Tim Ltd acquired all the issued capital of Tam Ltd on 1 July 2012 for $3,020,000. At that date the shareholdersâ equity of Tam Ltd was:
$
Share Capital
2,200,000
Retained Earnings
640,000
Additional information for the year ended 30 June 2014:
(1) Intercompany sales:
(a) Tim Ltd to Tam Ltd $42,000
(b) Tam Ltd to Tim Ltd $36,000
(2) Unrealised profits in closing inventory as at 30 June 2014 is $2,400 for goods sold by Tam Ltd to Tim Ltd and $4,800 for goods sold by Tim Ltd to Tam Ltd.
(3) Unrealised profit in opening inventory for goods sold by Tim Ltd to Tam Ltd as at 1 July 2013 is $2,800 and for goods sold by Tam Ltd to Tim Ltd is $4,200.
(4) Tim Ltd employees provide administration support to Tam Ltd. For these services, Tam Ltd pays an annual fee of $20,000 per annum.
(5) The final dividend of $33,000 declared as at 30 June 2013, was paid by Tam
Ltd in October 2013. An interim dividend was paid in January $28,000. A
final dividend was declared at 30 June, 2014 $40,000.
(6) On 30 June 2014, Tim Ltd purchased a motor vehicle from Tam Ltd for
$30,000. Tam Ltd made profit on this sale of $7,000.
(7) Tam Ltd raised funds from Tim Ltd by issuing $200,000, 8% Debentures on
1 July 2013. The annual interest charge was paid by Tam Ltd 30 June 2014.
(8) The directors review the balance of goodwill each year. They agree that:
(a) For the year ended 30 June 2013, goodwill was impaired by $10,000.
(b) For the year ended 30 June 2014, goodwill is to be impaired by
$40,000. Trial balance of Tim Ltd and Tam Ltd is attached for your information
Required:
Prepare the appropriate consolidated journal entries for 30 June 2014 to record the following transactions in the worksheet provided:
Trial Balance for Tim Ltd & Tam Ltd: 30 June 2014
Tim Ltd
Tam Ltd
Eliminations
Consolidation
Sales
2,970,000
1,650,000
Less: Cost of Sales
Inventory 01/07/2013
240,000
104,000
Purchases
1,250,000
626,000
1,490,000
730,000
Inventory 30/06/2014
230,000
98,000
Cost of Goods Sold
1,260,000
632,000
Gross Profit
1,710,000
1,018,000
Administration support fees
20,000
0
Gain on Sale of Plant
0
7,000
Dividends Received
61,000
0
Interest Received on Debentures
16,000
0
1,807,000
1,025,000
Less: Expenses - Selling Exp.
160,000
71,000
- Admin Exp.
- Financial Exp.
583,000
104,000
847,000
628,000
16,000
715,000
Operating Profit before Tax
960,000
310,000
Less: Tax expense
288,000
93,000
Profit after Tax
672,000
217,000
Retained Earnings 01/07/2013
1,176,000
843,000
Available for Appropriation
1,848,000
1,060,000
Appropriations
Interim dividend paid
160,000
28,000
Final dividend declared
280,000
40,000
Total Appropriations
440,000
68,000
Retained Earnings 30/06/2014
1,408,000
992,000
Share Capital
4,000,000
2,200,000
8% Debentures
0
200,000
Accounts Payable
144,000
72,000
Final Dividends Payable
280,000
40,000
Taxation Payable
188,000
50,000
6,020,000
3,554,000
Property, Plant & Equip (net)
1,464,000
1,800,000
Shares in Tam Ltd
3,020,000
0
8% Debentures
200,000
0
Other Non-Current Assets
650,000
1,300,000
Inventory
230,000
98,000
Other Current Assets
456,000
356,000
Goodwill on Consolidation
6,020,000
3,554,000
Use the following format:
Tim & Tam Ltd
General Journal
Consolidated worksheet for Tim Ltd & Tam Ltd as at 30 June 2014
Tim Ltd
Tam Ltd
Eliminations
Consolidation
Sales
2,970,000
1,650,000
Less: Cost of Sales
Inventory 01/07/2013
240,000
104,000
Purchases
1,250,000
626,000
1,490,000
730,000
Inventory 30/06/2014
230,000
98,000
Cost of Goods Sold
1,260,000
632,000
Gross Profit
1,710,000
1,018,000
Administration support fees
20,000
0
Gain on Sale of Plant
0
7,000
Dividends Received
61,000
0
Interest Received from Tam ltd
16,000
0
1,807,000
1,025,000
Less: Expenses - Selling Exp.
160,000
71,000
- Admin Exp.
