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Assignment
Question Description
Pumpkin Group – Consolidated financial statements
Pumpkin Ltd is a large successful agricultural company based in Morrinsville. You are the assistant accountant with the company and have been asked to draft the company’s group accounts. Tom Ato, head of group accounting briefed you as follows and followed up with emailed information for you to work with.
Tom has stressed that the company has a staff code of conduct, which requires staff to treat all company information as strictly confidential. The code permits reviewing reference material, conducting research, and discussing and seeking advice about accounting procedures with others but does not allow sharing any financial information with anyone including unauthorised staff. He suggests that similar ethics apply, to those you would have experienced with regard to your university assignments. The emailed information should not be shared with your ex-classmates, the press or on social media. He warned that breaches of this code lead to disciplinary action and immediate dismissal.
PHASE 1
Tom Ato emailed the following information:
From: Tom Ato
Subject: Company financial information for group accounts
Date: 4 March 2019
Kia ora,
I hope you enjoy this new challenge of drafting the group accounts, Here is all the information you need.
Consolidation accounting policies : The consolidated financial statements incorporate the financial statements of the subsidiary (Squash Limited) of Pumpkin Limited (“Parent”) as at the reporting date. Pumpkin Limited and its subsidiary together are referred to in these financial statements as the “Group” or the consolidated entity.
The subsidiary is an entity over which the Parent has control. The Parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
The subsidiary is included in the consolidated financial statements using the acquisition method of consolidation. It is fully consolidated from the date on which control is transferred to the Parent. The Group recognises non-controlling interest at its proportionate share of subsidiary net identifiable assets.
The Subsidiary, Squash on 31 December 2014, Pumpkin Limited acquired 85% of the shares in Squash Limited. On that date, the equity of Squash Limited comprised:
$ Share capital 640,000
Retained earnings 300,000
Equity $940,000
At acquisition, the book value of the assets and liabilities of Squash Limited were considered to be at fair value, except that there were brand names (considered to be part of net identifiable assets) that had a book value of zero and where Pumpkin assessed the fair value to be $120,000. There has been no change to assessed value of these brand names since acquisition. Goodwill impairment At the most recent balance date (31 December 2018), the returns from Squash were not as high as expected. The directors of Pumpkin considered that acquired goodwill had been impaired by $72,000. Tax and Deferred Tax Assume a tax rate of 30% wherever relevant (i.e., for both Phase 1 and Phase 2).
..........
Kind regards,
TA
