Berry Ltd acquired 70% of the shares of James Ltd on 1st July 2016 for $540,000. The James Ltd equity consisted of the following items at acquisition date
Share Capital $500,000
General Reserve 80,000
Retained Earnings 50,000
Asset revaluation reserve 20,000
All identifiable assets and liabilities of James Ltd are recorded at fair value at this date except for inventory for which the fair value was $10,000 greater than carrying amount and plant which had a carrying amount of $150,000 (Accumulated depreciation net of $40,000) and a fair value was $170,000. The plant has a further 5 years life.
The Financial information for both companies at 30 June 2020 is as follows:
Berry Ltd James Ltd
Sales Revenue $720,000 $530,000
Other revenue 240,000 120,000
Cost of Sales (610,000) (410,000)
Other expenses (230,000) (160,000)
Profit before tax $120,000 $80,000
Tax expense (40,000) (25,000)
Profit for the period $80,000 $55,000
R/E at 1/07/19 200,000 112,000
Dividend Paid (20,000) (10,000)
Dividend declared (25,000) (15,000)
R/E at 30/06/20 $235,000 $142,000
Share capital 600,000 500,000
Asset revaluation reserve 20,000 60,000
General reserve 80,000 100,000
Total equity $935,000 $802,000
Dividend payable 25,000 15,000
Other Liabilities 25,000 25,000
Total Liabilities 50,000 40,000
Total Equity and Liabilities $985,000 $842,000
Receivables 80,000 30,000
Inventory 100,000 170,000
Plant and Equipment 200,000 500,000
Acc Depreciation (115,000) (88,000)
Land 100,000 80,000
Share in James Ltd 540,000 –
Deferred Tax assets 50,000 40,000
Other assets $30,000 $110,000
Total Assets $985,000 $842,000
- The management of Berry ltd values any non-controlling interest in James Ltd at fair value.
- During the current financial year James Ltd sold inventory to Berry Ltd for 23,000, recording a profit before tax of $3000. Fifty percent of this inventory is still on hand with Berry Ltd.
- During the 2019-2020 period, Berry Ltd sold inventory to James Ltd for $18,000. The inventory cost Berry $16,000 to produce. James Ltd has not sold any of these items.
- During the current financial year James ltd paid 1000 to Berry Ltd for services rendered
- During the 2018-19 period, James ltd sold inventory to Berry Ltd. At 30 June 2019, Berry Ltd still had inventory on hand on which James Ltd had recorded a before tax profit 0f $4,000.
- On 1 July 2018, James ltd sold plant to Berry ltd for $150,000, recording a profit of 20,000 before tax. Berry Ltd applies 10% p.a straight-line method of depreciation in relation to these assets.
- The balance of the reserve at 1 July 2019 were $35000 for Berry Ltd and $50000 for James Ltd.
- The tax rate is 30%.
- Prepare the consolidated Worksheet Journal entries for 30 June 2020.
- Prepare the consolidated Worksheet for 30 June 2020.
- Prepare the consolidated financial statements of Berry Ltd and its controlled entity for the reporting period ending 30 June 2020. [Hints: Consolidated Statement of Comprehensive Income; Consolidated Statement of Financial Position; Consolidated Statement of Changes in Equity]
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