening retained earnings of $405,000.
3. Long Ltd paid management fees of $50,000 to Short Ltd.
4. Long Ltd paid a dividend of $49,000 during the period.
5. Short Ltd purchased inventory from Long Ltd during the period ended 30 June 2020 for $50,000. The inventory cost Long Ltd $42,500 and at the end of the period, Short had 35% of that inventory still on hand. Companies in the group use perpetual inventory systems.
6. The tax rate is assumed to be 28%.
Question 2
Refer to the scenario information in Section B and answer the following question:
Calculate the amount of goodwill recognised on consolidation at the date of acquisition . Please show your workings. (3 marks)
Question 3
Refer to the scenario information in Section B and answer the following question:
Provide the appropriate journal entries to eliminate the cost of the investment by Short Ltd in Long Ltd and to recognise goodwill. (3 marks)
Question 4
Refer to the scenario information in Section B and answer the following question:
Provide the appropriate journal entries required to account for the intra-group management fees, dividend payment, and purchase of inventory by Short Ltd (no narration required). (10 marks)
Question 5
Refer to the scenario information in Section B and answer the following question:
Calculate the amount of non-controlling interests that would appear on the Consolidated Statement of Financial Position as at 30 June 2020. Show all your workings. (4 marks)
[TOTAL: 20 MARKS]
Table to be inserted in Stream to answer Question 2
Details |
Long Ltd |
Short Ltd |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table to be inserted in Stream to answer Question 3
Details |
Debit ($) |
Credit ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table to be inserted in Stream to answer Question 4
Details |
Debit ($) |
Credit ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table to be inserted in Stream to answer Question 5
|
Long Ltd |
NCI |
|
|
|
|
|
|
SECTION C: LEASES
Scenario Information
Napier Logistics Ltd (NLL) operates a fleet of vehicles providing transport throughout New Zealand. Due to the recent expansion of its trucking division, the company leased a truck from Transport Leasing Ltd (TLL) on 1 January 2021. The lease arrangement are:
• The lease is non-cancellable.
• The term of the lease is ten years.
• A payment of $8,000 at inception of the lease (on 1 January 2021).
• Payments of $17,000 on 31 December each year for ten years (starting 31 December 2021). This payment includes $2,000 reimbursement to the lessor for providing insurance and maintenance for the truck.
• The truck has a useful life of 20 years.
• NLL guarantees a residual value for the truck at the end of the term of $40,000, which NLL expects to pay.
The implicit interest rate in the lease is 6%. Napier Logistics Ltd incurred expenses of $7,000 to set up the lease.
The fair value of the truck and the carrying amount on the books of Transport Leasing Ltd at the commencement of the lease is $140,737.
Question 6
Explain how the leased assets and liabilities in the lease arrangement meet the definitions and the recognition criteria of assets and liabilities in the 2018 IASB Conceptual Framework. (4 marks)
Question 7
Refer to the scenario information in Section C and answer the following question:
Provide the journal entries for the lease in the books of Napier Logistics Ltd and Transport Leasing Ltd, as at 1 January 2021. Please show your workings.
2022-10-22