HI5020 Corporate Accounting Tutorial Project - Trimester 1, 2021

This document presents a comprehensive solution to a HI5020 Corporate Accounting tutorial project. The assignment covers key accounting concepts including the differentiation between the definition and recognition criteria of assets, and the implications of asset ownership. It also includes detailed journal entries for share issuance, including oversubscription, allotment, and call money, along with share forfeitures. Furthermore, the solution addresses complex topics such as goodwill calculation and consolidation, with detailed explanations and journal entries for both proportionate and fair value methods. The assignment also includes calculations for cash receipts from customers and cash payments to suppliers, and the preparation of consolidation journal entries for a parent company's investment in a subsidiary, considering intercompany transactions like inventory sales and dividend payments. The solution provides a detailed breakdown of each question, supporting students in understanding and applying corporate accounting principles.

Student Number: (enter on the line below)
Student Name: (enter on the line below)
HI5020
CORPORATE ACCOUNTING
TUTORIAL PROJECT
TRIMESTER 1, 2021
Assessment Weight: 50 total marks
Instructions:
 All questions must be answered by using the answer boxes provided in this paper.
 Completed answers must be submitted to Blackboard by the published due date
and time.
Submission instructions are at the end of this paper.
Purpose:
This assessment consists of six (6) questions and is designed to assess your level of
knowledge of the key topics covered in this unit
HI5020 Tutorial T1 2021

Question 1 ( 7 marks)
(a) Differentiate between the ‘definition of assets’ and ‘recognition criteria of assets’
provided in the conceptual framework of accounting. (3.5 marks)
ANSWER: ** Answer box will enlarge as you type
Definition of assets as per the concept of accounting: Assets are those resources held and control
by the business entity through which the business and its management expects and ensures
future inflows in to the business in terms of generating revenues and profits. The assets included
both current and fixed assets held by the business. Assets of the business are presented in the
statement of financial position of the business, also known as balance sheet of the company.
When the financial statements of a concern are prepared on the basis of IFRS, then the
“recognition of assets” in the books of accounts must fulfil the prior condition for recognition of
assets that are as follows:
It must be the resource under the control of the business.
There must be an expectation to generate economic benefits for the entity in the future.
The cost or value of the assets must be measured in a reliable manner.
From these conditions stated above it can be concluded that an asset being a resource though
controlled by an entity but does not have an economic value for the business, then it cannot be
recognised as assets in the statement of financial position.
(b) Can an entity include an asset in its balance sheet that it does not legally own?
Explain your answer in relation to the definition of the assets and recognition
criteria of assets. (3.5 marks)
ANSWER: ** Answer box will enlarge as you type
As per the definition of “assets” and “recognition of assets” the assets can be included in the
balance sheet of the company or can be recognised as an asset only if an entity has a legal
ownership of the assets. The ownership of the assets is one of the necessary conditions as stated
in the conceptual framework of accounting provided by IFRS. If there is an illegal control of the
asset and even it is generating economic value for the entity, then also it cannot be included in
the balance sheet as the asset is not under the control of the business in legal terms.
Question 2 (7 marks)
HI5020 Tutorial T1 2021

Pheonix Limited made an offer to the public via a prospectus of 1,000,000 shares with an
issue price of $1.00 per share. The shares were payable as $0.50 on application and a
further $0.20 on allotment and $0.30 on call. Applications closed on 1 March 2020 and
1,500,000 applications were received (an oversubscription of 500,000 shares). Allotment
was made on 20 March 2020. The company allotted 1,000,000 shares and the excess
application monies were retained against allotment and call amounts. The call money
was due on 1 October 2020. All monies to be paid have been received on time except
100,000 shareholders who could not pay the call money. These 100,000 shares were
forfeited by the management on 20 November 2020.
Prepare the journal entries to record the above.
ANSWER:
Journal entries in the books of Pheonix Ltd.
Date Particulars Debit Credit
1st March
2020
Bank account
To share application account
(received application money on 1500000 shares
@0.50 per share)
750000
750000
20th
March
2020
Share application account
To share capital account
(transferring amount received on application in
share capital account)
500000
500000
20th
March
2020
Share allotment account
To share capital account
(The amount due on allotment @0.20 per share
on 1000000 shares)
200000
200000
20th
March
2020
Share application account
To share Allotment account
(Amount due on allotment adjusted against
excess money received on application.)
200000
200000
1st
October
2020
Share first call account
To share capital account
(Amount due on first call @0.30 per share on
1000000 shares)
300000
300000
1st
October
Bank account ( note 1)
Share application account
225000
50000
HI5020 Tutorial T1 2021

