Topic: Consolidation worksheet

Ethan Ltd acquired all the issued shares (ex div.) of Darren Ltd on 1 July 2017 for $110 000. At this date

Darren Ltd recorded a dividend payable of $10 000 and equity of:

Share capital $54 000
Retained earnings   36 000
Asset revaluation surplus   18 000

All the identifiable assets and liabilities of Darren Ltd were recorded at amounts equal to their fair values at acquisition date except for:

  Carrying amount Fair value
Inventories $ 14 000 $16 000
Machinery (cost $100 000)    92 500   94 000

 

The machinery was considered to have a further 5-year life. Of the inventory, 90% was sold by 30 June 2018. The remainder was sold by 30 June 2019.

Both Darren Ltd and Ethan Ltd use the valuation method to measure the land. At 1 July 2017, the balance of Ethan Ltd’s asset revaluation surplus was $13 500.

In May 2018, Darren Ltd transferred $3000 from the retained earnings at 1 July 2017 to a general reserve.

The tax rate is 30%.

The following information was provided by the two companies at 30 June 2018.

 

  Ethan Ltd Darren Ltd
Profit before tax $ 120 000 $ 12 500
Income tax expense (56 000) (4 200)
Profit for the year 64 000 8 300
Retained earnings (1/717) 80 000 36 000
  144 000 44 300
Transfer to general reserve (0) (3 000)
Retained earnings (31/7/18) $ 144 000 $ 41 300
Share capital $ 360 000 $ 54 000
Retained earnings 144 000 41 300
General reserve 10 000 3 000
Asset revaluation surplus 18 500 20 000
Liabilities 42 500 13 000
  $ 575 000 $ 131 300
Land $ 160 000 $ 20 000
Plant and machinery 360 000 125 600
Accumulated depreciation — Plant and machinery (110 000) (33 000)
Inventories 55 000 18 700
Shares in Darren Lid 110 000 0
  $ 575 000 $131 300

 

Required: Prepare the consolidated financial statements of Ethan Ltd at 30 June 2018.

Show the acquisition analysis and consolidation journal entries including business combination valuation, reserve entries and pre-acquisition journal entries.

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