583,000
628,000
- Financial Exp.
104,000
16,000
847,000
715,000
Operating Profit before Tax
960,000
310,000
Less: Tax expense
288,000
93,000
Profit after Tax
672,000
217,000
Retained Earnings 01/07/2013
1,176,000
843,000
Available for Appropriation
1,848,000
1,060,000
Appropriations
Interim Dividend paid
160,000
28,000
Final Dividend declared
280,000
40,000
Total Appropriations
440,000
68,000
Retained Earnings 30/06/2014
1,408,000
992,000
Share Capital
4,000,000
2,200,000
8% Debentures
0
200,000
Accounts Payable
144,000
72,000
Final Dividends Payable
280,000
40,000
Taxation Payable
188,000
50,000
6,020,000
3,554,000
Property, Plant & Equip (net)
1,464,000
1,800,000
Shares in Tam Ltd
3,020,000
0
8% Debentures in Tam
200,000
0
Other Non-Current Assets
650,000
1,300,000
Inventory
230,000
98,000
Other Current Assets
456,000
356,000
Goodwill on Consolidation
6,020,000
3,554,000
Tim Ltd acquired all the issued capital of Tam Ltd on 1 July 2012 for $3,020,000. At that date the shareholdersâ equity of Tam Ltd was:
| $ | |
| Share Capital | 2,200,000 |
| Retained Earnings | 640,000 |
Additional information for the year ended 30 June 2014:
(1) Intercompany sales:
(a) Tim Ltd to Tam Ltd $42,000
(b) Tam Ltd to Tim Ltd $36,000
(2) Unrealised profits in closing inventory as at 30 June 2014 is $2,400 for goods sold by Tam Ltd to Tim Ltd and $4,800 for goods sold by Tim Ltd to Tam Ltd.
(3) Unrealised profit in opening inventory for goods sold by Tim Ltd to Tam Ltd as at 1 July 2013 is $2,800 and for goods sold by Tam Ltd to Tim Ltd is $4,200.
(4) Tim Ltd employees provide administration support to Tam Ltd. For these services, Tam Ltd pays an annual fee of $20,000 per annum.
(5) The final dividend of $33,000 declared as at 30 June 2013, was paid by Tam
Ltd in October 2013. An interim dividend was paid in January $28,000. A
final dividend was declared at 30 June, 2014 $40,000.
(6) On 30 June 2014, Tim Ltd purchased a motor vehicle from Tam Ltd for
$30,000. Tam Ltd made profit on this sale of $7,000.
(7) Tam Ltd raised funds from Tim Ltd by issuing $200,000, 8% Debentures on
1 July 2013. The annual interest charge was paid by Tam Ltd 30 June 2014.
(8) The directors review the balance of goodwill each year. They agree that:
(a) For the year ended 30 June 2013, goodwill was impaired by $10,000.
(b) For the year ended 30 June 2014, goodwill is to be impaired by
$40,000. Trial balance of Tim Ltd and Tam Ltd is attached for your information
Required:
Prepare the appropriate consolidated journal entries for 30 June 2014 to record the following transactions in the worksheet provided:
Trial Balance for Tim Ltd & Tam Ltd: 30 June 2014
| Tim Ltd | Tam Ltd | Eliminations | Consolidation | ||
| Sales | 2,970,000 | 1,650,000 | |||
| Less: Cost of Sales | |||||
| Inventory 01/07/2013 | 240,000 | 104,000 | |||
| Purchases | 1,250,000 | 626,000 | |||
| 1,490,000 | 730,000 | ||||
| Inventory 30/06/2014 | 230,000 | 98,000 | |||
| Cost of Goods Sold | 1,260,000 | 632,000 | |||
| Gross Profit | 1,710,000 | 1,018,000 | |||
| Administration support fees | 20,000 | 0 | |||
| Gain on Sale of Plant | 0 | 7,000 | |||
| Dividends Received | 61,000 | 0 | |||
| Interest Received on Debentures | 16,000 | 0 | |||
| 1,807,000 | 1,025,000 | ||||
| Less: Expenses - Selling Exp. | 160,000 | 71,000 | |||
| - Admin Exp. - Financial Exp. | 583,000 104,000 847,000 | 628,000 16,000 715,000 | |||
| Operating Profit before Tax | 960,000 | 310,000 | |||
| Less: Tax expense | 288,000 | 93,000 | |||
| Profit after Tax | 672,000 | 217,000 | |||
| Retained Earnings 01/07/2013 | 1,176,000 | 843,000 | |||
| Available for Appropriation | 1,848,000 | 1,060,000 | |||
| Appropriations | |||||
| Interim dividend paid | 160,000 | 28,000 | |||
