Assignement Question

Sunshine Ltd acquired all the issued shares of Rainbow Ltd on 1 July 2018 for $350 000. At this date Rainbow Ltd recorded a dividend payable of $12 000 and equity of:

 

Share capital                                            $ 35 000

Retained earnings                                       52 000

Asset revaluation surplus                            10 000

 

All the identifiable assets and liabilities of Rainbow Ltd were recorded at amounts equal to their fair values at acquisition date except for:

 

Carrying amount                       Fair value

Inventory                                        $ 15 000                             $ 16 000

Machinery (cost $150 000)             70 000                                    85 000

 

The machinery was considered to have a further 10-year life. Of the inventory, 90% was sold by 30 June 2019. The remainder was sold by 30 June 2020.

In May 2019, Rainbow Ltd transferred $2000 from the Asset revaluation surplus at 1 July 2018 to Retained Earnings. The Goodwill has been impaired by 30 June 2019. The impairment loss is 500.

The tax rate is 30%.

The following information was provided by the two companies at 30 June 2019.

  Sunshine Rainbow
Profit before tax 120000 14,900
Income tax expense 56000 4200
Profit for the year 64000 10700
Retained earnings (01/07/2018) 80000 52000
Transfer to Retained earnings   2000
Retained earnings (30/06,019) 144000 64700
Share capital 360000 35 000
Retained earnings 144000 64700
General reserve 10000 10000
Asset revaluation surplus 18500 8000
liabilities 42500 7900
  575000 125600
Land 60000 20000
Plant and machinery 232,000 125600
Accumulated depreciation -110000 -33000
Inventory 55000 13000
Investment in Rainbow 338,000  
  575000 125600

 

Required

Prepare the Acquisition analysis, consolidation adjustments, consolidation worksheet and consolidated income statement and consolidated balance sheet of Sunshine Ltd at 30 June 2019

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