(37 marks)
Question 1:
On 1 July 2016, Sisters Ltd acquired all of the issued shares of Brothers Ltd for $950 000. At the acquisition date the equity of Brothers Ltd consisted of:
| Share capital | $600 000 |
| Reserves | 120 000 |
| Retained earnings | 150 000 |
At the date of acquisition this equity reflected the fair values of all the identifiable assets and liabilities of Brothers Ltd.
The following transaction occurred between the two entities during the financial year:
On 1 July 2016 Brothers Ltd sold a motor vehicle to Sisters Ltd for $900 000. The motor vehicle had cost Brothers Ltd $1 500 000. It had been used for 5 years and had a carrying amount of $800 000 on Brothers Ltd.’s accounting book on the date of sale. The motor vehicle is recorded under the cost model and the straight-line depreciation method is used by both companies. The remaining useful life of the motor vehicle was estimated to be 5 years.
At 30 June 2017 the directors of Sisters Ltd estimated that purchased goodwill had been impaired by $10 000.
The corporate tax rate is 30%.
The financial statements of Sisters Ltd and Brothers Ltd at 30 June 2017 provided the following information:
| Sisters Ltd ($000) | Brothers Ltd ($000) | ||||
| Reconciliation of opening and closing retained earnings
|
|||||
| Sales revenue | 30 000 | 2 200 | |||
| less Cost of goods sold | (14 000) | ( 550) | |||
| Gross profit | 16 000 | 1 650 | |||
| Other income | |||||
| Gain on sale of fixed asset
|
6 000 | 100 | |||
| Expenses | |||||
| Depreciation | (2 000) | (400) | |||
| Other expenses | (3 800) | (200) | |||
| Profit before tax | 16 200 | 1 150 | |||
| Tax expense (30 % Tax Rate) | (4 860) | (345) | |||
| Profit after tax | 11 340 | 805 | |||
| Retained earnings—1 July 2016 | 6 000 | 150 | |||
| Retained earnings—30 June 2017
|
17 340 | 955 | |||
| Sisters Ltd ($000) | Brothers Ltd ($000) | ||||
|
Statement of financial position
|
|||||
| Shareholders’ equity | |||||
| Retained earnings – 30 June 2017 | 17 340 | 955 | |||
| Share capital
Reserves |
10 000
– |
600
120
|
|||
| Current liabilities
|
|||||
| Tax payable
|
5 600 | 20 | |||
| Non-current liabilities
|
|||||
| Loans | 4 000 | 750 | |||
| 36 940 | 2 445 | ||||
| Current assets | |||||
| Cash
Accounts receivable |
5 000
7 500 |
800
335 |
|||
| Inventory/stock
|
6 200 | 520 | |||
| Non-current assets | |||||
| Land | 14 290 | 320 | |||
| Vehicles, at cost | 3 450 | 500 | |||
| Vehicle—accumulated depreciation | (450) | (30) | |||
| Investment in Brothers Ltd | 950 | – | |||
| 36 940 | 2 445 | ||||
Required
Provide the consolidated worksheet of Sisters Ltd and its controlled entity (Brothers Ltd) for the year ended 30 June 2017.
Note: for each of the journal entry you are required to provide an explanation as to why the entry is necessary.
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