| Final dividend declared | 280,000 | 40,000 | |||
| Total Appropriations | 440,000 | 68,000 | |||
| Retained Earnings 30/06/2014 | 1,408,000 | 992,000 | |||
| Share Capital | 4,000,000 | 2,200,000 | |||
| 8% Debentures | 0 | 200,000 | |||
| Accounts Payable | 144,000 | 72,000 | |||
| Final Dividends Payable | 280,000 | 40,000 | |||
| Taxation Payable | 188,000 | 50,000 | |||
| 6,020,000 | 3,554,000 | ||||
| Property, Plant & Equip (net) | 1,464,000 | 1,800,000 | |||
| Shares in Tam Ltd | 3,020,000 | 0 | |||
| 8% Debentures | 200,000 | 0 | |||
| Other Non-Current Assets | 650,000 | 1,300,000 | |||
| Inventory | 230,000 | 98,000 | |||
| Other Current Assets | 456,000 | 356,000 | |||
| Goodwill on Consolidation | |||||
| 6,020,000 | 3,554,000 | ||||
Use the following format:
Tim & Tam Ltd
| General Journal | |||
Consolidated worksheet for Tim Ltd & Tam Ltd as at 30 June 2014
| Tim Ltd | Tam Ltd | Eliminations | Consolidation | ||
| Sales | 2,970,000 | 1,650,000 | |||
| Less: Cost of Sales | |||||
| Inventory 01/07/2013 | 240,000 | 104,000 | |||
| Purchases | 1,250,000 | 626,000 | |||
| 1,490,000 | 730,000 | ||||
| Inventory 30/06/2014 | 230,000 | 98,000 | |||
| Cost of Goods Sold | 1,260,000 | 632,000 | |||
| Gross Profit | 1,710,000 | 1,018,000 | |||
| Administration support fees | 20,000 | 0 | |||
| Gain on Sale of Plant | 0 | 7,000 | |||
| Dividends Received | 61,000 | 0 | |||
| Interest Received from Tam ltd | 16,000 | 0 | |||
| 1,807,000 | 1,025,000 | ||||
| Less: Expenses - Selling Exp. | 160,000 | 71,000 | |||
| - Admin Exp. | 583,000 | 628,000 | |||
| - Financial Exp. | 104,000 | 16,000 | |||
| 847,000 | 715,000 | ||||
| Operating Profit before Tax | 960,000 | 310,000 | |||
| Less: Tax expense | 288,000 | 93,000 | |||
| Profit after Tax | 672,000 | 217,000 | |||
| Retained Earnings 01/07/2013 | 1,176,000 | 843,000 | |||
| Available for Appropriation | 1,848,000 | 1,060,000 | |||
| Appropriations | |||||
| Interim Dividend paid | 160,000 | 28,000 | |||
| Final Dividend declared | 280,000 | 40,000 | |||
| Total Appropriations | 440,000 | 68,000 | |||
| Retained Earnings 30/06/2014 | 1,408,000 | 992,000 | |||
| Share Capital | 4,000,000 | 2,200,000 | |||
| 8% Debentures | 0 | 200,000 | |||
| Accounts Payable | 144,000 | 72,000 | |||
| Final Dividends Payable | 280,000 | 40,000 | |||
| Taxation Payable | 188,000 | 50,000 | |||
| 6,020,000 | 3,554,000 | ||||
| Property, Plant & Equip (net) | 1,464,000 | 1,800,000 | |||
| Shares in Tam Ltd | 3,020,000 | 0 | |||
| 8% Debentures in Tam | 200,000 | 0 | |||
| Other Non-Current Assets | 650,000 | 1,300,000 | |||
| Inventory | 230,000 | 98,000 | |||
| Other Current Assets | 456,000 | 356,000 | |||
| Goodwill on Consolidation | |||||
| 6,020,000 | 3,554,000 | ||||
Related questions
Topics 1 to 3 - Consolidation: Principles, accounting requirements, intra-group transactions and non-controlling interests
Parent Ltd acquired 80% of the issued shares of Subsidiary Ltd on 1 July 2014. At the acquisition date, the equity of Subsidiary Ltd consisted of Share Capital of $200,000; Retained Earnings of $ 74,000 and General Reserve of $6,000.
Parent Ltd uses the full goodwill method. The fair value of non-controlling interest at 1 July 2014 was $63,000.
All the identifiable net assets of Subsidiary Ltd were recorded at fair value at the date of acquisition, except for the following assets:4
| Carrying amount | Fair value | |
| $ | $ | |
| Plant (cost $150,000) | 100,000 | 110,000 |
| Land | 60,000 | 76,000 |
The plant has a further 10-year life, with benefits expected to be received evenly over that period. The land was sold on 1 February 2015 for $80,000. Any valuation reserve in relation to the land is transferred to retained earnings on consolidation.
