How are inter-entity transactions dealt with when accounting for associate companies?

Q1. A compulsory winding up in insolvency order was issued by the court in respect of Rock Bottom Ltd. The company had a capital of 65 000 fully paid ordinary shares of $1 each. The liquidator took possession of the company’s assets which raised $873 145 on sale. Included in the sale proceeds was $221 000 from the disposal of the land and buildings.The creditors submitted their claims and the following debts were admitted as proven:Liquidation expensesLiquidator’s remunerationMortgage loan secured on land and buildingsAdditional mortgage loan on land and buildingsEmployees’ wages 5 employees for 2 weeks at $520 per weekSecretary’s salary — 3 weeks at $314 per week 942 Employees’ holiday paySales commission 650Managing director’s salary — 4 weeks at $780 per week Directors’ feesTrade creditorsUnsecured loan stockDebentures (secured by circulating security interest) PAYG tax instalmentFringe benefits taxGST3 1203 900 104 000 130 000 390 0001 0142 6002 586RequiredShow the order of priority of payment of debts for Rock Bottom Ltd and calculate the amount payable to the company’s ordinary unsecured creditors.(total 30 marks)Q2. a)b) How are inter-entity transactions dealt with when accounting for associate companies?With relation to associate companies what do you understand to be significant influence and how would you identify it? Include in your answer illustrative examples.Give examples.c) How would an investor account for losses made by an associate company?(10 marks)(7 marks)(13 marks) (total 30 marks)$3 9005 20010 400 130 000 104 0006 500 Asia Pacific College of Business and Law ACT305 Corporate Accounting Assignment Semester 2, 2020 Page 2 of 3
Q3 Mandora Cement Pty Ltd owns 90% of Wagait Sand Supplies Pty Ltd and the accountant William Cox is having difficulty understanding the adjustments that are required for the non-controlling interest. He is particularly confused over the need to adjust for intragroup transfers and cannot understand the treatment when it comes to plant and machinery, inventory and a charge from Mandora Cement for management services.RequiredWrite a business report to William Cox setting out the reason for the adjustments, explaining the treatment of the different transfers and any difference between them.(14 marks)The report should take the format of a formal business report, written by your firm with yourself as lead author. Marks will be awarded for presentation style and an appropriate business format.(16 marks) (total 30 marks)

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