The equity of Nile Ltd at acquisition date was as follows.
All the identifiable assets and liabilities of Nile Ltd at 1 July 2021 were recorded at fair values except for some depreciable non-current assets with a fair value of $15 000 greater than carrying amount. These depreciable assets are expected to have a further 5-year life.
Additional information
At 30 June 2023, Batter Ltd had inventories costing $100,000 (2022: $60 000) on hand which had been purchased from Nile Ltd. A profit before tax of $30,000 (2022: $10, 000) had been made on the sale.
All companies adopt the recommendations of AASB 112 regarding tax-effect accounting. Assume a tax rate of 30% applies.
Information about income and changes in equity of Nile Ltd as at 30 June 2023 is as follows.
All dividends may be assumed to be out of the profit for the current year. Dividend revenue is recognised when declared by investees.
The equity of Nile Ltd at 30 June 2023 was as follows.
Profit before tax
$
360 000
Income tax expense
180 000
Profit
180 000
Retained earnings at 1/7/22
50 000
230 000
Dividend paid
$
50 000
Dividend declared
50 000
100 000
Retained earnings at 30/6/23
$
130 000
The asset revaluation surplus arose from a revaluation of freehold land made at 30 June 2023. The general reserve arose from a transfer from retained earnings in June 2022.
Required
Assume Bater Ltd does not prepare consolidated financial statements. Prepare the journal entries in the records of B
Batter Ltd for the year ended 30 June 2023 in relation to the investment in Nile Ltd.
Assume Batter Ltd does prepare consolidated financial statements. Prepare the consolidated worksheet entries for the year ended 30 June 2023 for inclusion of the equity-accounted results of Nile Ltd.
Practice problems
There are 4 questions in total, and you have an hour to complete them. You may not return to a question after moving on to the next question. Be sure you are comfortable with your answer before proceeding. I provide two examples of the questions to be answered for your reference.
Capism Debrief Discussion
Accounting Assignment Help in this discussion, debrief your Competitive Round 1. What did you learn
from your decisions and rationale for the solutions you implemented in
Round 1? What do your reports tell? In particular, focus your responses
using the following sections from the Foundation FastTrack: low-tech
segment, high-tech segment, and perceptual map.
Please only accept if you are familiar with CAPISM
need help
The probability distribution for complete certainty is a vertical line. The probability distribution for total uncertainty is the X axis from -? to ?. The risk premium on a high beta stock would increase more.
RPj = Risk Premium for Stock j = (rM – rRF)bj. If risk aversion increases, the slope of the SML will increase, and so will the market risk premium (rM – rRF). The product (rM – rRF)bj is the risk premium of the jth stock. If bj is low (say, 0.5), then the product will be small; RPj will increase by only half the increase in RPM. However, if bj is large (say, 2.0), then its risk premium will rise by twice the increase in RPM.
According to the Security Market Line (SML) equation, an increase in beta will increase a company’s expected return by an amount equal to the market risk premium times the change in beta. For example, assume that the risk-free rate is 6 percent, and the market risk premium is 5 percent. If the company’s beta doubles from 0.8 to 1.6 its expected return increases from 10 percent to 14 percent. Therefore, in general, a company’s expected return will not double when its beta doubles.
Question 1
Berg Inc. has just paid a dividend of $2.00. Its stock is now selling for $48 per share. The firm is half as risky as the market. The expected return on the market is 14 percent, and the yield on U.S. Treasury bonds is 11 percent. If the market is in equilibrium, what rate of growth is expected?
Question 2
Carlson Products, a constant growth company, has a current market (and equilibrium) stock price of $20.00. Carlson’s next dividend, , is forecasted to be $2.00, and Carlson is growing at an annual rate of 6 percent. Carlson has a beta coefficient of 1.2, and the required rate of return on the market is 15 percent. As Carlson’s financial manager, you have access to insider information concerning a switch in product lines which would not change the growth rate, but would cut Carlson’s beta coefficient in half. If you buy the stock at the current market price, what is your expected percentage capital gain?
Question 3
Rose Industries is currently trading for $47 per share. The stock pays no dividends. A one-year European call option on Luther with a strike price of $45 is currently trading for $7.45. If the risk-free interest rate is 6% per year, then calculate the price of a one-year European put option on Luther with a strike price of $45.
Question 4
Suppose you believe that Basso Inc.’s stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $3.10 you can buy a 5-month call option giving you the right to buy 1 share at a price of $25
Submitting the Initial Posting:Your initial posting should be completed by Thursday, 11:59 p.m. EST.
Response to Other Student Postings: Respond substantively to the post of at least two peers, by Friday, 11:59 p.m. EST. A peer response such as “I agree with her,” or “I liked what he said about that” or similar comments are not considered substantive and will not be counted for course credit.
[Continue the discussion through Sunday,11:59 p.m. EST by highlighting differences between your postings and your colleagues’ postings. Provide additional insights or alternative perspectives]
Evaluation of posts and responses: Your initial posts and peer responses will be evaluated on the basis of the kind of critical thinking and engagement displayed. The grading rubric evaluates the content based on seven areas:
Content Knowledge