Three years after acquisition, the financial information at 30 June 2017 of the two companies appears as follows:
|
| Parent Ltd | Subsidiary Ltd |
| $ | $ | |
| Sales | 632,000 | 440,000 |
| Other revenue: | ||
| Debenture interest | 10,000 | - |
| Management and consulting fees | 10,000 | - |
| Dividends from Subsidiary Ltd | 24,000 | - |
| Total revenue | 676,000 | 440,000 |
| Cost of sales | 260,000 | 170,000 |
| Manufacturing expenses | 180,000 | 120,000 |
| Depreciation on plant | 30,000 | 30,000 |
| Administrative expenses | 30,000 | 16,000 |
| Financial expenses | 22,000 | 10,000 |
| Other expenses | 28,000 | 24,000 |
| Total expenses | 550,000 | 370,000 |
| Profit before tax | 126,000 | 70,000 |
| Income tax expense | (50,000) | (34,000) |
| Operating profit after tax | 76,000 | 36,000 |
| Retained earnings 1 July 2016 | 100,000 | 90,000 |
| 176,000 | 126,000 | |
| Transfer to general reserve | 6,000 | - |
| Interim dividend paid | 20,000 | 20,000 |
| Final dividends declared | 20,000 | 10,000 |
| 46,000 | 30,000 | |
| Retained earnings 30 June 2017 | 130,000 | 96,000 |
| General reserve | 100,000 | 20,000 |
| Other components of equity | 26,000 | 20,000 |
| Share capital | 600,000 | 200,000 |
| Debentures | 400,000 | 200,000 |
| Current tax liability | 50,000 | 34,000 |
| Dividend payable | 20,000 | 10,000 |
| Deferred tax liability | - | 14,000 |
| Other liabilities | 180,000 | 24,000 |
| 1,506,000 | 618,000 | |
| Assets | ||
| Financial assets | 100,000 | 120,000 |
| Debentures in Subsidiary Ltd | 200,000 | - |
| Shares in Subsidiary Ltd | 263,200 | - |
| Plant (cost) | 240,000 | 204,000 |
| Accumulated depreciation â plant | (130,000) | (110,000) |
| Other depreciable assets | 152,000 | 110,000 |
| Accumulated depreciation | (80,000) | (50,000) |
| Inventory | 180,000 | 170,000 |
| Deferred tax asset | 170,800 | 60,000 |
| Land | 402,000 | 114,000 |
| Dividend receivable | 8,000 | - |
| 1,506,000 | 618,000 |
Additional information:
(a) The inventory on hand of Subsidiary Ltd on 1 July 2016 included a quantity priced at $20,000 that was transferred from Parent Ltd during the prior financial year. This inventory had cost Parent Ltd $15,000. This entire inventory was sold by Subsidiary Ltd to parties external to the group during the current financial year.
(b) Subsidiary Ltd sold inventory to Parent Ltd for $120,000 during the year. This inventory had an original cost to Subsidiary Ltd of $110,000. This entire inventory was held by Parent Ltd during the year.
(c) On 1 January 2016, Subsidiary Ltd sold an item from its inventory to Parent Ltd for $40,000. Parent Ltd had treated this item as an addition to its plant. The item was put into service as soon as received by Parent Ltd and depreciation charged at 20% p.a. The cost of that item to Subsidiary Ltd was $30,000.
(d) The management and consulting fees of Parent Ltd were all paid by Subsidiary Ltd and represented charges made for administration $4,400 and technical services $5,600. The latter were recognised as manufacturing expenses by Subsidiary Ltd.
(e) All debentures issued by Subsidiary Ltd are held by Parent Ltd. The related interest has been recorded by Parent Ltd accordingly and Subsidiary Ltd recorded the interest paid in financial expenses.
(f) Other components of equity relate to movements in the fair values of the financial assets. The balance of these accounts on 1 July 2016 was $20,000 for Parent Ltd and $16,000 for Subsidiary Ltd.
(g) The tax rate is 30%.
Required:
Prepare an acquisition analysis and the consolidation journal entries necessary for preparation of the consolidated financial statements for the year ending 30 June 2017 for the group comprising Parent Ltd and Subsidiary Ltd.
