. Harbour Cruises Limited started business on 1 July 2015 and completed its first statement of comprehensive income and first statement of financial position on 30 June 2016. The statements are prepared before considering taxation. The following information is available: Q2. Required: For each of the following Independent situations you are to establish whether control does or does not exist. If control does exist you are to state which party controls the entity. In your answer you are to give reasons for your answers and make reference to, and show the relevance of, the appropriate paragraphs in AASB10. (a) Alfred Ltd is owned 50 per cent by Victoria Ltd and 50 per cent by Kaiser Ltd (the founding shareholders). Each has two seats on the board, with no party having a casting vote, although Victoria Ltd appoints the managing director. Profits are split 50-50 after the provision of the managing director's salary. Kaiser Ltd has agreed that it will pay a management fee to Victoria Ltd, equivalent to 50 per cent of the results for the year, in the event of a loss. Victoria Ltd is the holder of 10 options, which are exercisable at any time at a 10 per cent discount to the fair value of the shares as at the exercise date. (b) Ludmilla Ltd, Milner Ltd and Gray Ltd are each 33.3 per cent shareholders of Northern Properties Pty Ltd, a small proprietary company that is involved in the fishing Industry. Ludmilla Ltd and Gray Ltd are passive shareholders with one board seat each out of a total of three. Milner Ltd has one board seat and is also involved in the day-to-day running of the business. (c) Wanguri Ltd is a 51 per cent shareholder in Driver Ltd and currently has two out of five board seats. Brinkin Ltd is the remaining 49 per cent shareholder and currently has the other three seats. Wanguri Ltd is a passive shareholder as it is happy with the way Brinkin Ltd has been running the company. (d) Red Stocking Pty Ltd is a family-run business that has not managed to keep up with technical innovations within the industry. As a result the company has lost market share to its competitors. This year the company's bank, Sue and Grabbit, seized the company's assets. The bank converted all the debt into equity and had two of the bank's directors appointed to Red Stocking Pty Ltd's board. The board has a total of four members. The bank has not decided what to do with the company's assets, as they have little recoverable value and would not realise a great deal if sold. One option is to invest further equity into the company, buy more up-to-date equipment and attempt to trade on and sell the business as a going concern. (e) Nim Ltd is a 30 per cent shareholder of Rod Co. Pty Ltd. The other shareholders have smaller shareholdings (around 8 to 12 per cent) and are always too busy to attend annual general meetings. Nim Ltd has two nonexecutive seats on the board and the remaining three are held Q3. The following information has been extracted from the financial statements of Luke Ltd and its subsidiary John Ltd at 30 June 2016. The opening inventory in Luke Ltd as at 1 July 2015 included inventory acquired from John Ltd for $84,000 that cost John Ltd $70,000 to produce.  The closing inventory in Luke Ltd includes inventory acquired from John Ltd at a cost of $67,200. This cost John Ltd $56,000 to produce .  The closing inventory of John Ltd includes inventory acquired from Luke Ltd at a cost of $24,000. This cost Luke Ltd $19,200 to produce.  The management of Luke Ltd believe that goodwill acquired was impaired by$6,000 in the year to 30th June 2016. The balance on the accumulated impairments of goodwill account brought forward was $45,000.  On 1 July 2015 Luke Ltd sold an item of plant to John Ltd for $232,000 when its carrying value in Luke Ltd's accounts was $162,000 (cost $270,000, accumulated depreciation $108,000). This plant is assessed as having a remaining useful life of six years.  John Ltd paid $53,000 in management fees to Luke Ltd.  