Q1.        Small Ltd bought a 30% interest in a joint venture, Fry Ltd, for $50 000, on 1 July 2017. The equity of Fry Ltd at the acquisition date was:

Share Capital $ 30,000
Retained Earnings $ 120,000


All the identifiable assets and liabilities of Fry Ltd were recorded at amounts equal to their fair values. Profits and dividends for the years ended 30 June 2018 to 2020 were as follows:

Profit before tax Income tax expense Dividends Paid
2018 $80,000 $30,000 $80,000
2019 $70,000 $25,000 $15,000
2020 $60,000 $20,000 $10,000


(a)Prepare journal entries in the records of Small Ltd for each of the years ended 30 June 2018 to 2020 in relation to its investment in Fry Ltd. (Assume Small Ltd does not prepare consolidated financial statements.

(b) Prepare the consolidation worksheet entries to account for Small Ltd’s interest in the joint venture, Fry Ltd. (Assume Small Ltd does prepare consolidated financial statements.)


Q2.        A liquidator was appointed after Rock Bottom Pty Ltd was declared insolvent on 1 July 2018. The company’s assets realised $14,250,000. This came from the sale of the secured land and buildings for $7,500,000 and other assets which were sold for $6,750,000.

The creditors totalled $16,350,000, and were made up of the following amounts:

Secured creditor $9,000,000, receiver’s costs when realising secured asset $150,000, liquidator’s expenses $600,000, unsecured trade payables $2,400,000, tax payable $1,050,000, local government rates $300,000, staff wages payable $900,000, executive directors’ wages payable (5 directors) $450,000, staff leave entitlements $150,000, executive directors’ leave entitlements (5 directors) $150,000, unsecured bank overdraft $750,000, and dividends payable $450,000.


 You are required to rank the above creditors and then to calculate how much each creditor would be paid.


Q3.        The following information has been extracted from the financial statements of Blake Ltd and its subsidiary Seven Ltd at 30 June 2019.


Blake Ltd ($) Seven Ltd ($)

Reconciliation of opening and closing retained earnings
Sales revenue 593,400 498,800
Cost of goods sold (399,040) (204,680)
Gross profit 194,360 294,120
Dividends revenue from Seven Ltd 63,984
Management fee revenue 22,790
Profit on sale of plant 30,100
Administrative expenses (26,488) (33,282)
Depreciation (21,070) (48,848)
Management fee expense (22,790)
Other expenses (86,946) (66,220)
Profit before tax 176,730 122,980
Tax expense (52,890) (36,292)
Profit for the year 123,840 86,688
Retained earnings-30 June 2018 274,684 205,712
398,524 292,400
Dividends paid (118,164) (79,980)
Retained earnings-30 June 2019 280,360 212,420
Statements of financial position
Shareholders’ equity
Retained earnings 280,360 212,420
Share capital 301,000 172,000
Current liabilities
Accounts payable 47,042 39,818
Tax payable 35,518 21,500
Non-current liabilities
Loans 149,210 99,760
813,130 545,498
Current assets
Accounts receivable 51,084 53,578
Inventory 79,120 24,940
Non-current assets Land and buildings   192,640   280,360
Plant -at cost 257,871 305,988
Accumulated depreciation (73,745) (119,368)
Investment in Seven Ltd 306,160              

813,130 545,498


Other information

  1. Blake Ltd acquired its 80 per cent interest in Seven Ltd on 1 July 2010. At that date the capital and reserves of Seven Ltd were:


Share capital               $172,000

Retained earnings        $146,200


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

  1. The management of Blake Ltd use the partial goodwill method.
  2. During the year Blake Ltd made total sales to Seven Ltd of $55,900, while Seven Ltd sold $44,720 in inventory to Blake Ltd.
  3. The opening inventory in Blake Ltd as at 1 July 2018 included inventory acquired from Seven Ltd for $36,120 that cost Seven Ltd $30,100 to produce.
  4. The closing inventory in Blake Ltd includes inventory acquired from Seven Ltd at a cost of $28,896. This cost Seven Ltd $24,080 to produce.
  5. The closing inventory of Seven Ltd includes inventory acquired from Blake Ltd at a cost of $10,320. This cost Blake Ltd $8,256 to produce.
  6. The management of Blake Ltd believe that goodwill acquired was impaired by $2,580 in the year to 30th June 2019. The balance on the accumulated impairments of goodwill account brought forward was $19,350.
  7. On 1 July 2018 Blake Ltd sold an item of plant to Seven Ltd for $99,760 when its carrying value in Blake Ltd’s accounts was $69,660 (cost $116,100, accumulated depreciation $46,440). This plant is assessed as having a remaining useful life of six years.
  8. Seven Ltd paid $22,790 in management fees to Blake Ltd.
  9. The tax rate is 30 per cent.



 Prepare the consolidation worksheet JOURNAL ENTRIES for the preparation of consolidated financial statements by Blake Ltd at 30 June 2019.

NOTE a consolidation worksheet is NOT required.

Your answer should include an acquisition analysis with a calculation of goodwill, preacquisition entries, dividend adjustments, intragroup sales and transfers, and a calculation of the non-controlling interest.

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