Student ID Number:

FIN
AL EXAMINATION
(Online)
Semester 1 2021
COURSE NAME: Advanced Financial Accounting

COURSE CODE: ACCT702

TIME ALLOWED: 3 hours plus 10 minutes reading time

DATE: Thursday 17 June 2021

TOTAL MARKS: 100%

INSTRUCTIONS:
1. Once you start your exam you have 3 hours 30 minutes which includes 3 hour exam plus 10
minutes reading time, plus 10 minutes to download and 10 minutes to upload to Turnitin’.
2. Answer ALL the questions.
3. The marks allocated to each question are indicated in brackets.
4. Non-programmable calculators are permitted, all other devices are not allowed
5. Type your answer in the space provided on this Exam.
6. Answers should be supported with appropriate workings and/or other references where applicable.
7. Use single line spacing and Times New Roman or Arial font type, size 12.
8. Insert your Student ID number as a header on the Exam.
9. Upload your completed Exam (Word format - no PDF files) to Turnitin via
Blackboard.

EXAM SUMMARY:
Section Marks Suggested time (Minutes) Given/Obtained Marks/Grades
Section 1 (Short 60 105
Answer)
Section 2 (Long 40 75
Answer)
Total 100 180

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SECTION 1:
SHORT ANSWER (TOTAL: 60 MARKS)

Question 1 (16 marks)

Accounting for Agriculture

a) Birkdale Orange Farm Limited grows oranges, which are sold to local orange jam producers. At 1
January 2020, Birkdale Orange Farm Limited’s orange trees have a market value of $150,000. During
the reporting period ended 31 December 2020, $8,000 was spent on fertilisers. Oranges with a
market value of $80,000 were harvested. The oranges would have to be packed and delivered at a
cost of $5,000 before they could be sold. At 31 December 2020, the net market value of Birkdale
Orange Farm Limited’s orange trees was $170,000.

Required:

i) Prepare journal entries to account for the agriculture assets of Birkdale Orange Farm Limited for the
reporting period ending 31 December 2020.
(5 marks)
Accounts Debit $ Credit $

ii) What is Birkdale Orange Farm Limited’s gross profit for the period ending 31 December 2020?
(2 marks)
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Type your answer here

b) Discuss the pros and cons of the way NZ IAS 41 requires companies to recognise the gain on
biological assets.
(5 marks)

Type your answer here

c) Explain why deep-water fishing is not accounted for under NZ IAS 41 but the aquaculture of
salmon is.
(4 Marks)
Type your answer here

Question 2 (16 marks)

Control and Equity Accounting

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a) Orewa Ltd also owns 45% of another company, Raglan Ltd. Raglan Ltd was started by Will Chen,
and the remaining 55% of shares are still owned by Chen Family members. The Chen Family is
very large (over 100 people) and family members do not get along with each other. Currently,
Orewa Ltd controls 3 out of the 5 Board of Director seats for Raglan Ltd.

Required:
Explain how Orewa Limited should account for its investment in Raglan Limited, with reference to the
definition of control.
(5 marks)

Type your answer here

b) Glenfield Ltd owns 40% of the shares of Albany Ltd; no other party owns more than 3% of the
shares. The annual general meeting of Albany Ltd is to be held in one month’s time. Historically,
only the holders of around 75% of the shares were present and voted in each of the previous
years’ annual meetings.

Required:

a) Discuss the potential for Albany Ltd to be classified as a subsidiary of Glenfield Ltd.

(5 marks)

Type your answer here

b) On 1 January 2019, Eden Valley Ltd, acquired a 20 per cent interest in Arch Hill Ltd for $120,000
in cash. As at the acquisition date, the assets of Arch Hill Ltd were reported at fair value. In
addition:

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 For the year ended 31 December 2019, Arch Hill Ltd recorded an after-tax loss of $17,000.
 For the year ended 31 December 2020, Arch Hill Ltd recorded an after-tax profit of $20,000
and paid a dividend of $5,000.

Required:

Record the relevant equity accounting adjustments in the books of Eden Valley Ltd for the year
ending 31 December 2020 only. Eden Valley Ltd accounts for its investment in Arch Hill Ltd using
equity accounting.
(3 marks)

Accounts Debit $ Credit $

c) Discuss the effect of equity accounting relative to cost accounting on Return on Asset for Eden
Valley Limited for the financial year ended 2020.
(3 marks)

Type your answer here

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Question 3 (13 marks)

Foreign Currency Transactions

a) Explain what is meant by the term ‘exchange difference’ and the difference between a
realised and unrealised exchange gain/loss.

(5 marks)

Type your answer here

b) Lingling Limited entered purchased inventories from the United States for UK£300,000. The order
was placed on 20 January 2020 with delivery due by 31 January 2020. Under the condition of the
contract, title to the goods passes to the company on delivery. Payment in respect of these
inventories is due in three equal instalments on 28 February 2020, 31 March 2020 and on 30 April
2020 respectively. The company’s end of reporting period is 31 March 2020. The following exchange
rates are applicable:

20 January 2020 UK£0.51 = NZ$1.00

31 January 2020 UK£0.54 = NZ$1.00

28 February 2020 UK£$0.56 = NZ$1.00

31 March 2020 UK$£0.59 = NZ$1.00

30 April 2020 UK£0.65 = NZ$1.00

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Required:
Prepare journal entries to reflect the effects of NZ IAS 23 (Please round up to the nearest whole
number)
(8 marks)

Accounts Debit $ Credit $

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Question 4 (15 marks)

Consolidation Accounting

Tamaki Limited acquired 100% of Westlake Limited for $360,000 in cash on 1 January 2017.

