accounting-Statements of comprehensive income for the year ended 30 June 2014

Case study of Sun Ltd and Callis LtdYou are the financial accountant of Sun Ltd, a food manufacturing company in Western Australia. You have been asked by the CEO to prepare the consolidated financial accounts for the year ended 30 June 2014.The statements of comprehensive income and financial position of Sun Ltd and its subsidiary, Callis Ltd, for the year ended 30 June 2014 are as follows:Statements of comprehensive income for the year ended 30 June 2014Sun LtdCallis Ltd$$Sales425,875201,000Cost of Sales-194,000-83,000Gross profit231,875118,000Dividend received from Callis Ltd15,600Interest received from Sun Ltd1,000247,475119,000Expenses-114,500-62,000Operating profit before tax132,97557,000Income tax expense-59,500-22,000Operating profit after tax73,47535,000Retained earnings at 1 July 201324,00019,000Interim dividend paid-8,000-9,500Final dividend declared-45,000-22,500Retained earnings at 30 June 201444,47522,000Statements of financial position as at 30 June 2014Sun LtdCallis Ltd$$AssetsCurrent assetsInventory32,00022,000Other current assets88,57550,400Total current assets120,57572,400Non-current assetsProperty, plant and equipment306,000175,000Investment in Callis Ltd140,500-Investment in debentures-10,000Total non-current assets446,500185,000Total assets567,075257,400LiabilitiesCurrent liabilitiesTrade and other payables30,10019,400Current tax liability59,50024,000Provision for final dividend45,00022,500Total current liabilities134,60065,900Non-current liabilities10% debentures50,000-Total non-current liabilities50,000-Total liabilities184,60065,900Net assets382,475191,500Shareholders’ equityShare capital300,000150,000General reserve38,00019,500Retained income44,47522,000Total equity382,475191,500Details of the subsidiaryOn 1 July 2005, Sun Ltd acquired 80% of Callis Ltd, a food manufacturer in New South Wales, for cash. At 1 July 2005, the shareholders’ equity of Callis Ltd was as follows:$Share Capital150 000General reserve4 000Retained earnings4 000Sun Ltd regarded the assets of Callis Ltd to be fairly valued at the date of acquisition except for land which has a fair value which is $20 000 larger than that recorded in Callis Ltd’s records. This is to be accounted for as a consolidation adjustment.Additional information1. Sun Ltd records dividend revenue in the accounting period when the cash is received.2. The final dividend declared by Callis Ltd for the June 2013 year was $10 000 and it was paid on 1 August 2013. The interim dividend for the June 2014 year was paid on 30 June 2014.3. The directors have applied the impairment test for goodwill annually and determined that a write-down of $1 000 is required for consolidation purposes as at 30 June 2014. The cumulative goodwill impairment write-downs for prior years totalled $1 500.4. Inter-company sales for the year ended 2014:From Sun Ltd to Callis Ltd$40 000From Callis Ltd to Sun Ltd$20 0005. Opening inventory of Sun Ltd includes unrealised profit of $2 000 on inventory sold by Callis Ltd. Sun Ltd has sold half of this inventory during the year.6. Both companies use the perpetual inventory method.7. During the current year, Callis has purchased inventory from Sun Ltd at a profit of $6 000. 75% of this inventory was sold outside the group at the end of the year.8. Callis Ltd purchased $10 000 10% debentures in Sun Ltd at 1 July 2013.9. The tax rate is 30%.Required:a) For the accounting records of Sun Ltd show the general journal entries (including narrations) to record:i) The acquisition of the shares in Callis Ltd on 1 July 2005. (2 marks)ii) The dividends received from Callis Ltd in the year ended 30 June 2014. (3 marks)b) Prepare the consolidated financial statements of Sun Ltd and its subsidiary as at 30 June 2014 (Statement of Comprehensive Income, Statement of Financial Position and Statement of Changes in Equity). (30 marks)Assume the partial goodwill method.Show all workings including the following:i) Acquisition analysisii) Consolidation journal entries (including narrations)iii) Worksheet andiv) Calculation of the non-controlling interest (NCI).c) You have a cousin starting the ACCT5511 course. Explain the main differences between the partial and full goodwill methods. (5 marks)Note: Please do not forget narrations for journal entries!



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