Cabarita Ltd (Cabarita) acquired 100% of the shares of Kakadu Ltd (Kakadu) on 1 July 2019. The cost of investment was $620 000. At that date the capital and reserves of Kakadu were:

Share capital            $260 000

Retained earnings    $200 000


At the date of acquisition all assets of Kakadu were considered to be fairly valued, except for a plant that had a fair value $20 000 greater than its carrying amount. The cost of the plant was $100 000 and it had accumulated depreciation of $60 000. The plant had original estimated useful life of 10 years.


During financial year 01/07/2019-30/06/2020, Kakadu sold $30 000 in inventory to Cabarita for on-sale to external parties. The inventory had originally cost Kakadu $22,000. At the year end, Cabarita still had half of the inventory on hand. On-hand inventory was expected to be sold in the subsequent period. There was no dividend claimed and paid from both entities for year ended 30 June 2020. There were no other intro-group transactions between Cabarita and Kakadu for year ended 30 June 2020.


Cabarita incurred the following transactions with Kakadu during financial year 01/07/202030/06/2021:

  • Cabarita made total sales in inventory to Kakadu of $62 000, while Kakadu sold $65 000 in inventory to Cabarita. These inventories are expected to be sold to external parties.
  • The closing inventory in Cabarita includes inventory acquired from Kakadu at a cost of $36 000. This cost Kakadu $29 000 to purchase. Kakadu sold all inventory acquired from Cabarita to external parties during the year.
  • On 1 July 2020 Cabarita sold an machinery to Kakadu for $145 000 when its carrying amount in Cabarita’s accounts was $100 000 (initial cost $168 650, accumulated depreciation $68 650). This machinery is assessed as having a remaining useful life of 9 years.
  • Cabarita provided management consultation to Kakadu and this was the first time that Cabarita Ltd provided such service to Kakadu. At the end of 2021, Kakadu paid $8,000 for these services and has a balance of $1 000 payable at year end.
  • Kakadu has a number of long-term loans, including a four-year loan for $50,000 from Cabarita. This loan was effective from 1 July 2020. Interest rate was 4% per annum. During the year ending 30 June 2021, Kakadu paid $1000 interest on this loan.


You were requested to prepare the followings:

  1. acquisition analysis and adjustment/elimination journal entries for consolidation at acquisition, 1 July 2019;
  2. adjustment/elimination journal entries for consolidation as at 30 June 2020, and
  3. adjustment/elimination journal entries for consolidation as at 30 June 2021.


After meeting with your supervisor you gathered the following information which you might need to complete your work:

  • Cabarita has the following accounting policies for the economic entity:
    • Revaluation adjustments on acquisition are to be made on consolidation only, not in the books of any subsidiary;
    • Plant and machinery are depreciated using the straight-line method with no residual value. For part-years, depreciation is to be calculated on the number of months the asset is held in the relevant year.
    • All calculated amounts are to be rounded to the nearest whole dollar. Companies in the group do not show cents in any journals, worksheets, or financial statements.
  • Management team of Cabarita believes that goodwill acquired from business combination is impaired by $6 000 in the current financial year. Previous impairment of goodwill amounted to $4 000.
  • Kakadu declared and paid dividend $100 000 on 30 June 2021.
  • Cabarita declared dividend $200 000 and paid dividend $150 000 on 30 June 2021.
  • The company tax rate is currently 30% and this rate has not changed for a number of years.
  • Journal narrations are required.
  • Number each year consolidation elimination/adjusting journal entries by 1, 2, 3, …, etc;. Where more than one journal entry is needed for an event to be completely accounted for add the letters a,b,c,…etc to them as necessary.

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