Group Accounting – Consolidation
On 1 July 2016, ASD Ltd purchased 80% of EPY Ltd’s shares for $1,300,000 cash. On that day, the equity of
EPY Ltd was:
Share capital $700,000
Retained earnings 500,000
$1,200,000
At the time of acquisition, EPY Ltd recorded all its assets at their fair values except for an item of plant and some land. ASD Ltd considered that an item of plant shown in the accounts of EPY Ltd was less than the fair value. The fair value should be 80,000 not 62,000 as shown in EPY Ltd’s accounts. The plant was assessed to have a remaining useful life of 5 years and was to be depreciated on a straight-line basis. The land was recorded in the accounts of EPY Ltd of $32,000 and ASD Ltd considered its fair value to be $70,000. On 21 June 2018, the land was sold to an unrelated party of ASD Ltd and EPY Ltd. On 30 June 2018, the financial statements of ASD Ltd and EPY Ltd are as follows:
Statements of Financial Position of ASD Ltd and EPY Ltd as at 30 June 2018
| ASD Ltd | EPY Ltd | |||
| Assets | ||||
| Cash
Accounts Receivable |
216,642 |
789,812 |
37,010 |
186,380 |
| Less: Allowance for doubtful accounts | 10,000 | 206,642 | 4,800 | 32,210 |
| Dividend Receivable | 120,000 | 0 | ||
| Inventory | 187,158 | 38,950 | ||
| Total Current Assets
Non-current assets |
1,303,612 | 257,540 | ||
| Deferred Tax assets | 79,947 | 2,151 | ||
| Investment in EPY Ltd | 1,300,000 | 0 | ||
| Land
Property, Plant and Equipment (PPE) |
1,800,000 |
138,000 |
1,500,000 |
465,000 |
| Less: Accumulated depreciation of PPE | 300,000 | 1,500,000 | 500,000 | 1,000,000 |
| Total non-current assets | 3,017,947 | 1,467,151 | ||
| Total Assets
Liabilities and Equity |
4,321,559 | 1,724,691 | ||
| Current Liabilities | ||||
| Accounts Payable | 48,068 | 41,892 | ||
| Dividend Payable | 550,000 | 20,000 | ||
| Income tax payable | 602,160 | 20,055 | ||
| Other payable | 21,643 | 11,783 | ||
| Total current liabilities
Non-Current Liabilities |
1,221,871 | 93,730 | ||
| Bank Loan | 210,000 | 151,000 | ||
| Total Liabilities
Shareholders’ Equity |
1,431,871 | 244,730 | ||
| Share capital | 1,105,600 | 720,000 | ||
| Retained earnings | 1,534,088 | 747,961 | ||
| Revaluation Reserve | 250,000 | 12,000 | ||
| Total shareholders’ equity | 2,889,688 | 1,479,961 | ||
| Total Equity and Liabilities | 4,321,559 | 1,724,691 |
Statements of Comprehensive Income of ASD Ltd and EPY Ltd for the year ended 30 June 2018
ASD Ltd EPY Ltd
| Sales revenue | $5,689,600 | $2,510,121 | |
| Cost of goods sold | –1,765,800 | –1,654,820 | |
| Gross profit | 3,923,800 | 855,301 | |
| Other income (expense) | 271,060 | 27,800 | |
| Operating income | 4,194,860 | 883,101 | |
| Expenses | –2,187,660 | –816,250 | |
| Net profit before tax | 2,007,200 | 66,851 | |
| Income tax expenses | –578,176 | –19,410 | |
| Net profit after tax (NPAT) | $1,429,024 | $47,441 | |
| Retained earnings at 1 July 2017 | 655,064 | 720,520 | |
| Dividend declared and approved, but not yet paid | –550,000 | –20,000 | |
| Retained earnings at 30 June 2018 | $1,534,088 | $747,961 |
The following information is available at 30 June 2018:
During the financial year ending 30 June 2018, EPY Ltd sold inventory to ASD Ltd for $150,000. The inventory cost EPY Ltd $90,000 to produce. 70% of this inventory was sold to other entities outside the group at the end of the financial year. Both ASD Ltd and EPY Ltd use the perpetual inventory system.
During the financial year ending 30 June 2017, EPY Ltd had sold inventory to ASD Ltd at a price of
$30,000. The inventory cost EPY Ltd $25,000 to produce. Only 40% of this inventory had been sold by
ASD Ltd to its customers for the financial year ended 30 June 2017. During the financial year ending 30
June 2018, a further 90% of the opening balance of this inventory was sold by ASD Ltd to its customers.
EPY Ltd sold an item of plant to ASD Ltd for $90,000 on 1 July 2016. The original cost of this plant was
$150,000 and the carrying amount was $80,000 as at 1 July 2016 ASD Ltd estimated this item of plant
had a remaining useful life of four years (no residual value).
ASD Ltd sold an item of equipment to EPY Ltd for $27,000 on 31 December 2017. The carrying amount was $35,000 as at 31 December 2017, recorded in ASD Ltd’s account. The equipment has an estimated remaining useful life of four years with no residual values.
The recoverable amount of goodwill as at 30 June 2018 was determined at $290,500. The goodwill has been impaired as at 30 June 2017 for $9,000. No goodwill impairment loss was recorded in periods prior to 30 June 2017 because carrying amount of goodwill in those periods was lower than its recoverable amount.
Dividend was declared and approved by EPY Ltd on 1 April 2018. No other dividend had been paid by
EPY Ltd during the financial year.
Income tax rate is 30%
Required:
- Prepare acquisition analysis on 1 July 2016, and journal entries to record the acquisition of 80% interest in
EPY Ltd in ASD Ltd’s records. (10 marks)
- Prepare the consolidated adjustments for ASD Ltd and its controlled entity on 30 June 2018, and offset deferred tax liabilities as at 30 June 2018 (if any) with deferred tax assets arose from the consolidation adjustments. (40 marks)
- Calculate non-controlling interest (NCI) in the profit for the financial year ended 30 June 2018, the opening retained earnings as at 1 July 2017, and the reserves and share capital as at 30 June 2018. Prepare the consolidated entries for NCI for the financial year ended 30 June 2018. (15 marks)
- 4. Using the format of the template provided, complete a consolidation worksheet and post all consolidation journal entries into the workshee (35 marks)
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