The tax rate is 30 per cent. REQUIRED Prepare the consolidation worksheet JOURNAL ENTRIES for the preparation of consolidated financial statements by Luke Ltd at 30 June 2016. NOTE a consolidation worksheet is NOT required. Your answer should include an acquisition analysis with a calculation of goodwill, pre-acquisition entries, dividend adjustments, intragroup sales and transfers, and a calculation of the non-controlling interest. Q4. On 1 July 2015 Rapid Ltd purchased 40 per cent of the ordinary shares of Creek Ltd for $3 250 000. The remaining 60 per cent of the ordinary shares of Creek Ltd are owned by two shareholders, Market Ltd, which owns 40 per cent of the shares, and Wholefoods Ltd, which owns 20 per cent of the shares. Creek Ltd's constitution provides that at general meetings of the company, ordinary shareholders are entitled to vote on resolutions and elect directors, on the basis of one vote per ordinary share. Creek Ltd's five-member board of directors consists of: two representatives of Rapid Ltd two representatives of Market Ltd one representative of Wholefoods Ltd.. On 1 July 2015, all the identifiable net assets of Creek Ltd were considered to be recorded at fair value in Creek Ltd's statement of financial position, except land, which had a fair value of $4,050,000 on 1 July 2015. On 30 June 2016, the recoverable amount of goodwill relating to the purchase of Creek Ltd by Rapid Ltd was assessed to be $270,000. On 14 July 2015, Creek Ltd declared and paid an interim dividend of $240,000, out of profits earned during the 2014–15 financial year. During 2015–16, Creek Ltd earned a profit after income tax expense of $870,000, from which it paid a final dividend of $390,000. During 2016–17, Creek Ltd earned a profit after income tax expense of $1,020,000, from which it declared a final dividend of $480,000. On 30 June 2017, Creek Ltd revalued its land (to fair value as at that date) to $4,350,000 The income tax rate is 40 per cent. Required (a) Explain how Rapid Ltd should classify its investment in Creek Ltd, in accordance with accounting standards. (b) Prepare the journal entries to account for Rapid Ltd's investment in Creek Ltd, in Rapid Ltd's individual accounts, for the financial years ending 30 June 2016 and 30 June 2017, in accordance with AASB 128 Investments in Associates and Joint Ventures, assuming that Rapid is a parent entity. (c) Prepare the journal entries to account for Rapid Ltd's investment in Creek Ltd, in Rapid Ltd's individual accounts, for the financial years ending 30 June 2016 and 30 June 2017, in accordance with AASB 128 Investments in Associates and Joint Ventures, assuming that Rapid is not a parent entity. (d) Prepare the consolidation worksheet journal entries to account for Rapid Ltd's investment in Creek Ltd, for the financial years ending 30 June 2016 and 30 June 2017, in accordance with AASB 128 Investments in Associates and Joint Ventures, assuming that Rapid Ltd is a parent entity. (29 marks) CDU Business School Semester 2, 2016 Page 7 of 7 Faculty of Law, Education, Business and Arts Q5. A liquidator was appointed after Oh Dear Pty Ltd was declared insolvent on 1 July 2016. The company's assets realised $71,250,000. This came from the sale of the secured land and buildings for $37,500,000 and other assets which were sold for $33,750,000. The creditors totalled $81,750,000, and were made up of the following amounts: Secured creditor $45,000,000, receiver's costs when realising secured asset $750,000, liquidator's expenses $3,000,000, unsecured trade payables $12,000,000, tax payable $5,250,000, local government rates $1,500,000, staff wages payable $4,500,000, executive directors' wages payable (5 directors) $2,250,000, staff leave entitlements $750,000, executive directors' leave entitlements (5 directors) $750,000, unsecured bank overdraft $3,750,000, and dividends payable $2,250,000. Required You are required to rank the above creditors and then to calculate how much each creditor would be paid. by other shareholders, one chief executive officer who is a shareholder and two non-executives, who do make an attempt to attend board meetings. (f) Side Mount Ltd, a diving equipment supplier, started business 12 years ago and is 60 per cent owned by Dual Tank Ltd. Side Mount Ltd has been very successful generating on average profits of $500 000 annually. Unfortunately due to the downturn in the industry the company has had financial problems and has failed to meet its loan commitments with its bank. The bank has taken a more hands on approach to monitoring the company's activities so that it can obtain repayment of its debt. The company is now required to seek the bank's authorisation prior to any expenditure over $5000. Changes to the way the company operates can only be implemented with the bank's approval.