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(solution) Ahmad On 1 July 2010 Parent Ltd purchased 100% of the issued


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Ahmad

 

On 1 July 2010 Parent Ltd purchased 100% of the issued capital of Sub Ltd for a purchase price of

 

$200,000. At that date the shareholders? equity of Sub Ltd disclosed:

 

Share capital

 

$100,000

 

General reserve

 

$30,000

 

Retained earnings

 

$60,000

 

Goodwill

 

$30,000

 

Additional information:

 

1. At the date of acquisition, all net identifiable assets of Sub Ltd were recorded at fair value,

 

except that one of the equipment that Sub Ltd owns has a fair value of $90,000. This

 

equipment was initially acquired for $70,000 and the accumulated depreciation at the date of

 

acquisition was $50,000. Sub Ltd is using cost model and has not revalued plant and

 

equipment in its accounting record. Upon the revaluation, the group decides the revalued

 

equipment has a further useful life of 7 years.

 

2. On 1 July 2010, Sub Ltd acquired land from Parent Ltd for $40,000 cash. Prior to the transfer,

 

the land was shown in the accounting records of Parent Ltd at cost, $60,000.

 

3. Sales by Sub to Parent Ltd were $30,000.

 

4. Unrealised profit in the opening inventory (1.7.2011) of Sub Ltd for goods sold by Parent Ltd

 

was $32,000. Unrealised profit in the closing inventory (30.6.2012) of Parent Ltd for goods

 

sold by Sub Ltd was $65,000

 

5. On 1 January 2011 Sub Ltd sold an item of plant to Parent Ltd for $14,000. The carrying

 

amount at the time of sale was $8,000 (cost was $14,000). At the time of the sale the asset

 

had a remaining useful life of 5 years.

 

6. Included in the accounts payable of Sub Ltd is $30,000 owing to Parent Ltd.

 

7. Parent Ltd charges Sub Ltd 10% interest for the $20,000 loan given on 1 July 2011.

 

8. Company tax rate is 30%

 

Required:

 

a) Prepare consolidation journal entries for the year ended 30 June 2012

 

b) Complete the consolidation worksheet provided below; and

 

c) Prepare consolidated financial statements. 1 Sales

 

Less Cost of goods sold

 

Gross profit

 

Add: dividends from Sub

 

Profit from sale of ppe

 

Interest income

 

Income subtotal

 

Selling expenses

 

Administration expenses

 

Financial expenses

 

Less: Total operating expenses

 

Net Operating income

 

Less: Income tax expense

 

Profit for the year

 

Retained earnings 1.7.11

 

Less: Interim dividend

 

Proposed dividend

 

To General reserve

 

Retained earnings 30.6.12

 

Share capital

 

General reserve

 

Fair value adjustment

 

Shareholders' equity

 

Assets

 

Land & buildings

 

Motor vehicles (net)

 

Plant & equipment (net)

 

Investment in Sub Ltd

 

Receivables

 

Inventory

 

Cash at bank

 

Goodwill on consolidation

 

Deferred tax asset

 

Total assets

 

Provision for dividend

 

Provision for taxation

 

Payables

 

Deferred tax liability

 

Total liabilities

 

Net assets Parent Ltd

 

$5,150,000

 

$2,150,000

 

$3,000,000

 

$3,000 Sub Ltd

 

$4,170,000

 

$1,900,000

 

$2,270,000 Adjustme

 

nts Debit Adjustme

 

nts Credit Group

 

data $100,000

 

$2,000

 

$3,005,000

 

$146,000

 

$406,200

 

$362,000

 

$914,200

 

$2,090,800

 

$900,000

 

$1,190,800

 

$350,000

 

$55,000

 

$90,000

 

$1,395,800

 

$1,200,000

 

$160,000 $2,370,000

 

$228,400

 

$260,000

 

$220,000

 

$708,400

 

$1,661,600

 

$560,000

 

$1,101,600

 

$60,000

 

$3,000

 

$45,000

 

$10,000

 

$1,103,600

 

$100,000

 

$40,000 $2,755,800 $1,243,600 $820,000

 

$530,000

 

$950,000

 

$200,000

 

$586,000

 

$500,000

 

$300,000 $415,000

 

$75,000

 

$400,000 $101,300

 

$3,987,300

 

$50,000

 

$315,500

 

$820,000

 

$46,000

 

$1,231,500

 

$2,755,800 $300,000

 

$455,000

 

$192,000

 

$30,000

 

$27,900

 

$1,894,900

 

$45,000

 

$250,000

 

$320,000

 

$36,300

 

$651,300

 

$1,243,600 2

 


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