On 1 July 2016, Parrot Ltd acquired 80% of the share capital of Squirrel Ltd for $264 800. On that date, the statement of financial position of Squirrel Ltd consisted of:
|Asset revaluation surplus||15||000|
|Plant and equipment||300||000|
|Accumulated depreciation — plant and equipment||(130 000)|
At 1 July 2016, all identifiable assets and liabilities of Squirrel Ltd were recorded at fair value except for:
|Carrying amount||Fair value|
|Inventories||$ 70||000||$ 80||000|
|Plant and equipment (cost||70||000||90||000|
During the year ended 30 June 2017, all inventories on hand at the beginning of the year were sold, and the land was sold on 28 February 2017 to Outback Ltd for $80 000. The plant and equipment had a further 5-year life beyond 1 July 2016 and was expected to be used evenly over that time. The trademark was considered to have an indefinite life. Any adjustments for differences at acquisition date between carrying amounts and fair values are made in the consolidation worksheet. Parrot Ltd uses the partial goodwill method. The tax rate is assumed to be 30%.
Financial information for Parrot Ltd and Squirrel Ltd for the year ended 30 June 2017 is shown below.
Parrot Ltd Squirrel Ltd
Sales revenue $200 000 $172 000
|Cost of sales||162||000||128||000|
|Profit from trading||60||000||43||000|
|Gains/(losses) on sale of non-current assets||10||000||5||000|
|Profit before tax||70||000||48||000|
|Income tax expense||20||000||18||000|
|Profit for the period||50||000||30||000|
|Retained earnings (1/7/16)||30||000||10||000|
|Transfer from general reserve||8||000|
|Interim dividend paid||12||000||10||000|
|Final dividend declared||6||000||4||000|
|Retained earnings (30/6/17)||$ 62||000||$ 34||000|
|Asset revaluation surplus (1/7/16)||$ 15||000|
|Gain on revaluation of specialised plant||5||000|
|Asset revaluation surplus (30/6/17)||$ 20||000|
During the year ended 30 June 2017, Squirrel Ltd sold inventories to Parrot Ltd for $8000. The original cost of these items to Squirrel Ltd was $5000. One-third of these inventories were still on hand at the end of the year.
On 31 March 2017, Squirrel Ltd transferred an item of plant with a carrying amount of $10 000 to Parrot Ltd for $15 000. Parrot Ltd treated this item as inventories. The item was still on hand at the end of the year. Squirrel Ltd applied a 20% depreciation rate to this type of plant.
- Prepare the acquisition analysis and all consolidation worksheet entries (narrations not required) necessary for preparation of the consolidated financial statements for Squirrel Ltd and its subsidiary for the year ended 30 June 2017.
- Prepare the consolidated statement of profit or loss and other comprehensive income for Parrot Ltd and its subsidiary at 30 June 2017.
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