You are required to complete all three questions below. A total of 75 marks are allocated to these questions, which will be converted to a final mark out of 25%. All workings, when appropriate, must be shown to substantiate your answers. Question 1 [30 marks] Consolidation: Principles and accounting requirements; and intra-group transactions SunLight Ltd purchased all of the issued shares of Bright Ltd on 30 June 2014 for $450,000. At acquisition date, the statement of financial position of Bright Ltd was as follows. Bright Ltd Statement of financial position as at 30 June 2014 Assets $ Cash and cash equivalents 5,000 Accounts receivables 30,000 Inventory 50,000 Land 200,000 Property, plant and equipment 350,000 Less: Accumulated depreciation (135,000) 500,000 Current liabilities Loan 150,000 Shareholders' equity Share capital 250,000 Retained earnings 100,000 500,000 At 30 June 2015, the accounts of the two companies appear as follows: SunLight Ltd Bright Ltd $ $ Profit after tax 200,000 95,000 Retained earnings 1 July 2014 150,000 100,000 Interim dividend (45,000) (20,000) Final dividend (55,000) (25,000) Retained earnings 30 June 2015 250,000 150,000 Share capital 500,000 250,000 Accounts payable 50,000 5,000 Dividends payable 50,000 25,000 Long term loans 335,000 70,000 1,185,000 500,000 Assets Cash and cash equivalents 40,000 20,000 Accounts receivable 25,000 25,000 Dividends receivable Inventory 25,000 45,000 61,500 Investment in Bright Ltd 450,000 - Land 300,000 200,000 Property, plant and equipment - at cost 450,000 350,000 Accumulated depreciation (150,000) (156,500) 1,185,000 500,000 Additional information: (a) The identifiable net assets of Bright Ltd were recorded at fair value at the date of acquisition, except for the property, plant and equipment, which had a fair value of 265,000. The property, plant and equipment are expected to have a remaining useful life of 10 years with no residual value. (b) During the financial year ended 30 June 2015, the recoverable amount of goodwill is estimated to be $30,000. (c) On 10 July 2014, Bright Ltd declared and paid an interim dividend of $20,000 from pre-acquisition retained earnings. (d) The tax rate is 30%. Required: Prepare the statement of financial position for the SunLight Ltd Group as at 30 June 2015. Note: show all necessary workings including (but not limited to) worksheet entries and consolidation worksheet. Narrations for worksheet entries are not required. Marks allocation for question 1: Max. marks awarded Acquisition analysis 2 Consolidation worksheet entries 20 Consolidation worksheet 5 Consolidated statement of financial position 3 Total 30 Question 2 [35 marks] Consolidation: Principles and accounting requirements; intra-group transactions and non-controlling interests Pema Ltd purchased 90% of the issued shares of Sublime Ltd on 1 July 2014 for a cost of $1,000,000. At acquisition date, the shareholders' equity of Sublime Ltd consisted of share capital and retained earnings of $700,000 and $200,000 respectively. On the same date, all assets of Sublime Ltd were recorded at fair value, other than land that had a carrying amount of $100,000 less than its fair value. The following information is provided for the financial year 30 June 2015. (a) The management of Pema Ltd values any non-controlling interest at the proportionate share of Sublime Ltd's identifiable net assets. (b) During the year, Sublime Ltd made total sales to Pema Ltd of $120,000. The inventory cost Sublime Ltd $60,000 and a quarter of this inventory was still held by Pema Ltd as at 30 June 2015. (c) On 1 July 2014, Sublime sold an item of plant to Pema Ltd for $80,000 when its carrying amount was $60,000. At the date of sale it was expected that the plant will have remaining useful life of four years and no residual value. (d) Sublime Ltd paid $20,000 management fees to Pema Ltd. (e) Sublime Ltd made a profit after tax of $140,000. (f) The tax rate is 30%. Required: Prepare the consolidation worksheet entries necessary for the preparation of consolidated financial statements for Pema Ltd and its subsidiary, Sublime Ltd, for the financial year ended 30 June 2015. Note: show all necessary workings, narrations are not required. Marks allocation for question 2: Max. marks awarded Acquisition analysis 2 Consolidation worksheet entries 33 Total 35 Question 3 [10 marks] Accounting for associates On 1 July 2012, Really Ltd acquired a 40% interest in Funny Ltd at a cost of $476,000. The shareholders' equity of Funny Ltd on the date of acquisition was: $ Share capital 700,000 Retained earnings 100,000 General reserve 40,000 All the identifiable net assets of Funny Ltd were recorded at fair value. There have been no transfers to or from reserves. Profits and dividend payments of Funny Ltd for the three years after the acquisition were as follows: Years ended 30 June Profit after tax Dividends paid $ $ 2013 260,000 80,000 2014 320,000 50,000 2015 300,000 120,000 The directors applied the impairment test and determined that a write-down of $28,000 is required as at 30 June 2015 (there was a cumulative write-downs for prior years amounted to $56,000). Really Ltd prepares consolidated financial statements. Required: Prepare the journal entries for the consolidation worksheet of Really Ltd to account for the investment in Funny Ltd under the equity method at 30 June 2015. Show all workings. Marks allocation for question 3: Max. marks awarded