Hahndorf Ltd acquired 100% of the shares of Sarina Ltd on 1 July 2015 for $700,000, when the equity of Sarina Ltd consisted of:

Share Capital                                  $500,000

General Reserve                                 80,000

Retained Earnings                             30,000

All identifiable assets and liabilities of Sarina Ltd were fairly valued at acquisition except the machinery, which had a fair value of $140,000. The machinery had a further 7-year life with depreciation based on the straight-line method.

Selected financial information for both companies at 30 June 2018 is as follows:

                                                                                        Hahndorf Ltd       Sarina Ltd

Sales revenue                                                                   $1,000,000       $800,000

Cost of sales                                                                           (600,000)     (600,000)

Gross profit                                                                               400,000         200,000

Dividend received from Sarina Ltd                                        30,000              –

Management fee received                                                       26,500              –

Gain on sale of plant                                                                35,000              –

Admin expenses                                                                       55,800           28,700

Depreciation                                                                              29,500           56,800

Management fee paid                                                                         –           26,500

Other expenses                                                                       306,200             8,000

Profit before tax                                                                       100,000           80,000

Tax expense                                                                             (30,000)        (24,000)

Profit for the period                                                                   70,000           56,000

Retained earnings at 1/7/17                                                 230,000         120,000

300,000         176,000

Dividend paid                                                                           (20,000)       (10,000)

Dividend declared                                                                   (40,000)       (20,000)

Retained earnings at 30/6/18                                               240,000         146,000

Share capital                                                                           900,000         500,000

General reserve                                                                         60,000           80,000

Total equity                                                                           1,200,000         726,000

Dividend payable                                                                      40,000           20,000

Other liabilities (note 1)                                                          120,000           30,000

Total equity and liabilities                                                  1,360,000         776,000

Shares in Sarina Ltd                                                               700,000              –

Dividends Receivable                                                              20,000              –

Inventory                                                                                     40,000           50,000

Other assets (note 2)                                                              600,000         726,000

Total assets                                                                           1,360,000         776,000

 

Notes

  1. Other liabilities include deferred tax liabilities
  2. Other assets include Land, Machinery, Equipment, and Accumulated depreciation and Impairment losses, and Deferred Tax asset.

 

Other information:

  • During the 2017-18 period, Sarina Ltd sold some items of inventory to Hahndorf Ltd for $92,000, recording a profit before tax of $12,000. Hahndorf Ltd has since resold half of these items.
  • During the 2016-17 period, Hahndorf Ltd sold some items of inventory to Sarina Ltd. At 30 June 2017, Sarina Ltd still had inventory on hand on which Hahndorf Ltd had recorded a before-tax profit of $16,000. All this inventory has been sold during the 2017/18 financial year.
  • During the year, Hahndorf Ltd made total sales to Sarina Ltd of $60,000. Sarina Ltd sold all these goods to customers outside the group.
  • On 1 July 2017 Hahndorf Ltd sold an item of plant to Sarina Ltd for $116,000 when its carrying value in Hahndorf Ltd’s accounts was $81,000 (cost $135,000, accumulated depreciation $54,000). This plant is assessed as having a remaining useful life of five years. The Group has a policy of measuring its property, plant and equipment using the ‘cost model’.
  • Sarina Ltd paid $26,500 in management fees to Hahndorf Ltd.
  • The company income tax rate is 30%.

Required

(a)       Prepare the consolidation journal entries for the above entities as at 30 June 2018,

(b)       Prepare the consolidated worksheet for the year ended 30 June 2018. Post all consolidation journal entries to the consolidated worksheet. .

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