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|
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