Note: show all necessary workings and narrations.
| Question 1 | Max. marks allocated |
| Acquisition analysis | 5 |
| Consolidation entries - accuracy | 35 |
| Total | 40 |
Topic 2: Consolidation: Intra-grouptransactions
On 1 July 2015, Ping Pong Ltd acquired all the issued shares ofSing Song Ltd. At the date of acquisition, the shareholdersâ equityof Sing Song Ltd consisted of share capital $120,000; generalreserve $25,000 and retained earnings $55,000. The identifiable netassets of Sing Song Ltd were recorded at amounts equal to theirfair values, except for the following assets:
Carrying amount | Fair value | |
$ | $ | |
Land | 100,000 | 130,000 |
Inventories | 78,500 | 86,100 |
Machinery (cost $86,000) | 52,000 | 56,000 |
Vehicles (cost $58,000) | 47,000 | 53,000 |
The assets of Sing Song Ltd at acquisition date includedgoodwill recorded at $15,000 arising from a business combinationtransaction in 2011. As at the date of acquisition, the vehiclesand machinery were expected to have a further useful life of 6 and8 years respectively, with benefits to be received evenly overthose periods. Inventories on hand on 1 July 2015 was all sold by31 January 2016. The land owned at 1 July 2015 was sold inSeptember 2016 for $150,000. The machinery on hand at 1 July 2015was sold on 1 January 2018 for $38,000.
Adjustments for the differences between carrying amount and fairvalues of assets and liabilities on hand at acquisition date arerecognised on consolidation. When assets are sold or derecognised,any related valuation reserves are transferred to retainedearnings.
At 1 July 2015, Sing Song Ltd owned but had not recorded aninternally generated brand name, an identifiable asset included aspart of the business combination transaction. This brand name wasconsidered by Ping Pong Ltd to have a fair value of $29,000 and anindefinite useful life. An impairment test conducted with respectto the brand name on 30 June 2018 concluded that its recoverableamount at that date was $2,000 less than its carrying amount.
In June 2017, Sing Song Ltd paid a share dividend worth $20,000from the general reserve on hand at 1 July 2015.
The trial balances of both companies at 30 June 2018 showed thefollowing balances:
Ping Pong Ltd | Sing Song Ltd | |||
Dr ($) | Cr ($) | Dr ($) | Cr ($) | |
Sales revenue | 450,000 | 320,000 | ||
Dividend revenue | 17,000 | - | ||
Other income | 11,400 | 17,000 | ||
Proceeds on sale of equipment | 18,000 | - | ||
Proceeds on sale of machinery | - | 38,000 | ||
Cost of sales | 210,000 | 192,550 | ||
Income tax expense | 30,000 | 32,000 | ||
Depreciation and other expenses | 39,000 | 36,000 | ||
Carrying amount of equipment sold | 21,000 | - | ||
Carrying amount of machinery sold | - | 30,500 | ||
Dividend paid | 10,000 | 5,000 | ||
Dividend declared | 20,000 | 12,000 | ||
Transfer to general reserve | 10,000 | 5,000 | ||
Share capital | 200,000 | 140,000 | ||
General reserve | 35,000 | 10,000 | ||
Retained earnings (1 July 2017) | 51,300 | 67,500 | ||
Accounts payable | 69,500 | 36,000 | ||
Loan payable (due 30 June 2022) | 25,000 | 15,000 | ||
Dividend payable | 20,000 | 12,000 | ||
Provisions | 12,500 | 9,300 | ||
Current tax liability | 43,000 | 34,000 | ||
Deferred tax liability | 11,800 | 5,000 | ||
Accumulated depreciation-vehicles | 16,400 | 60,000 | ||
Accumulated depreciation-equipment | - | 34,500 | ||
8%Debentures (matures 30 June 2021) | 25,000 | - | ||
Cash | 2,500 | 1,250 | ||
Receivables | 27,000 | 13,000 | ||
Inventories | 39,700 | 24,500 | ||
Other current assets | 15,200 | 8,200 | ||
Deferred tax assets | 7,500 | 3,500 | ||
Vehicles | 88,000 | 158,000 | ||
Equipment | - | 42,000 | ||
Land | 140,000 | 180,000 | ||
Financial assets | 68,000 | 14,800 | ||
Goodwill | 28,000 | 15,000 | ||
Shares in Sing Song Ltd | 250,000 | - | ||
Debentures in Ping Pong Ltd | - | 25,000 | ||
1,005,900 | 1,005,900 | 798,300 | 798,300 | |
Additional information:
On 1 January 2018, Ping Pong Ltd sold an item of equipment toSing Song Ltd for $18,000. The equipment had a carrying amount atthe date of sale of $21,000. Both companies depreciate equipment at20% on a straight line basis.
