Acquisition of Strongini Ltd On 1st January 2X11, Heuston Ltd acquired 80% of the ordinary share capital (ex div) of Strongini Ltd for $3,200,000. At this date, the accounts of Strongini Ltd included the following balances: Share capital (1,000,000 shares) $1,000,000 General reserve 800,000 Retained profits 500,000 All of the identifiable net assets of Strongini Ltd were recorded at fair value except for Land which had a fair value of $300,000 above the carrying amount. Adjustments for the differences are made on consolidation and tax-effect entries are needed. The following is a list of the transactions between the companies for the year ended June 2X16 (a) On 1st July 2X14, Strongini Ltd sold an item of specialised equipment to Heuston Ltd for $180,000 at a before tax loss of $85,000. The equipment has a useful life of 5 years and is depreciated using the straight-line method by both companies (b) During the year Heuston Ltd paid $15,000 of Training Fees to Strongini Ltd for additional training required on the specialised equipment purchased from the company. This amount is disclosed under General Administrative Expenses by Heuston Ltd. (c) On 1st October 2X15, Strongini sold inventory to Heuston Ltd for $350,000, at a mark-up of 50%. At 30 June 2X16, $75,000 of this inventory was still on hand. (d) On 28th November 2X14, Heuston Ltd sold some inventory to Strongini Ltd for $90,000, at a profit before tax of $50,000. This was still on hand in Strongini Ltd at 30 June 2X15, but was all sold by 30 June 2X16. (e) Heuston Ltd extended a loan of $100,000 to Strongini Ltd. This loan was issued on the 1st March 2X14 payable over 5 years, with an interest rate on the loan of 3.5% pa. Interest is paid on the 1st April and 1st October every year. (f) A goodwill impairment test in June 2X16 revealed the need to impair goodwill by $5,000. Impairment of goodwill for prior years amounts to $8,000. For consolidation purposes the partial goodwill method is used. (g) All dividends are recognised before receipt of cash. (h) The corporate income tax rate is 30% and the companies in the group have financial years from 1 st July to 30 June. 7 | P a g e Accounts for PART B of the Assignment: Accounts Heuston Ltd Strongini Ltd 30/06/2X16 30/06/2X16 Balance Sheet Accounts Cash and Cash equivalents $4,628,890 $1,845,890 Trade Debtors (net) $5,708,250 $1,409,540 Accruals & Other Receivables $1,250,000 $142,960 Short term Cash Investments $2,200,000 $0 Inventory $899,030 $549,410 Goodwill and Other Intangibles $1,022,800 $0 Accumulated Impairment and Amortisation of Intangibles -$2,000 $0 Prepayments $2,270,950 $12,490 Loans and Notes Receivable $900,000 $850,000 Motor Vehicles & Truck Fleet $2,018,250 $1,821,040 Accumulated Depreciation – Vehicles -$333,010 -$183,150 Marketable Securities $370,010 $203,500 Investment in Subsidiary $3,200,000 $0 Dividend and Interest Receivable $955,860 $52,570 Trademarks & Patents (net) $17,584,850 $3,671,630 Debentures in Other Companies $2,044,500 $0 Deferred Tax Asset $252,420 $138,320 Property, Plant and Equipment $13,875,460 $2,631,500 Accumulated Depreciation – PPE -$4,625,150 -$526,300 Land $7,247,970 $2,536,380 TOTAL $61,469,080 $15,155,780 Deferred Tax Liability $2,403,040 $599,850 Tax Payable $628,690 $578,220 Dividends Payable (Ordinary Shares) $1,537,450 $125,000 Dividends Payable (Pref Shares) $27,500 $9,000 Trade Creditors $7,010,000 $1,938,300 Other Liabilities & Provisions $2,737,500 $3,401,110 Loans and Notes Payable $900,000 $1,150,000 Debentures (4.5%) $2,368,080 $2,300,000 Issued Share Capital ($1 ORD A shares) $15,374,500 $1,000,000 Issued Share Capital ($1 Preference shares) $550,000 $450,000 General Reserve $5,059,000 $1,703,710 Other Capital Reserve $21,067,990 $1,027,550 Retained Profits (c/b) $1,805,330 $873,040 Total Liabilities & Equity $61,469,080 $15,155,780 8 | P a g e Accounts for PART B of the Assignment: Heuston Ltd Strongini Ltd Profit and Loss Accounts 30/06/2X16 30/06/2X16 Sales and Other Revenue $9,934,100 $3,313,830 Stock at start $555,010 $305,260 Purchases $4,613,700 $1,384,110 Stock at end -$899,030 -$549,410 Cost of Goods Sold $4,269,680 $1,139,960 Gross Profit $5,664,420 $2,173,870 Less Expenses Expenses from Business Operations $1,235,100 $860,500 General Administration Expenses $808,400 $444,660 Depreciation & Amortisation Expenses $1,750,000 $452,830 Impairment Expenses $415,000 $87,000 Finance Costs $303,600 $15,690 Total Expenses $4,512,100 $1,860,680 Add Other Income Dividend and Interest Revenue $1,756,150 $415,880 Other Income & Disposal of Assets $235,000 $487,500 $1,991,150 $903,380 Net Profit before Tax $3,143,470 $1,216,570 less Income Tax Expense -$628,690 -$578,220 Net Profit after Tax $2,514,780 $638,350 Add Retained Profits (o/b) $1,988,490 $713,600 Total Available $4,503,270 $1,351,950 Less Appropriations Interim Ordinary Dividends Paid $614,980 $60,000 Transfer to General Reserve $518,010 $284,910 Dividends (Preference) Proposed $27,500 $9,000 Dividends (Ordinary) Proposed $1,537,450 $125,000 Total Appropriations $2,697,940 $478,910 Retained Profits (c/b) $1,805,330 $873,040 9 | P a g e REQUIRED: Consolidate Heuston Ltd and Strongini Ltd: (a) Prepare the consolidation journal entries, with narrations, and consolidated worksheet (using Excel or similar) to consolidate HEUSTON Ltd and STRONGINI Ltd for the year ended 30th June 2X16. (b) Produce the completed Consolidated Financial Reports (Statement of Comprehensive Income and Statement of Financial Position) for the year ended 30th June 2X16. In preparing the financial statements for this assignment, you are advised to comply with AASB standards and the requirements in the Australian Corporations Legislation when determining the structure and presentation requirements for the financial reports. PART B: Submission Instructions (HARD COPY) : Part B is to be submitted as a HARD Copy in a Folder. Include the following: o A Cover Sheet with names and student ID numbers for all members of the team o Consolidation Journal Entries (with all workings clearly shown) o Consolidation Worksheet (generally as a print-out of an Excel Spreadsheet) o Consolidated Financial Reports o One submission per GROUP o Due Date: Monday 17 OCTOBER 2016 by 5:30pm (Information about an Assignment Submission Box will be made available closer to the due date)
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