Joan Ltd acquired 100% of the share capital of Jewel Ltd on 1 July 2011, for $356,000. At that date, the share capital and reserves of Jewel Ltd were:
| |
$ |
| Share capital |
200,000 |
| Retained earnings |
80,000 |
| |
280,000 |
At 30 June 2016, five years after acquisition, the following data has been extracted from their financial records:
|
Joan Ltd |
Jewel Ltd |
| |
$ |
$ |
| Sales |
781,400 |
740,000 |
| Cost of sales |
(494,000)
|
(438,000) |
| Gross profit |
287,400 |
302,000 |
| Dividends received from Jewel Ltd |
93,000 |
- |
| Management fee revenue |
26,500 |
- |
| Gain on sale of plant |
40,000 |
36,000 |
| Expenses |
|
|
| Administrative expenses |
(40,800) |
(28,700) |
| Depreciation |
(29,500) |
(56,800) |
| Management fee expense |
- |
(26,500) |
| Other expenses |
(125,100)
|
(86,000) |
| Operating profit before tax |
251,500 |
140,000 |
| Income tax expense |
(75,500)
|
(42,000) |
| Operating profit after tax |
176,000 |
98,000 |
| Retained earnings 1 July 2015 |
319,400 |
239,200 |
| Available for appropriation |
495,400 |
337,200 |
| Dividends paid |
(137,400)
|
(93,000) |
| Retained earnings 30 June 2016 |
358,000
|
244,200 |
| |
|
|
| Equity |
|
|
| Retained earnings |
358,000 |
244,200 |
| Share capital |
350,000 |
200,000 |
| Current liabilities |
|
|
| Accounts payable |
81,700 |
76,300 |
| Tax payable |
66,300 |
25,000 |
| Non-current liabilities |
|
|
| Loans |
152,500
|
120,000
|
| |
1,008,500 |
665,500
|
| Current assets |
|
|
| Accounts receivable |
55,400 |
84,500 |
| Inventory |
105,000 |
38,000 |
| Non-current assets |
|
|
| Land and buildings |
278,000 |
326,000 |
| Plant - at cost |
299,850 |
355,800 |
| Less: Accumulated depreciation |
(85,750) |
(138,800) |
| Investment in Jewel Ltd |
356,000
|
- |
| |
1,008,500
|
665,500 |
Additional information:
(a) The identifiable net assets of Jewel Ltd were recorded at fair value at the date of acquisition, except for inventory that had a fair value which was $2,000 higher than its carrying amount, and an item of plant (cost $25,000 and accumulated depreciation of $15,000) that had a fair value of $19,000. This plant had a remaining useful life of 6 years, with no residual value. All of the inventory was sold by 30 June 2012, but the plant is still owned as at 30 June 2016.
(b) During the year ended 30 June 2016, Joan Ltd made inventory sales to Jewel Ltd of $42,000, while Jewel Ltd made inventory sales to Joan Ltd of $65,000.
(c) The closing inventory (at 30 June 2016) of Joan Ltd includes inventory acquired from Jewel Ltd at a cost of $33,000. This cost Jewel Ltd $20,000 to produce.
(d) The closing inventory (at 30 June 2016) of Jewel Ltd includes inventory acquired from Joan Ltd at a cost of $7,000. This cost Joan Ltd $5,000 to produce.
(e) The opening inventory of Joan Ltd (at 1 July 2015) included inventory acquired from Jewel Ltd for $20,000, that had cost Jewel Ltd $15,000 to produce. This entire inventory was sold by Joan Ltd to parties external to the group during the year ended 30 June 2016.
(f) On 1 July 2015, Jewel Ltd sold an item of plant to Joan Ltd for $116,000 when its carrying amount in Jewel Ltd's financial statements was $80,000 (cost $135,000 less accumulated depreciation of $55,000). This plant is assessed as having a remaining useful life of 6 years, with no residual value.
(g) During the year ended 30 June 2016, Jewel Ltd paid management fees of $26,500 to Joan Ltd.
(h) The tax rate is 30%.
Required:
A. Prepare an acquisition analysis and the consolidation journal entries the year ending 30 June 2016 for the group comprising Joan Ltd and Jewel Ltd.
B. Prepared a consolidation worksheet for the year ending 30 June 2016.