On 1 May 2017, Sing Song Ltd sold a machine to Ping Pong Ltd for$7,800. The machine had a carrying amount of $7,000 at the date ofsale. Ping Pong Ltd recorded the machine as inventories. Theinventories item was sold to an external party in November 2017 for$8,200.
All interests on the 8% debentures has been paid and brought toaccount in the records of both companies.
During the 2017-2018 financial year, Ping Pong Ltd soldinventories to Sing Song Ltd for $75,000. The cost of theseinventories to Sing Song Ltd was $70,000. Of these inventories, 25%is still on hand at 30 June 2018.
The transfer to the general reserve recorded by Sing Song Ltd inthe current year was from retained earnings recorded at 1 July2015.
The tax rate is 30%.
Required:
Prepare an acquisition analysis.
Prepare the consolidation worksheet entries necessary to preparethe consolidated financial statements for the year ending 30 June2018 for the group comprising Ping Pong Ltd and Sing Song Ltd.
Note: you are not required to prepare the consolidationworksheet and the consolidated financial statements.
On 1 July 2017, Panda Ltd acquired all the issued shares ofSmarty Ltd. Panda Ltd paid $250,000 more than the equity itacquired in the fair value of Smarty Ltdâs net assets. At the dateof acquisition, the shareholderâs equity of S
On 1 July 2017, Panda Ltd acquired all the issued shares ofSmarty Ltd. Panda Ltd paid $250,000 more than the equity itacquired in the fair value of Smarty Ltdâs net assets. At the dateof acquisition, the shareholderâs equity of Smarty Ltd was asfollows.
$
Share capital
100,000
Retained earnings
175,000
Total
275,000
All the assets and liabilities of Smarty Ltd were recorded atamounts equal to their fair values at the acquisition date, exceptfor some assets detailed below.
Remaining useful life
Cost
Carrying amount
Fair value
$
$
$
Plant
5 years
180,000
90,000
120,000
Computer equipment
5 years
90,000
40,000
60,000
Required:
Prepare the acquisition analysis at 1 July 2017.
Prepare the consolidation worksheet entries for Panda Ltdâs groupat 1 July 2017.
Prepare the consolidation worksheet entries for Panda Ltdâs groupat 30 June 2018.
Question 1
Max. marks allocated
Acquisition analysis
3
Consolidation entries at 1 July 2017
6
Consolidation entries at 30 June 2018
10
Presentation
1
Total
20
Question 2 [35 marks]
Topic 2: Consolidation: Intra-group transactions
On 1 July 2015, Ping Pong Ltd acquired all the issued shares ofSing Song Ltd. At the date of acquisition, the shareholdersâ equityof Sing Song Ltd consisted of share capital $120,000; generalreserve $25,000 and retained earnings $55,000. The identifiable netassets of Sing Song Ltd were recorded at amounts equal to theirfair values, except for the following assets:
Carrying amount
Fair value
$
$
Land
100,000
130,000
Inventories
78,500
86,100
Machinery (cost $86,000)
52,000
56,000
Vehicles (cost $58,000)
47,000
53,000
The assets of Sing Song Ltd at acquisition date includedgoodwill recorded at $15,000 arising from a business combinationtransaction in 2011. As at the date of acquisition, the vehiclesand machinery were expected to have a further useful life of 6 and8 years respectively, with benefits to be received evenly overthose periods. Inventories on hand on 1 July 2015 was all sold by31 January 2016. The land owned at 1 July 2015 was sold inSeptember 2016 for $150,000. The machinery on hand at 1 July 2015was sold on 1 January 2018 for $38,000.
Adjustments for the differences between carrying amount and fairvalues of assets and liabilities on hand at acquisition date arerecognised on consolidation. When assets are sold or derecognised,any related valuation reserves are transferred to retainedearnings.
At 1 July 2015, Sing Song Ltd owned but had not recorded aninternally generated brand name, an identifiable asset included aspart of the business combination transaction. This brand name wasconsidered by Ping Pong Ltd to have a fair value of $29,000 and anindefinite useful life. An impairment test conducted with respectto the brand name on 30 June 2018 concluded that its recoverableamount at that date was $2,000 less than its carrying amount.
In June 2017, Sing Song Ltd paid a share dividend worth $20,000from the general reserve on hand at 1 July 2015.
