The Wholesale Ltd acquired 80 per cent of the shares of House Construction Ltd on 30 June 2020 for a consideration of $800,000. The share capital and reserves of House Construction Ltd at the date of acquisition were:

 

Share capital               $550,000

Retained earnings       $100,000

Revaluation surplus $150,000

 

All assets of House Construction Ltd were fairly valued at the date of acquisition, except for a major plant that had a fair value $26,000 greater than its carrying amount. The cost of the plant was $100,000 and it had accumulated depreciation of $85,000. There were no transactions between Wholesale Ltd and House Construction Ltd at the date of acquisition.

 

In addition, the Wholesale Ltd acquired 100 per cent of the shares of Queensland Retail Ltd on 1 July 2018-that is two years earlier. The cost of investment was $650,000. At that date the capital and reserves of Queensland Retail Ltd were:

 

Share capital            $235,000

Retained earnings    $115,000

 

At the date of acquisition all assets of Queensland Retail Ltd were considered to be fairly valued.

Wholesale Ltd incurred the following transactions with Queensland Retail Ltd during financial year 2018-2019:

 

  • On 1 September 2018 Wholesale Ltd sold a machinery to Queensland Retail Ltd for $136,000 when its carrying value in Wholesale Ltd’s book was $100,000 (original cost $200,000 and original estimated life of 8 years).
  • From January to June in 2019, Wholesale Ltd made sales of inventory $50,000 to Queensland Retail Ltd for on-sale to external parties. The inventory had originally cost Wholesale Ltd $40,000. At 30 June 2019, Queensland Retail Ltd still had 40 per cent of the inventory on hand. On-hand inventory was expected to be sold in the subsequent financial year.

 

Wholesale Ltd incurred the following transactions with Queensland Retail Ltd during financial year 2019-2020:

  • During the year Wholesale Ltd made total sales of inventory $70,000 to Queensland Retail Ltd for on-sale to external parties. The inventory had originally cost Wholesale Ltd 61,000. At 30 June 2020, half of the inventory was still on hand. On-hand inventory was expected to be sold in the subsequent financial year.
  • Wholesale Ltd provided management consultation to Queensland Retail Ltd and this was the first time that Wholesale Ltd provided such service to Queensland Retail Ltd. At the end of 2020, Queensland Retail Ltd paid $3,000 for these services and has a balance of $2,000 payable at year end.
  • Queensland Retail Ltd has several long-term loans, including a five-year loan for $55,000 from Wholesale Ltd. This loan was effective from 1 July 2019. Interest rate was 3.5% per annum. During the year ending 30 June 2020, Queensland Retail Ltd paid $1,000 interest on this loan.

 

You were appointed as the financial accountant at Wholesale Ltd. As you may have noticed, Wholesale Ltd acquired 80% shares of House Construction Ltd to extend its operation in Australia and it also has an existing wholly owned subsidiary (Queensland Retail Ltd) operating in Queensland.

 

You were requested to prepare the followings:

  1. acquisition analysis at 1 July 2018 and adjustment/elimination journal entries for consolidation as at 30 June 2019.
  2. acquisition analysis and adjustment/elimination journal entries for consolidation as at 30 June 2020.

 

After meeting with your supervisor you gathered the following information which you might need to complete your work:

  • Wholesale Group Ltd has the following accounting policies for the economic entity:
    • Revaluation adjustments on acquisition are to be made on consolidation only, not in the books of any subsidiary;
    • Plant and machinery are depreciated using the straight-line method with no residual value. For part-years, depreciation is to be calculated on the number of months the asset is held in the relevant year.
    • All calculated amounts are to be rounded to the nearest whole dollar. Companies in the group do not show cents in any journals, worksheets, or financial statements.
    • Wholesale Ltd measures any non-controlling interests (NCI) at fair value.
  • Management team of Wholesale Ltd believes that goodwill acquired from business combination was impaired by $10,000 in 2019 and $15,000 in 2020.
  • Wholesale Ltd declared and paid dividends $250,000 on 30 June 2019. Queensland Retail Ltd did not declare and distribute dividends to its shareholder for financial year 20182019.
  • Wholesale Ltd declared dividends $200,000 and paid dividends $150,000 on 30 June 2020. Queensland Retail Ltd declared and paid dividends $50,000 on 30 June 2020.
  • The company tax rate is 30% and this rate has not changed for several years.
  • Reporting date is 30 June.
  • Journal narrations are required.
  • Number each year consolidation elimination/adjusting journal entries by 1, 2, 3, …, etc. Where more than one journal entry is needed for an event to be completely accounted for add the letters a,b,c,…etc to them as necessary.
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