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.
Required
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 | |
| Dr | Cr | ||||
| Sales | 1,050,000 | 509,100 | |||
| Less Cost of Sales | 510,000 | 281,000 | |||
| Gross Profit | 540,000 | 228,100 | |||
| 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 | |||
| General reserve | 36,000 | 0 | |||
| Share Capital | 400,000 | 100,000 | |||
| BCVR | 0 | 0 | |||
| Deferred tax liabilities | 0 | 0 | |||
| Trade & Other Payables | 80,000 | 75,000 | |||
| Dividend payable | 70,000 | 20,000 | |||
| Bank Overdraft | 90,000 | 0 | |||
| Total Shareholders’ equity and Liabilities | 1,076,000 | 359,000 | |||
| Land | 142,000 | 100,000 | |||
| 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 | |||
| Goodwill | 0 | 15,000 | |||
| Dividend receivable | 20,000 | 0 | |||
| Deferred tax assets | 0 | 0 | |||
| Inventories | 169,000 | 60,000 | |||
| Trade & Other Receivables | 95,000 | 79,000 | |||
| Cash and cash equivalent | 20,000 | 25,000 | |||
| Total Assets | 1,076,000 | 359,000 | |||
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