The trial balances of both companies at 30 June 2018 showed thefollowing balances:
Ping Pong Ltd
Sing Song Ltd
Dr ($)
Cr ($)
Dr ($)
Cr ($)
Sales revenue
450,000
320,000
Dividend revenue
17,000
-
Other income
11,400
17,000
Proceeds on sale of equipment
18,000
-
Proceeds on sale of machinery
-
38,000
Cost of sales
210,000
192,550
Income tax expense
30,000
32,000
Depreciation and other expenses
39,000
36,000
Carrying amount of equipment sold
21,000
-
Carrying amount of machinery sold
-
30,500
Dividend paid
10,000
5,000
Dividend declared
20,000
12,000
Transfer to general reserve
10,000
5,000
Share capital
200,000
140,000
General reserve
35,000
10,000
Retained earnings (1 July 2017)
51,300
67,500
Accounts payable
69,500
36,000
Loan payable (due 30 June 2022)
25,000
15,000
Dividend payable
20,000
12,000
Provisions
12,500
9,300
Current tax liability
43,000
34,000
Deferred tax liability
11,800
5,000
Accumulated depreciation-vehicles
16,400
60,000
Accumulated depreciation-equipment
-
34,500
8%Debentures (matures 30 June 2021)
25,000
-
Cash
2,500
1,250
Receivables
27,000
13,000
Inventories
39,700
24,500
Other current assets
15,200
8,200
Deferred tax assets
7,500
3,500
Vehicles
88,000
158,000
Equipment
-
42,000
Land
140,000
180,000
Financial assets
68,000
14,800
Goodwill
28,000
15,000
Shares in Sing Song Ltd
250,000
-
Debentures in Ping Pong Ltd
-
25,000
1,005,900
1,005,900
798,300
798,300
Additional information:
On 1 January 2018, Ping Pong Ltd sold an item of equipment toSing Song Ltd for $18,000. The equipment had a carrying amount atthe date of sale of $21,000. Both companies depreciate equipment at20% on a straight line basis.
On 1 May 2017, Sing Song Ltd sold a machine to Ping Pong Ltd for$7,800. The machine had a carrying amount of $7,000 at the date ofsale. Ping Pong Ltd recorded the machine as inventories. Theinventories item was sold to an external party in November 2017 for$8,200.
All interests on the 8% debentures has been paid and brought toaccount in the records of both companies.
During the 2017-2018 financial year, Ping Pong Ltd sold inventoriesto Sing Song Ltd for $75,000. The cost of these inventories to SingSong Ltd was $70,000. Of these inventories, 25% is still on hand at30 June 2018.
The transfer to the general reserve recorded by Sing Song Ltd inthe current year was from retained earnings recorded at 1 July2015.
The tax rate is 30%.
Required:
Prepare an acquisition analysis.
Prepare the consolidation worksheet entries necessary to preparethe consolidated financial statements for the year ending 30 June2018 for the group comprising Ping Pong Ltd and Sing Song Ltd.
Note: you are not required to prepare the consolidationworksheet and the consolidated financial statements.
marty Ltd was as follows.
$ | |
Share capital | 100,000 |
Retained earnings | 175,000 |
Total | 275,000 |
All the assets and liabilities of Smarty Ltd were recorded atamounts equal to their fair values at the acquisition date, exceptfor some assets detailed below.
Remaining useful life | Cost | Carrying amount | Fair value | |
$ | $ | $ | ||
Plant | 5 years | 180,000 | 90,000 | 120,000 |
Computer equipment | 5 years | 90,000 | 40,000 | 60,000 |
Required:
Prepare the acquisition analysis at 1 July 2017.
Prepare the consolidation worksheet entries for Panda Ltdâsgroup at 1 July 2017.
Prepare the consolidation worksheet entries for Panda Ltdâsgroup at 30 June 2018.
Question 1 | Max. marks allocated |
Acquisition analysis | 3 |
Consolidation entries at 1 July 2017 | 6 |
Consolidation entries at 30 June 2018 | 10 |
Presentation | 1 |
Total | 20 |
Question 2 [35 marks]
Topic 2: Consolidation: Intra-grouptransactions
On 1 July 2015, Ping Pong Ltd acquired all the issued shares ofSing Song Ltd. At the date of acquisition, the shareholdersâ equityof Sing Song Ltd consisted of share capital $120,000; generalreserve $25,000 and retained earnings $55,000. The identifiable netassets of Sing Song Ltd were recorded at amounts equal to theirfair values, except for the following assets:
Carrying amount | Fair value | |
$ | $ | |
Land | 100,000 | 130,000 |
Inventories | 78,500 | 86,100 |
Machinery (cost $86,000) | 52,000 | 56,000 |
Vehicles (cost $58,000) | 47,000 | 53,000 |
The assets of Sing Song Ltd at acquisition date includedgoodwill recorded at $15,000 arising from a business combinationtransaction in 2011. As at the date of acquisition, the vehiclesand machinery were expected to have a further useful life of 6 and8 years respectively, with benefits to be received evenly overthose periods. Inventories on hand on 1 July 2015 was all sold by31 January 2016. The land owned at 1 July 2015 was sold inSeptember 2016 for $150,000. The machinery on hand at 1 July 2015was sold on 1 January 2018 for $38,000.
