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Topic 2: Consolidation: Intra-grouptransactions
On 1 July 2015, Ping Pong Ltd acquired all the issued shares ofSing Song Ltd. At the date of acquisition, the shareholdersâ equityof Sing Song Ltd consisted of share capital $120,000; generalreserve $25,000 and retained earnings $55,000. The identifiable netassets of Sing Song Ltd were recorded at amounts equal to theirfair values, except for the following assets:
Carrying amount | Fair value | |
$ | $ | |
Land | 100,000 | 130,000 |
Inventories | 78,500 | 86,100 |
Machinery (cost $86,000) | 52,000 | 56,000 |
Vehicles (cost $58,000) | 47,000 | 53,000 |
The assets of Sing Song Ltd at acquisition date includedgoodwill recorded at $15,000 arising from a business combinationtransaction in 2011. As at the date of acquisition, the vehiclesand machinery were expected to have a further useful life of 6 and8 years respectively, with benefits to be received evenly overthose periods. Inventories on hand on 1 July 2015 was all sold by31 January 2016. The land owned at 1 July 2015 was sold inSeptember 2016 for $150,000. The machinery on hand at 1 July 2015was sold on 1 January 2018 for $38,000.
Adjustments for the differences between carrying amount and fairvalues of assets and liabilities on hand at acquisition date arerecognised on consolidation. When assets are sold or derecognised,any related valuation reserves are transferred to retainedearnings.
At 1 July 2015, Sing Song Ltd owned but had not recorded aninternally generated brand name, an identifiable asset included aspart of the business combination transaction. This brand name wasconsidered by Ping Pong Ltd to have a fair value of $29,000 and anindefinite useful life. An impairment test conducted with respectto the brand name on 30 June 2018 concluded that its recoverableamount at that date was $2,000 less than its carrying amount.
In June 2017, Sing Song Ltd paid a share dividend worth $20,000from the general reserve on hand at 1 July 2015.
The trial balances of both companies at 30 June 2018 showed thefollowing balances:
Ping Pong Ltd | Sing Song Ltd | |||
Dr ($) | Cr ($) | Dr ($) | Cr ($) | |
Sales revenue | 450,000 | 320,000 | ||
Dividend revenue | 17,000 | - | ||
Other income | 11,400 | 17,000 | ||
Proceeds on sale of equipment | 18,000 | - | ||
Proceeds on sale of machinery | - | 38,000 | ||
Cost of sales | 210,000 | 192,550 | ||
Income tax expense | 30,000 | 32,000 | ||
Depreciation and other expenses | 39,000 | 36,000 | ||
Carrying amount of equipment sold | 21,000 | - | ||
Carrying amount of machinery sold | - | 30,500 | ||
Dividend paid | 10,000 | 5,000 | ||
Dividend declared | 20,000 | 12,000 | ||
Transfer to general reserve | 10,000 | 5,000 | ||
Share capital | 200,000 | 140,000 | ||
General reserve | 35,000 | 10,000 | ||
Retained earnings (1 July 2017) | 51,300 | 67,500 | ||
Accounts payable | 69,500 | 36,000 | ||
Loan payable (due 30 June 2022) | 25,000 | 15,000 | ||
Dividend payable | 20,000 | 12,000 | ||
Provisions | 12,500 | 9,300 | ||
Current tax liability | 43,000 | 34,000 | ||
Deferred tax liability | 11,800 | 5,000 | ||
Accumulated depreciation-vehicles | 16,400 | 60,000 | ||
Accumulated depreciation-equipment | - | 34,500 | ||
8%Debentures (matures 30 June 2021) | 25,000 | - | ||
Cash | 2,500 | 1,250 | ||
Receivables | 27,000 | 13,000 | ||
Inventories | 39,700 | 24,500 | ||
Other current assets | 15,200 | 8,200 | ||
Deferred tax assets | 7,500 | 3,500 | ||
Vehicles | 88,000 | 158,000 | ||
Equipment | - | 42,000 | ||
Land | 140,000 | 180,000 | ||
Financial assets | 68,000 | 14,800 | ||
Goodwill | 28,000 | 15,000 | ||
Shares in Sing Song Ltd | 250,000 | - | ||
Debentures in Ping Pong Ltd | - | 25,000 | ||
1,005,900 | 1,005,900 | 798,300 | 798,300 |
Additional information:
On 1 January 2018, Ping Pong Ltd sold an item of equipment toSing Song Ltd for $18,000. The equipment had a carrying amount atthe date of sale of $21,000. Both companies depreciate equipment at20% on a straight line basis.