Additional information:
 On 1 January 2020, Tamaki Limited sold Westlake Limited a piece of equipment for $160,000.
Tamaki Limited initially bought the equipment for $200,000 with useful life of 10 years. At the
time of the sale the equipment had $100,000 accumulated depreciation and an economic life
remaining of 5 years (with no salvage value).
 Westlake Limited also bought inventory from Tamaki Limited during the 2020 financial year.
Westlake Limited paid $55,000 for the inventory, which had cost Tamaki Limited $42,000. As at
31 December 2020, 70 per cent of the inventory had been sold outside the group.
 During the 2020 financial year Westlake Limited declared and paid an interim dividend of
$3,000 and announced a final dividend of $6,000.
 Assume a 31 December year end and no tax.

Required:

Record the consolidation adjustments for the year ending 31 December 2020.

Accounts Debit $ Credit $

SECTION 2:
LONG ANSWER (TOTAL: 40 MARKS)

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Question 1 (20 marks)
Accounting for Income Taxes

Clover Park Ltd started operation on 1 July 2019. The entity prepares its first statement of
comprehensive income and its first statement of financial position on 30 June 2020 as follows:
Statement of comprehensive income
for the year ended 30 June 2020
$
Gross profit 500,000
Wages expense (200,000)
Long service leave expense (50,000)
Bad debts expense (20,000)
Rent expense (50,000)
Depreciation expense – machinery (30,000)
Accounting profit before tax 150,000

Assets and liabilities as disclosed in the statement of financial position (Extract)

as at 30 June 2020
$
Assets
Cash 150,000
Inventories 200,000
Accounts receivables (net) 180,000
Prepaid rent 50,000
Machinery 150,000
Accumulated depreciation – machinery (30,000)
700,000
Liabilities
Accounts payable 100,000
Revenue received in advance 50,000
Loan payable 200,000
Provision for long service leave 50,000
400,000
Additional information
 The company tax rate is assumed to be 30%
 All salaries have been paid as at year end and are deductible for tax purposes
 None of the long service leave expense has actually been paid. It is not deductible for tax purposes
until it is actually paid.
 Rent was paid in advance on 1 July 2020. Actual amounts paid are allowed as a tax deduction
 Amounts received from sales, including those on credit terms, are taxed at the time the sale is
made. No bad debts were written off.
 The revenue received in advance is included in the taxable income.
 The machinery is depreciated on a straight-line basis over 5 years for accounting purposes, but over
3 years for taxation purposes. The machinery is not expected to have any residual value.

Required:

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a) Prepare the current tax worksheet and the journal entry to recognise current tax at 30 June 2020.

(8 marks)

Current Tax Worksheet for year ended 30 June 2020

$ $

Accounting profit before tax

Add:

Deduct

Taxable Income

Current tax liability @ 30%

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Journal entry to recognise current tax

Accounts Debit $ Credit $

b) Prepare the deferred tax worksheet and journal entries to adjust deferred tax accounts at 30
June 2020. (Show all workings)
(12 marks)

Deferred tax worksheet at 30 June 2020

Carrying amount Tax base Taxable TD Deductible TD

$ $ $ $

Assets

Cash 150,000

Inventories 200,000

Accounts receivables 180,000

Prepaid rent 50,000

Machinery 120,000

Liabilities

Accounts payable 100,000

Revenue received in 50,000

advance

Loan payable 200,000

Provision for long 50,000

service leave

Total temporary
difference

Less: Opening balance

Movements for the

period

Adjustment to be
made @30%
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Journal entry to adjust deferred tax account

Accounts Debit $ Credit $

Question 2 (20 marks)

Consolidation Accounting

a) Discuss two benefits of consolidated financial statements for potential users of accounting
information.

(4 marks)
Type your answer here

b) Kawakawa Limited acquired 100 per cent of the shares of Matamata Limited on 1 April 2019 for a
consideration of $1.25 million representing the fair value of the consideration transferred. The
contributed equity and reserves of Matamata Limited at the date of acquisition were:

$
Contributed equity 750,000
Retained earnings 375,000
Revaluation surplus 375,000
1,500,000
Additional information:
There were no transactions between the entities and all assets were fairly valued at the date of
acquisition. No land or plant was acquired or sold by Matamata Limited in the reporting period to
31 March 2020. The financial statements of Kawakawa Limited and Matamata Limited at 31 March
2020 (one year after acquisition) were:

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Kawakawa Limited Matamata Limited

($000) ($000)
RECONCILIATION OF OPENING AND CLOSING
RETAINED EARNINGS
Profit before tax 750 375
Income tax expense (250) (125)
Profit for the year 500 250
Retained earnings – 1 April 2019 1,000 375
Retained earnings – 31 March 2020 1500 625
Statement of financial position
Equity
Contributed equity 3,000 750
Retained earnings 1,500 625
Revaluation Surplus 750 500
Current liabilities
Accounts payable 250 250
Non-current liabilities
Loans 1,500 625
7,000 2,750
Current assets
Cash 250 200
Accounts receivable 875 300
Non-current assets
Land 1,750 750
Plant 2,875 1,500
Investment in Matamata Limited 1,250 -
7,000 2,750

Required:
(a) Calculate any goodwill or gain on bargain purchase on acquisition.
(2 marks)
Type your answer here

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(b) Prepare a consolidation journal entry to eliminate the investment in Matamata Limited.
(3 marks)

Accounts Debit $ Credit $

(c) Prepare the consolidated financial statements of Kawakawa Limited as at 31 March 2020 in the form
of a consolidation worksheet. Your consolidation worksheet should have additional debit and credit
columns to show the effect of the elimination as well as a column that shows the consolidated
figures.
(11 marks)
Elimination and adjustments
Kawakawa Matamata Dr Cr Consolidated
Ltd Ltd Statement
$’000 $’000 $’000 $’000 $’000

END OF EXAMINATION

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