Parent Ltd acquired 100% interest in Subsidiary Ltd on 1 January 2019. At that date, Subsidiary Ltd’s net assets were represented by its shareholders’ equity consisting of share capital of $100,000 and retained earnings of $70,000.
On the date of the acquisition, Parent Ltd and Subsidiary Ltd agreed the following;
- Subsidiary’s Land had a fair value of $180,000 (carrying amount $100,000).
- Subsidiary had a patent with a fair value of $100,000 (was not previously recognised in Subsidiary’s book). The patent is to amortise over 10 years on straight line basis.
- Subsidiary had inventories that were $30,000 lower than fair value. These inventories were sold by 30 June 2019.
The following intra-company transactions occurred during the year ending 30 June 2020.
- On 1 May 2020, Subsidiary Ltd purchased goods for $150,000 from Parent Ltd on credit at cost plus 50% mark up. As at 30 June 2020, 40% of the inventory was still on hand and 25% of the amount owing for the sales remain unpaid.
- On 1 June 2019, Parent Ltd sold inventory to Subsidiary Ltd for $85,000, recording a before-tax profit of $30,000. By 30 June 2019, Subsidiary Ltd has sold one-third of these to other entities making profits of $54,000 and the remaining inventory was sold by 30 June 2020 for $132,000 to external parties.
- On 1 December 2019, Parent Ltd sold an item of machinery for $104,000 to Subsidiary Ltd. At the date of sale, Parent Ltd had recorded the asset at a carrying amount of $80,000 (accumulated depreciation: $20,000. depreciation rate: 10% p.a. straight-line method).
- Parent Ltd provided a warehouse to Subsidiary Ltd since 1 March 2019. The rent is $12,000 per annum and payable in arrears 6 monthly on 31 August and 28 February each year. Both companies record accruals.
Prepare the following
- Acquisition analysis at 1 January 2019.
- A consolidation worksheet for the year ending 30 June 2020 (use the template provided, add more lines if necessary: show all workings. You do not need to submit the journal entries.)
- A consolidated Statement of Changes in Equity for the year ending 30 June 2020
|(b) Consolidation Worksheet||Parent Ltd||Subsidiary Ltd||Adjustments||Consolidated|
|Less Cost of Sales||510,000||281,000|
|Add Dividend Income||35,000||0|
|Add Rental Income||12,000||0|
|Add Gain on Sale of Machine (Proceeds less Carrying amount)||24,000||0|
|Less Occupancy Expenses including Rent||37,000||29,500|
|Less Admin Expenses||46,000||15,000|
|Less Depreciation & Amortisation||62,000||40,000|
|Less Other Expenses||40,000||10,000|
|Profit before tax||426,000||133,600|
|Less Income Tax Expenses||80,000||24,600|
|Profit after tax||346,000||109,000|
|Retained earnings (1 July 2019)||124,000||90,000|
|Less Dividends (paid and declared)||(70,000)||(35,000)|
|Retained earnings (30 June 2020)||400,000||164,000|
|Deferred tax liabilities||0||0|
|Trade & Other Payables||80,000||75,000|
|Total Shareholders’ equity and Liabilities||1,076,000||359,000|
|Machinery, at cost||370,000||135,000|
|Less Accumulated Depreciation||(120,000)||(55,000)|
|Patent at cost||40,000||0|
|Less Accumulated Amortisation||0||0|
|Investment in Subsidiary Ltd||340,000||0|
|Deferred tax assets||0||0|
|Trade & Other Receivables||95,000||79,000|
|Cash and cash equivalent||20,000||25,000|
Click on Buy Solution and make payment. All prices shown above are in USD. Payment supported in all currencies. Price shown above includes the solution of all questions mentioned on this page. Please note that our prices are fixed (do not bargain).
After making payment, solution is available instantly.Solution is available either in Word or Excel format unless otherwise specified.
If your question is slightly different from the above question, please contact us at firstname.lastname@example.org with your version of question.