2020 To share first call account
(Call money received on 900000 shares)
275000
20th
November
2020
Share capital account
To share first call account
To share forfeiture account (note 2)
(shares forfeited on which call money is not paid)
100000
25000
75000
Working notes:
1. Amount due on call money = 300000
Less: excess money received on application adjusted = (50000)
Less: Call money not paid on 100000 shares = (25000)
Call money received in the bank account = 225000
2. Forfeited amount on 100000 shares
Amount received on application = (100000 (shares allotted)/ 1000000) * 1500000 (shares
applied)
Shares applied by 100000 shareholders = 150000
Therefore amount received on application = 150000 * 0.5 = 75000 (Amount transferred to share
forfeiture account).
Question 3 (7 marks)
You are provided with the following information:
Sales for the year $400 000
Discounts provided during the year to customers for early payment $10 000
Doubtful debts expense for the year $5 000
Opening balance of accounts receivable $90 000
Closing balance of accounts receivable $80 000
Opening balance of the provision for doubtful debts $9 000
Closing balance of the provision for doubtful debts $8 000
Cost of goods sold for the year $60 000
Purchases for the year (on credit terms) $80 000
Discounts received for early payment to suppliers $2 000
HI5020 Tutorial T1 2021

Stock write-offs owing to water damage caused by melting ice in
the Antarctic
$5 000
Opening balance of trade creditors $40 000
Closing balance of trade creditors $35 000
Opening balance of inventory $10 000
Closing balance of inventory $25 000
Required:
(a) Calculate the cash receipts from customers during the year. (3.5 marks)
(b) Calculate the cash payments to suppliers during the year. (3.5 marks)
ANSWER (a):
Cash Collected from customer
Net Sales + opening accounts receivable – closing accounts receivable – stock written off
– discount allowded
400000 + 90000 – 80000 – 5000 - 10000 = $395000
ANSWER (b):
Cash Payment to the supplier
Cost of goods sold + increase in inventory + decrease in accounts payable + opening
doubtful debts + doubtful debt of year – closing doubtful debt – discount received
60000 + 15000 + 5000 + 9000 + 5000 – 8000 – 2000 = $84000
Increase in inventory = 25000 – 10000 = 15000
Decrease in accounts payable = 35000 – 40000 = 5000
Question 4 (7 marks)
Assume that Company A acquires 70 per cent of Company B for a cash price of $14
million when the share capital and reserves of Company B are:
Share capital $8 million
Retained earnings $2 million
HI5020 Tutorial T1 2021

$10 million
(a) What amount of goodwill will be shown in the consolidated statement of financial
position pursuant to AASB 3 assuming that any non-controlling interest in the
acquirer is measured at fair value? (1 marks)
(b) What amount of goodwill will be shown in the consolidated statement of financial
position pursuant to AASB 3 assuming that any non-controlling interest in the
acquirer is measured at the non-controlling interest’s proportionate share of the
acquiree’s identifiable net assets? (1 marks)
(c) Pass the necessary consolidation journal entries and the journal entries to record
the non-controlling interest if the non-controlling interest in the acquirer is
measured at the non-controlling interest’s proportionate share of the acquiree’s
identifiable net assets. (4 marks)
(d) What are some of the implications of allowing the group to have two options in
accounting for goodwill on consolidation? (1 marks)
ANSWER (a) to (d):
a) Goodwill = fair value of purchase consideration – fair value of idebtifiable net assets
The amount of goodwill is equal to $7 million I.e., 14 – 5.6 – 1.4 = 7 assuming non-
controlling interest in the acquirer is measured at fair value.
It is assuemed that the fair value of the non-controlling assets will be equal to the assets
acquired at fair value.
For the calculation of goodwill amount it is assumed that the fair value of assets is equal
to the the cash price of the acquiree company.
b) The amount of $7 million as an goodwill will be shown in the consolidated statement of
financial statement assuming that any non-controlling interest in the acquirer is measured
at the non-controlling interest’s proportionate share of the acquiree’s identifiable net
assets.
c) Journal Entry
1 Business Purchase a/c dr. $14 million
To acquriee company a/c $14 million
(Being 70% of the company purcahsed)
2 Assets a/c dr. $14 million b/f
HI5020 Tutorial T1 2021

