Accountancy Class Test Questions

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This examination paper must be returned. Candidates are not permitted to remove this paper from the examination room.

STUDENT NUMBER…………………………

STUDENT'S NAME..................................................……………………………………..……..……......

First name

Last name

SIGNATURE………………………………………………………………………………

MACQUARIE UNIVERSITY
Semester 2, 2010 IN-CLASS TEST NO 2

Unit:

ACCG308 CORPORATE ACCOUNTING AND REPORTING

Time allowed: Total number of questions: Instructions:

45 minutes ONE

This is a closed book examination. You are not permitted to access any books, notes or other written materials. Silent calculators, nonprogrammable are allowed. Questions must be answered on the examination paper. Answer all parts of all questions.

(Office Use Only – Do Not Write Here)

Total

/25

Question 1 (25 marks) On the 1 July 20X6 Howard Ltd gained control of Carter Ltd by buying 70% of its shares for $70,000. At this date, Carter had share capital $50,000 and retained profits $30,000. Additional information:  Goodwill impairment is $500 in year ended 20X8 and $850 in 20X9.   Dividends are paid out of current period profit. The dividends were paid before year-end. Inventory purchases by Howard from Carter during the current year amounted to $30,000. Their cost to Carter was $20,000. Howard still holds $18,000 of this inventory at year-end. Loan from Carter attracts 12% interest per annum. The interest was paid before year-end. Included in other assets of Howard is equipment purchased from Carter on the 1 July 20X7 for $41,000. The equipment was four years old when sold, had cost Carter $50,000 to buy, with expected residual value $5,000, and had been depreciated 10% p.a. straight-line. Howard depreciates the equipment (after deducting the same residual) straight-line over the remaining six-year life.

 

Required: Complete the consolidation worksheet on the next page. Note: 1. Marks are awarded for each correct individual worksheet entry. 2. For the eliminations column only, entries that are placed in a location where there should not be any entry may attract a penalty mark.

2

Workings: Elimination 1: Substitution. Deletes 70% of subsidiary's pre-control equity. Capital: 50 000 * 0.7 = 35 000 Retained profits: 30 000 * 0.7 = 21 000 Investment in subsidiary: 70 000 Goodwill: 14 000 Recognise goodwill impairment (prior and current years) Dr Goodwill impairment expense 850 Dr Retained profits 500 Cr Accumulated Goodwill impairment 1 350 Deletes intra-group dividend revenue and appropriation. 15 000 * 0.7 = 10 500 Dr Dividend revenue 10 500 Cr Dividend 10 500 Deletes intra-group sales. Dr Sales Cr Cost of sales

Elimination 2:

Elimination 3:

Elimination 4:

30 000 30 000

Elimination 5:

Deletes profit on intra-group sale from inventory valuation (Current year). (18 000/30 000) * (30 000-10 000) Dr Cost of sales 6 000 Cr Inventory 6 000 Deletes intra-group loan Dr Loan from Carter Cr Loan to Howard

Elimination 6:

50 000 50 000

Elimination 7:

Deletes interest from intra-group loan Dr Interest revenue 6 000 Cr Interest expense 6 000 Deletes profit on intra-group sale of equipment and reinstates equipment carrying amount at sale date Dr Retained profits 9 000 Dr Equipment 9 000 Cr Accumulated depreciation 18 000 Add back inflated depreciation (2 years) of equipment arising from intragroup sale of equipment 6 000 – 4 500 = 1 500 p.a. Dr Accumulated depreciation 3 000 Cr Depreciation expense 1 500 Cr Retained profits 1 500

Elimination 8:

Elimination 9:

3

NCI calculations: Net profit: 0.3 * (18 000 – 6 000) = 3 600 - 6 000 = subtract profit on intra-group sale of inventory

Retained profits: 0.3 * (38 000 - 9 000) = 8 700 - 9 000 = subtract profit on intra-group sale of equipment Dividend: 0.3 * 15 000 = 4 500 Capital: 0.3 * 50 000 = 15 000 Parent interest = Group interest – NCI

4

Combined consolidation worksheet as at 30 June 20X9
   
 

Howard Carter...
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