Question 2
On 1 July 2019, Paldivia Ltd acquired all the issued shares of Soletta Ltd for a cash consideration of $1 000 000. At that date, the financial statements of Soletta Ltd showed the following information.
| $ | |
| Share capital | 650 000 |
| General reserve | 20 000 |
| Retained earnings | 250 000 |
All the assets and liabilities of Soletta Ltd were recorded at amounts equal to their fair values at the acquisition date, except some equipment recorded at $50 000 below its fair value with a related accumulated depreciation of $80 000. Also, Palvidia Ltd identified at acquisition date a contingent liability related to a lawsuit where Soletta Ltd was sued by a former supplier and attached a fair value of $40 000 to that liability.
Required:
(a) Prepare the acquisition analysis at 1 July 2019. (6 marks)
(b) Prepare the consolidation worksheet entries for Paldivia Ltd’s group at 1 July 2019, assuming that Soletta Ltd has not revalued the equipment in its own accounts. (14 marks)
Question 3
Patagonia Ltd owns all the share capital of Salto Ltd. The income tax rate is 30%. The following transactions took place during the periods ended 30 June 2018 to 30 June 2020.
(a) In February 2018, Patagonia Ltd sold inventories to Salto Ltd for $6 000, at a mark-up of 20% on cost. One-quarter of this inventories were unsold by Salto Ltd at 30 June 2018 to external parties and none at 30 June 2019.
(b) On 1 January 2018, Salto Ltd sold a new tractor to Patagonia Ltd for $20 000. This had cost Salto Ltd $16 000 on that day. Both entities charged depreciation at the rate of 10% p.a. on the diminishing balance. The tractor was still on hand with Patagonia Ltd at 30 June 2020.
(c) On 1 May 2019, Salto Ltd sold inventories costing $200 to Patagonia Ltd for $400 on credit. On 30 June 2019, only half of these goods had been sold by Patagonia Ltd, and Patagonia Ltd had paid $300 to Salto Ltd. All remaining inventories were sold to external entities by 30 June 2020 and Patagonia Ltd paid the outstanding amount to Salto Ltd on 5 May 2020.
(d) Patagonia Ltd provided management services to Salto Ltd during the period ended 30 June 2020. The total charge for those services was $3 000 that was unpaid at 30 June 2020.
(e) Patagonia Ltd borrows $50 000 from Salto Ltd on 1 July 2018 with an interest rate of 6% p.a. The loan is for 5 years. The interest is to be paid biannually in arrears, starting on 31 December 2018.
(f) In December 2019, Salto Ltd paid a $1 500 interim dividend.
(g) During March 2020, Salto Ltd declared a $3 000 dividend. The dividend was paid in August 2020.
Required:
In relation to the above intragroup transactions:
Prepare adjusting journal entries for the consolidation worksheet at 30 June 2019 and 30 June 2020. (50 marks)
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