Adjustments for the differences between carrying amount and fairvalues of assets and liabilities on hand at acquisition date arerecognised on consolidation. When assets are sold or derecognised,any related valuation reserves are transferred to retainedearnings.
At 1 July 2015, Sing Song Ltd owned but had not recorded aninternally generated brand name, an identifiable asset included aspart of the business combination transaction. This brand name wasconsidered by Ping Pong Ltd to have a fair value of $29,000 and anindefinite useful life. An impairment test conducted with respectto the brand name on 30 June 2018 concluded that its recoverableamount at that date was $2,000 less than its carrying amount.
In June 2017, Sing Song Ltd paid a share dividend worth $20,000from the general reserve on hand at 1 July 2015.
The trial balances of both companies at 30 June 2018 showed thefollowing balances:
Ping Pong Ltd | Sing Song Ltd | |||
Dr ($) | Cr ($) | Dr ($) | Cr ($) | |
Sales revenue | 450,000 | 320,000 | ||
Dividend revenue | 17,000 | - | ||
Other income | 11,400 | 17,000 | ||
Proceeds on sale of equipment | 18,000 | - | ||
Proceeds on sale of machinery | - | 38,000 | ||
Cost of sales | 210,000 | 192,550 | ||
Income tax expense | 30,000 | 32,000 | ||
Depreciation and other expenses | 39,000 | 36,000 | ||
Carrying amount of equipment sold | 21,000 | - | ||
Carrying amount of machinery sold | - | 30,500 | ||
Dividend paid | 10,000 | 5,000 | ||
Dividend declared | 20,000 | 12,000 | ||
Transfer to general reserve | 10,000 | 5,000 | ||
Share capital | 200,000 | 140,000 | ||
General reserve | 35,000 | 10,000 | ||
Retained earnings (1 July 2017) | 51,300 | 67,500 | ||
Accounts payable | 69,500 | 36,000 | ||
Loan payable (due 30 June 2022) | 25,000 | 15,000 | ||
Dividend payable | 20,000 | 12,000 | ||
Provisions | 12,500 | 9,300 | ||
Current tax liability | 43,000 | 34,000 | ||
Deferred tax liability | 11,800 | 5,000 | ||
Accumulated depreciation-vehicles | 16,400 | 60,000 | ||
Accumulated depreciation-equipment | - | 34,500 | ||
8%Debentures (matures 30 June 2021) | 25,000 | - | ||
Cash | 2,500 | 1,250 | ||
Receivables | 27,000 | 13,000 | ||
Inventories | 39,700 | 24,500 | ||
Other current assets | 15,200 | 8,200 | ||
Deferred tax assets | 7,500 | 3,500 | ||
Vehicles | 88,000 | 158,000 | ||
Equipment | - | 42,000 | ||
Land | 140,000 | 180,000 | ||
Financial assets | 68,000 | 14,800 | ||
Goodwill | 28,000 | 15,000 | ||
Shares in Sing Song Ltd | 250,000 | - | ||
Debentures in Ping Pong Ltd | - | 25,000 | ||
1,005,900 | 1,005,900 | 798,300 | 798,300 | |
Additional information:
On 1 January 2018, Ping Pong Ltd sold an item of equipment toSing Song Ltd for $18,000. The equipment had a carrying amount atthe date of sale of $21,000. Both companies depreciate equipment at20% on a straight line basis.
On 1 May 2017, Sing Song Ltd sold a machine to Ping Pong Ltd for$7,800. The machine had a carrying amount of $7,000 at the date ofsale. Ping Pong Ltd recorded the machine as inventories. Theinventories item was sold to an external party in November 2017 for$8,200.
All interests on the 8% debentures has been paid and brought toaccount in the records of both companies.
During the 2017-2018 financial year, Ping Pong Ltd soldinventories to Sing Song Ltd for $75,000. The cost of theseinventories to Sing Song Ltd was $70,000. Of these inventories, 25%is still on hand at 30 June 2018.
The transfer to the general reserve recorded by Sing Song Ltd inthe current year was from retained earnings recorded at 1 July2015.
The tax rate is 30%.
Required:
Prepare an acquisition analysis.
Prepare the consolidation worksheet entries necessary to preparethe consolidated financial statements for the year ending 30 June2018 for the group comprising Ping Pong Ltd and Sing Song Ltd.
Note: you are not required to prepare the consolidationworksheet and the consolidated financial statements.
