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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