All workings, when appropriate, must be shown to substantiate your answers.
Question 1 [20 marks]


Topic 1: Consolidation: Principles and accounting requirements


On 1 July 2017, Patience Ltd acquired all the issued shares of Silence Ltd for a cash consideration of $1,000,000. At that date, the financial statements of Silence Ltd showed the following information.


Share capital                             650,000

General reserve                         20,000

Retained earnings                      250,000


All the assets and liabilities of Silence 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. Silence Ltd accounted for all its property, plant and equipment in its own books using the cost model. In addition, Patience Ltd identified at acquisition date a contingent liability related to a lawsuit where Silence Ltd was sued by a former supplier and attached a fair value of $40,000 to that liability.




  1. Prepare the acquisition analysis at 1 July 2017.
  2. Prepare the consolidation worksheet entries for Patience Ltd’s group at 1 July 2017.


Question 1 Max. marks allocated
Acquisition analysis (Part 1) 5
Consolidation worksheet entries (Part 2) 14
Presentation 1
Total 20



Question 2 [30 marks]


Topic 2: Consolidation: Intra-group transactions


On 1 July 2016, Pandora Ltd acquired all the issued shares of Sebastian Ltd. Pandora Ltd paid $30,000 in cash and 20,000 shares in Pandora Ltd valued at $3 per share. At this date, the equity of Sebastian Ltd consisted of $66,000 share capital and $6,000 retained earnings.


At 1 July 2016, all the identifiable assets and liabilities of Sebastian Ltd were recorded at amounts equal to their fair values except for:


Carrying Amount                       Fair value

Plant (cost $150,000)                                         120,000             123,000

Patents                                                             90,000                          105,000

Inventories                                                        18,000                          22,500


The plant was considered to have a further 5-year life. The patents were sold for $120,000 to an external entity on 18 August 2016. The inventory was all sold by 30 June 2017.


Additional information:


(a)  Pandora Ltd sells certain raw materials to Sebastian Ltd to be used in its manufacturing process. At 1 July 2017, Sebastian Ltd held inventory sold to it by Pandora Ltd in the previous year at a profit of $600. During the 2017/2018 year, Pandora Ltd sold inventory to Sebastian Ltd for $21,000. None of this was on hand at 30 June 2018.

(b)  Sebastian Ltd also sells items of inventory to Pandora Ltd. During the 2017/2018 year, Sebastian Ltd sold goods to Pandora Ltd for $4,500. At 30 June 2018, inventory which had been sold to Pandora Ltd at a profit of $300 was still on hand in Pandora Ltd’s inventory.

(c)  On 1 July 2017, Sebastian Ltd sold an item of plant to Pandora Ltd for $15,000. This plant had a carrying amount in the records of Sebastian Ltd of $14,000 at time of sale. This type of plant is depreciated at 10% p.a. on cost.

(d)  On 1 January 2017, Pandora Ltd sold an item of inventory to Sebastian Ltd for $18,000. The inventory had cost Pandora Ltd $16,000. This item was classified by Sebastian Ltd as plant. Plant of this type is depreciated by Sebastian Ltd at 20% p.a.

(e)  On 1 March 2018, Sebastian Ltd sold an item of plant to Pandora Ltd. Whereas Sebastian Ltd classified this as plant, Pandora Ltd classified it as inventory. The sales price was $9,000 which included a profit to Sebastian Ltd of $1,500. Pandora Ltd sold this to another entity on 31 March 2018 for $9,900.

(f)  The tax rate is 30%.



At 30 June 2018, the following financial information was provided by the two companies:


Pandora Ltd Sebastian Ltd
Dr ($) Cr ($) Dr ($) Cr ($)
Sales revenue 64,500 78,000
Cost of sales 30,900 46,350
Trading expenses 4,800 9,000
Office expenses 7,950 4,050
Depreciation expenses 1,800 3,900
Proceeds on sale of plant 9,000 15,000
Carrying amount of plant sold 7,500 14,000
Income tax expense 11,100 7,300
Share capital 96,000 66,000
Retained earnings (1/7/17) 48,000 31,500
Current liabilities 21,100 10,500
Deferred tax liability 11,000 15,000
Plant 57,000 107,250
Accumulated depreciation – plant 18,300 33,450
Intangibles 12,000 11,100
Deferred tax assets 8,100 9,450
Shares in Sebastian Ltd 90,000 0
Inventories 28,500 24,600
Receivables 8,250 12,450
267,900 267,900 249,450 249,450




Prepare the consolidation worksheet entries for the preparation of the consolidated financial statements of Pandora Ltd for the year ended 30 June 2018.


Question 2 Max. marks allocated
Acquisition analysis 3
Consolidation entries for part (1) 25
Presentation 2
Total 30

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