Goodwill a/c dr. $7 million
To Shares a/c $5.6 million (8* 70%)
To Reserves a/c $1.4 million (2* 70%)
To Business Purchase a/c $14 million
(Being assets is recorded at fair value as assumed that the fair value of the asset is 14
million and there is no adjustment made in the assets of the company because of the lack
of information)
The assets is recorded at the fair value because the company wants to do so as the feel that
all assets is stated at fair value on acquisition date.
d) The accountant have to imply the amount of goodwill in their consolidated financial
statement along with the other assets no matter how the goodwill has arises. In the first
option, only the amount of goodwill exclusing the assets and liabilities can be recorded.
And the other option involve the whole consideration paid is recorded as an goodwill in
the balance sheet.
Question 5 (11 marks)
Large Ltd owns 100% of the shares of Small Ltd. These shares were acquired on 1 July
2019 for $1 million when the shareholders’ funds of Small Ltd were:
Share capital $500,000
Retained earnings $400,000
$900,000
All assets of Small Ltd were fairly stated at acquisition date, except for a land that had a
fair value $50000 more than carrying value.
During the 2019/2020 financial year, Small Ltd sold inventory to Large Ltd at a sales price
of $200,000. The inventory cost Small Ltd $120,000 to produce. At 30 June 2020 half of
the stock was still on hand with Large Ltd. In addition, Small Ltd paid an interim dividend
HI5020 Tutorial T1 2021

of $40,000 out of post-acquisition profits to Large Ltd during the 2019/2020 financial
year. The tax rate is 30%.
Based on the above information, prepare the consolidation journal entries that Large Ltd
will need to pass on 30 June 2020.
ANSWER:
Calculation of goodwill fair value of purchase consideration – fair value of idebtifiable
net assets
= 10,00,000 – 900000 = 100000
Journal entry as on 30th June 2020
1 Business Purchase a/c dr. $1 million
To Small Ltd a/c $1 million
(Being 100% of the small company purchased by Large ltd.)
2 Land a/c dr. $50000
All other assets a/c dr. $ 17,50,000 b/f
Goodwill a/c dr. $100000
To Shares a/c $500000
To Reserves a/c $400000
To business purchase $ 10,00,000
(Being purchasing amount recorded)
It is assumed that the fair price of all the aasets is balancing figure to the acquired price of
the company and that is 17,50,000
3 Small Ltd. Company a/c dr. $1 million
To Equity share capital a/c $1 million
(Being equity shares is allocated to the small ltd. shares)
4 Dividend revenue a/c dr. $40000
To dividend declared a/c $40000
(Being dividend eliminated from the books of accounts)
5 Retained earning a/c dr. $100000
To Goodwill a/c $100000
(Being goodwill amount paid from retained earnings)
6 Closing stock a/c dr. $60000
To trading a/c. $60000
(Being closing stock recorded)
HI5020 Tutorial T1 2021

Question 6 (11 marks)
(a) Explain the concepts of Local Currency, Functional Currency and Presentation
Currency with suitable examples. (3 Marks)
(b) Explain the rule for translating the Financial Statements of Foreign Operations
from Local Currency to Functional Currency. (4 Marks)
(c) Explain the rule for translating the Financial Statements of Foreign Operations
from Functional Currency to Presentation Currency. (4 Marks)
ANSWER:
a) The local currency is the currency in circulation in the country where the foreign firm is
operating. The local currency is only the functional currency for the entity which is prevailing in
the primary economic environment of the entity. On the other hand the presentation currency is
as defined by the IAS 21, which states that it is the currency in which the particulars of the
financial statements are presented in monetary terms.
Examples are when a UK based company having its major operations in USA may use US dollars
as its functional currency, whereas the Great Britain pound is actually the local currency of the
company and if the same company resorts to expressing their financial statements in terms of
GBP, then the GBP will be regarded as the presentation currency.
b) The rule of translation states that the entity must first determine its functional currency and
then measure foreign (local) currency transactions by applying the spot exchange rate between
the local and functional currency when the transaction takes place in order to prepare financial
statements.
c) translating financial statements prepared on the basis of functional currency into presentation
currency as follows:
- assets and liabilities are valued at closing exchange rate on the date of balance and any
goodwill arising on date of translation are recognised as assets and liabilities of the foreign
operations.
- income statement items are translated at the exchange rate prevailing on the date of
transaction takes place.
- any kind of exchange differences resulting from the translation must be recognised as other
comprehensive income.
END OF TUTORIAL PROJECT
HI5020 Tutorial T1 2021

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HI5020 Tutorial T1 2021