Prepare acquisition analysis and adjustment journal entries

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Reference no: EM132306251 , Length: word count:1200

Corporate Accounting Systems - Practical Project

Topic: Acquisition of a subsidiary and consolidation entries.

The practical project involves two parts:

1. Part A is the preparation of a selection of consolidation elimination journals for an economic entity comprising a parent and a subsidiary.

2. Part B is an explanation and discussion of the business combination.

Part A -

Super Retail Ltd (Super Retail) acquired 100% of the shares of New World Retail Ltd (New World Retail) on 1 July 2017. The cost of investment was $620 000. At that date the capital and reserves of New World Retail were:

  • Share capital - $260 000
  • Retained earnings - $200 000

At the date of acquisition all assets of New World Retail were considered to be fairly valued, except for a plant that had a fair value $20 000 greater than its carrying amount. The cost of the plant was $100 000 and it had accumulated depreciation of $60 000. The plant had original estimated useful life of 10 years.

During financial year 01/07/2017-30/06/2018, New World Retail sold $30 000 in inventory to Super Retail for on-sale to external parties. The inventory had originally cost New World Retail $22,000. At the year end, Super Retail still had half of the inventory on hand. On-hand inventory was expected to be sold in the subsequent period. There were no other intro-group transactions between Super Retail and New World Retail for year ended 30 June 2018.

Super Retail incurred the following transactions with New World Retail during financial year 01/07/2018-30/06/2019:

  • Super Retail made total sales in inventory to New World Retail of $62 000, while New World Retail sold $65 000 in inventory to Super Retail. These inventories are expected to be sold to external parties.
  • The closing inventory in Super Retail includes inventory acquired from New World Retail at a cost of $36 000. This cost New World Retail $29 000 to purchase. New World Retail sold all inventory acquired from Super Retail to external parties during the year.
  • On 1 July 2018 Super Retail sold an machinery to New World Retail for $145 000 when its carrying amount in Super Retail's accounts was $100 000 (initial cost $168 650, accumulated depreciation $68 650). This machinery is assessed as having a remaining useful life of 9 years.
  • New World Retail declared and paid dividend $100 000 on 30 June 2019.
  • Super Retail provided management consultation to New World Retail and this was the first time that Super Retail Ltd provided such service to New World Retail. At the end of 2019, New World Retail paid $8,000 for these services and has a balance of $1000 payable at year end.
  • New World Retail has a number of long-term loans, including a four-year loan for $50,000 from Super Retail. This loan was effective from 1 July 2018. Interest rate was 4% per annum. During the year ending 30 June 2019, New World Retail paid $1000 interest on this loan.

You were requested to prepare the followings:

I. acquisition analysis and adjustment/elimination journal entries for consolidation at acquisition, 1 July 2017;

II. adjustment/elimination journal entries for consolidation as at 30 June 2018, and

III. adjustment/elimination journal entries for consolidation as at 30 June 2019.

After meeting with your supervisor you gathered the following information which you might need to complete your work:

Super Retail has the following accounting policies for the economic entity:

  • Revaluation adjustments on acquisition are to be made on consolidation only, not in the books of any subsidiary;
  • Plant and machinery are depreciated using the straight-line method with no residual value. For part-years, depreciation is to be calculated on the number of months the asset is held in the relevant year.
  • All calculated amounts are to be rounded to the nearest whole dollar. Companies in the group do not show cents in any journals, worksheets, or financial statements.

Management team of Super Retail believes that goodwill acquired from business combination is impaired by $6 000 in the current financial year. Previous impairment of goodwill amounted to $4 000.

Super Retail declared dividend $200 000 and paid dividend $150 000 on 30 June 2019.

The company tax rate is currently 30% and this rate has not changed for a number of years.

Journal narrations are required.

Number each year consolidation elimination/adjusting journal entries by 1, 2, 3, ..., etc;.

Where more than one journal entry is needed for an event to be completely accounted for add the letters a,b,c,...etc to them as necessary.

Part B -

Super Retail is an Australian company and growing very fast. The Board of Directors expressed the interest to acquire another retailing business in America.

The Board of Directors is concerned about some obstacles to acquire a business overseas. From financial accounting perspective, the Board raised the following question:

'What are some possible impediments to acquire a business in America, any possible plans/solutions to overcome those possible impediments?

After a meeting with your supervisor, you were requested to prepare response/suggestions to the above question.

