Question 1

ABC Ltd was registered on 30 June 2019. The next day the directors issued a prospectus inviting applicants for 400,000 ordinary shares with an issue price of $2. The shares were payable in full on application. By 31 July 2019, the company had received 500,000 applications, together with the application monies. The directors allotted 400,000 shares on 1 August 2019 and returned the money for additional applications.

Required:

(a) Prepare general journal entries to record the above data.

(b) Record the above data using ledgers.

Question 2

(a) What are the most common reasons for a corporation to reduce its share capital?

(b) What are the allowable methods of reducing share capital?

(c) Discuss the differences between a share buyback and a capital reduction.

(d) What are the different types of debt instruments discussed in this unit?

Question 3

(a) Explain the ways in which a company may expand by obtaining new assets.

(b) Jamuna River Ltd purchased a parcel of assets and liabilities comprising a business directly from Lyneham Pty Ltd. The parcel of assets, measured at net fair value, consisted of:

Required:

Prepare journal entries to record the acquisition by Jamuna River Ltd, assuming that:

(i) The cost of acquisition was $600,000 cash.

(ii) The cost of acquisition was $432,000 cash.

Question 4

On 1 July 2018, Sunflower Ltd acquired 90% of the share capital to gain control of Palm Ltd. The following intra-group transactions occurred during the year ending 30 June 2019.

(i) During the 2018/2019 period, Sunflower Ltd sold inventory to Palm Ltd for $1,600,000. Sunflower Ltd purchased this inventory at $1,000,000. By 30 June 2019, Palm Ltd had sold 70% of that inventory to a third party.

(ii) Palm Ltd declared a final dividend of $1,300, 000 from current year’s profits.

(iii) Palm Ltd paid Sunflower Ltd a fee for administrative services they provided of $40,000.

(iv) Palm Ltd has an intra-group loan with Sunflower Ltd. Sunflower Ltd provided a loan of $10,000,000. The loan charges 4% interest annually. One half of the interest for the current year remains unpaid as at 30 June 2019.

(v) Palm Ltd sold land to Sunflower Ltd for $560,000. The land was purchased by Palm Ltd at $300,000.

Required:

(a) Prepare the journal entries required to eliminate the intra-group transactions above.

(b) When are profits realised in relation to inventory transfers within the group?

(c) What are the rules for the elimination entry for intra-group transactions relating to dividends declared by the parent company and dividends declared by the subsidiary company?

Question 5

On 1st July, 2018 Nile Ltd acquired 70% of the share capital of Amazon Ltd for $80,000,000. The equity of Amazon Ltd as at the acquisition date was: 

Share Capital                 $ 52,000,000

General Reserve           $ 20,000,000

Retained Earnings        $ 10,000,000

All assets of Amazon Ltd were recorded at fair value on acquisition, except for one property which had a fair value which was $2,000,000 lower than its’ carrying amount. The cost of the property was $20,000,000 with accumulated depreciation of $12,000,000. Ignore Taxes. 

Required:

(a) Complete the worksheet below using the NET method.

(b) Prepare the consolidation adjustments and eliminations entries and recognise the NCI in the pre-acquisition equity of Amazon Ltd, assuming that the NCI was measured at the proportionate share of the acquiree’s identifiable net assets.

Question 6

The following information relates to Moon Light Ltd.

(a) At the beginning of the accounting period the company has a salary payable liability of $200 and at the reporting date a salary payable of $360. During the year the salary expense shown in the income statement was $400.

(b) At the beginning of the accounting period the company has property, plant and equipment (PPE) with a carrying amount of $400. At the end of the accounting period, the carrying amount of the PPE is $1,200. During the year depreciation charged was $80, a revaluation surplus of $240 was recorded and PPE with a carrying amount of $60 was sold for $80.

(c) At the beginning of the accounting period the company has retained earnings of $2,000 and at the end of the accounting period the balance of the retained earnings is $2,800. The reported profit for the year was $1,800.

(d) Moon Light Ltd also provides you with the following information on its sales and collection of accounts receivable: 

Sales for the year                                                                             $16,000

Discounts provided to customers for early payment                     $400

Doubtful debts expense for the year                                                $200

Opening balance of accounts receivable                                       $3,600

Closing balance of accounts receivable                                         $3,200

Opening balance of the allowance for doubtful debts                  $360

Closing balance of the allowance for doubtful debts                    $320

Required:

(a) Calculate the cash paid for salary.

(b) Calculate the cash paid to purchase new PPE.

(c) Calculate the dividend paid..

(d) Calculate the cash collected from customers.