On 1 May 2017, Sing Song Ltd sold a machine to Ping Pong Ltd for$7,800. The machine had a carrying amount of $7,000 at the date ofsale. Ping Pong Ltd recorded the machine as inventories. Theinventories item was sold to an external party in November 2017 for$8,200.
All interests on the 8% debentures has been paid and brought toaccount in the records of both companies.
During the 2017-2018 financial year, Ping Pong Ltd soldinventories to Sing Song Ltd for $75,000. The cost of theseinventories to Sing Song Ltd was $70,000. Of these inventories, 25%is still on hand at 30 June 2018.
The transfer to the general reserve recorded by Sing Song Ltd inthe current year was from retained earnings recorded at 1 July2015.
The tax rate is 30%.
Required:
Prepare an acquisition analysis.
Prepare the consolidation worksheet entries necessary to preparethe consolidated financial statements for the year ending 30 June2018 for the group comprising Ping Pong Ltd and Sing Song Ltd.
Note: you are not required to prepare the consolidationworksheet and the consolidated financial statements.
QUESTION 26
Age 65 has come to be considered the onset of old age in the U.S. because:
a. | This is when most older adults find their abilities diminishing | |
b. | At age 65, physical appearance makes it evident that a person is old | |
c. | This is the age identified in Social Security and Medicare at the time these were enacted | |
d. | This is the age at which life expectancy diminishes most rapidly |
1 points
QUESTION 27
The concept of "dependency ratios" has been criticized because:
Individual differences in needs as well as differences in aging and activity choices make it difficult to ascertain which generation depends on which other generations. | ||
Very few older adults ever rely on younger individuals for support and assistance | ||
The most dependent generation may well be young adults | ||
It is common knowledge that older adults are dependent on younger individuals |
1 points
QUESTION 28
Which of the following is the most accurate statement about the purpose of theory in understanding aging?
a. | Theories attempt to explai what we observe in empirical research or practice | |
b. | A goal is to consolidate practice around a simple set of principles | |
c. | Theories resolve disputes about the nature of reality and definitions of aging | |
d. | The most important purpose is to reduce apparently complex phenomena to a few basic factors |
1 points
QUESTION 29
Explanations that focus on the situations and problems that accumulate during the life span and cannot be understood separate from developmental experiences are considered to reflect:
a. | The aged | |
b. | Aging | |
c. | Age | |
d. | The meaning of life |
1 points
QUESTION 30
Early theories of aging, described later life as a:
a. | Problem | |
b. | normal, welcomed stage of life | |
c. | rare and unique process | |
d. | Too idiosyncratic for generalized description |
1 points
QUESTION 31
Theories that explain aging as resulting from the accumulation of "insults" from the environment, which eventually reach a level incompatible with life are labeled:
a. | Sociocultural theories | |
b. | Selective optimization with compensation | |
c. | Model of Human Occupation | |
d. | Stochastic theories |
1 points
QUESTION 32
Psychological theories of aging seek to explain
a. | Reasons for the emergence of mental disorders in late life | |
b. | Why older individuals are likely to be pessimistic | |
c. | Relationships among older and younger individuals | |
d. | The multiple changes in individual behavior in late life |
1 points
QUESTION 33
It is now believed that neurological theories of aging that focus on decline in neurological functioning may be:
a. | Too optimistic | |
b. | Lacking in clarity | |
c. | Too pessimistic | |
d. | Too limited |
1 points
QUESTION 34
In the theory of Selective Optimization with Compensation, "optimization" refers to the idea that:
a. | People engage in behaviors that augment or enrich their general reserves and maximize their chosen life courses | |
b. | People make efforts in middle age to accumulate needed resources to ensure successful aging | |
c. | Changing biological and psychological factors that enhance the abilities of older adults in memory and problem solving | |
d. | Political initiatives that reduce stigma associated with later life |
1 points
QUESTION 35
Mrs. Adams, an 87 year-old widow, has begun to distance herself from some of her extended family members. At the same time, she spends increasing time with her adult children, grandchildren, and some of her close neighbors. This would be an example of:
a. | The Model of Human Occupation | |
b. | Evolutionary Theory | |
c. | Cognition and Aging theories | |
d. | Socioemotional Selectivity Theory |
1 points
QUESTION 36
A theory of particular relevance to occupational and physical therapy is:
a. | Theory of Free Radicals | |
b. | Systems theory of motor control | |
c. | Stochastic theories | |
d. |
1 points
QUESTION 37
Theory is important to therapeutic decisions as a way to:
a. | Reduce the therapist's need to address individual differences | |
b. | Guide decisions about evaluation and intervention | |
c. | Minimize the idea of complexity in understanding older adults | |
d. | Clearly identify the specific evaluation instruments to be used |