You might make reference to relevant paragraphs of International Financial Reporting Standards, Conceptual Framework, Generally Accepted Accounting Principles and to other sources of material.

Reference no: EM132306251

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Reviews

len2306251

5/15/2019 4:48:51 AM

Words Count: 1200. Length: 1,000 words maximum (comprising consolidation analysis and journal entries in Part A equivalent to 750 words and a written component of 250 words in Part B). Marking Criteria - Part A (15 marks): Part A (I) Correct /complete acquisition analysis; correct/complete consolidation journal entries at the date of acquisition = Acquisition analysis is clear and correct and all required journals are correct, with none missing or included incorrectly 2 marks. Part A (II) Correct /complete events and consolidation journal entries at - Every required event/journal is clear and correct, with none missing or included incorrectly 3 marks.

len2306251

5/15/2019 4:48:44 AM

Part A (III) Correct /complete events and consolidation journal entries at - Every required event/journal is clear and correct, with none missing or included incorrectly 8 marks. Part A work presentation, account names, numbering journal entries and narrations - All events/journals are presented clearly and numbered correctly 2 marks.

len2306251

5/15/2019 4:48:35 AM

Part B (5 marks) - Identifies the problem and develops a plan to solve the problem. The problem is clearly stated and underlying issue(s) is clearly identified. A clear and concise plan with alternative strategies to solve the problem is developed, and is followed to conclusion. 2 marks. Collects and analyses the information; provides possible solutions. Critically chooses information and clearly integrates it to support the points being made. Information is analysed in- depth. Clearly solves the problem, offering alternative solutions. 2 marks. Presents with clarity: references and paraphrases correctly and usesclear prose style: sentence structure, grammar and spelling - Writing is clear and error-free and demonstrates superior written communication skills. Excellent in-text citation, paraphrasing and reference list. 1 mark.

len2306251

5/15/2019 4:48:29 AM

Project Preparation - The practical project is to be submitted as an individual attempt. It must be prepared using Microsoft Word document only and be entirely your own work. Submit Microsoft Word (electronic) copy through vUWS (Turnitin). An electronic individual assignment cover sheet is required. The practical project marking guide is on page 4 and page 5 of this document. Use the marking guide sheet to see what is expected and how your work will be marked. The marker will use the marking sheet to calculate your assessment result and provide you with feedback on the standard you achieved against each of the criteria.

len2306251

5/15/2019 4:48:21 AM

If you have copied material from the textbook, the internet or other sources improperly, you will be penalised. Staff in the unit will perform a check on the similarity of your work to others. The scanning will tell us if you have copied from another student, or from an assignment from another unit. Severe penalties apply to cases of plagiarism (e.g., copying internet resources without referencing, copying other students' answers, copying other unit's assignments etc.). All late submissions will be penalised as per WSU policy - a deduction of 10% of the possible mark for each day, or part day, late. Submissions will not be accepted by email.

len2306251

5/15/2019 4:48:14 AM

Staff will not assist students with their answers, nor review draft answers to confirm if students are "on the right track" or not. Any queries about the requirements of the practical project must be directed to the Unit Coordinator only, not to other teaching staff. vUWS Assessment Zone: under the ‘Assessment Zone' link on vUWS there is a folder titled ‘Assessment 3: Practical Project'. Here you will find the submission link. The file name for the electronic submission must follow the following pattern: your student ID number followed by 200109 Practical Project. For example, if your student ID number is 12345678, the file name should be 12345678-200109 Practical Project.

len2306251

5/15/2019 4:48:08 AM

This is the final financial accounting unit in the accounting major where you will have to produce complex journal entries at a professional level. Therefore, a high standard is expected. Marks will be lost if journals are not presented in a clear and professional manner (i.e. poor or unclear presentation can include showing the debit entry on one page but the credit entry on another, or not clearly distinguishing between debit and credit entries). Your preparation cannot be late for the board meeting and the directors carefully review all of the information you give them. They pay you well, but they expect quality work. It needs to be technically correct and presented well.

len2306251

5/15/2019 4:48:02 AM

Checklist - When submitting the final version, check you have: Clearly answered both parts of the project and included an electronic assignment cover sheet and a reference list. Proof-read the assignment for spelling and grammar: use "spell check" in Word to help if you have any concerns. Met the requirement for the word-limit (1000 words).

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