Question 1 - Consolidation: Principles and accounting requirements; and intra-group transactions
Koala Ltd purchased all of the issued shares of Kingfisher Ltd on 1 July 2013. At acquisition date, the shareholders' equity of Kingfisher Ltd consisted of:
|
$
|
|
Share capital
|
240,000
|
|
Retained earnings
|
60,000
|
|
300,000
|
At 30 June 2015, two years after acquisition, the accounts of the two companies appear as follows:
|
Koala Ltd $
|
Kingfisher Ltd $
|
|
Sales
|
500,000
|
220,000
|
|
Cost of sales
|
(266,000)
|
(92,000)
|
|
Gross profit
|
234,000
|
128,000
|
|
Depreciation expenses
|
50,000
|
30,000
|
|
Rent expenses
|
|
8,000
|
|
Other expenses
|
84,000
|
60,000
|
|
Total expenses
|
134,000
|
98,000
|
|
100,000
|
30,000
|
|
Other income
|
|
|
|
Profit on sale of equipment
|
14,000
|
-
|
|
Rent revenue
|
8,000
|
-
|
|
Total other income
|
22,000
|
-
|
|
Operating profit before tax
|
122,000
|
30,000
|
|
Income tax expense
|
(38,000)
|
(10,000)
|
|
Operating profit after tax
|
84,000
|
20,000
|
|
Retained earnings 1 July 2014
|
60,000
|
70,000
|
|
Available for appropriation
|
144,000
|
90,000
|
|
Dividends paid
|
(70,000)
|
-
|
|
Retained earnings 30 June 2015
|
74,000
|
90,000
|
|
Share capital
|
600,000
|
240,000
|
|
Creditors and borrowings
|
70,000
|
30,000
|
|
Other liabilities
|
120,000
|
10,000
|
|
864,000
|
370,000
|
|
Assets
|
|
|
|
Cash at bank
|
6,000
|
4,000
|
|
Accounts receivable
|
60,000
|
60,000
|
|
Inventory
|
50,000
|
20,000
|
|
Investments in Kingfisher Ltd
|
310,000
|
-
|
|
Property, plant and equipment
|
230,000
|
140,000
|
|
Accumulated depreciation
|
(120,000)
|
(42,000)
|
|
Land and buildings (net)
|
288,000
|
158,000
|
|
Other assets
|
40,000
|
30,000
|
|
864,000
|
370,000
|
Additional information:
(a) The identifiable net assets of Kingfisher Ltd were recorded at fair value at the date of acquisition, except for an item of property, plant and equipment (cost $35,000 and accumulated depreciation of $13,500) that had a fair value of $26,500. Property, plant and equipment is expected to have a remaining useful life of 10 years with no residual value.
(b) During the financial year, Kingfisher Ltd paid rent of $8,000 to Koala Ltd.
(c) The opening inventory of Kingfisher Ltd includes unrealised profit of $4,000 on inventory transferred from Koala Ltd during the prior financial year. This entire inventory was sold by Kingfisher Ltd to parties external to the group during the current financial year.
(d) Koala Ltd sold inventory to Kingfisher Ltd for $30,000 during the year. This inventory had an original cost to Koala Ltd of $20,000. Three quarters of this inventory was sold to external entities by Kingfisher Ltd during the year.
(e) An item of equipment owned by Koala Ltd, originally acquired on 1 July 2013, was sold to Kingfisher Ltd for $50,000 on 1 July 2014. At 1 July 2014, this equipment has a cost of $60,000 and accumulated depreciation of $12,000. Koala Ltd depreciated this asset at 20% per annum straight- line. On acquiring the asset, Kingfisher Ltd assessed that the equipment has a remaining economic useful life of four years and therefore has applied a 25% depreciation rate on a straight-line basis, from the date of transfer of the asset.
(f) The tax rate is 30%.
Required:
1. Prepare an acquisition analysis and the consolidation journal entries necessary to prepare consolidated accounts for the year ending 30 June 2015 for the group comprising Koala Ltd and Kingfisher Ltd.
2. Prepared a consolidation worksheet for the year ending 30 June 2015.
Question 2 - Consolidation: Principles and accounting requirements; intra-group transactions and non- controlling interests
On 1 July 2013, Canti Ltd purchased 70% of the issued shares of Fletcher Ltd for a cost of $2,000,000. At acquisition date, the shareholders' equity of Fletcher Ltd consisted of share capital and retained earnings of $1,500,000 and $700,000 respectively. On the same date, all assets of Fletcher Ltd were recorded at fair value.
As at 30 June 2015, two years after date of acquisition, the accounts of the two companies are as follows:
|
Canti Ltd
|
Fletcher Ltd
|
|
$
|
$
|
|
Sales revenue
|
400,000
|
100,000
|
|
Cost of goods sold
|
(100,000)
|
(40,000)
|
|
Other expenses
|
(60,000)
|
(30,000)
|
|
Other revenue
|
155,000
|
42,500
|
|
Profit
|
395,000
|
72,500
|
|
Tax
|
(85,000)
|
(17,500)
|
|
Profit after tax
|
310,000
|
55,000
|
|
Retained earnings 1 July 2014
|
1,000,000
|
800,000
|
|
1,310,000
|
855,000
|
|
Dividends paid
|
(200,000)
|
(40,000)
|
|
Retained earnings 30 June 2015
|
1,100,000
|
815,000
|
|
Shareholders' equity
|
|
|
|
Retained earnings
|
1,110,000
|
815,000
|
|
Share capital
|
4,000,000
|
1,500,000
|
|
Current liabilities
|
|
|
|
Accounts payable
|
60,000
|
40,000
|
|
Non-current liabilities
|
|
|
|
Loans
|
600,000
|
250,000
|
|
5,770,000
|
2,605,000
|
|
Current assets
|
|
|
|
Cash
|
150,000
|
25,000
|
|
Accounts receivable
|
250,000
|
175,000
|
|
Inventory
|
500,000
|
300,000
|
|
Non-current assets
|
|
|
|
Land
|
1,400,000
|
1,105,000
|
|
Plant
|
1,470,000
|
1,000,000
|
|
Investment in Fletcher Ltd
|
2,000,000
|
-
|
|
5,770,000
|
2,605,000
|
|
|
|
|
The following information is provided for the financial year 30 June 2015.
(a) The management of Canti Ltd values any non-controlling interest at the proportionate share of Fletcher Ltd's identifiable net assets.
(b) During the year, Fletcher Ltd made total sales to Canti Ltd of $22,500. At the year end, Canti Ltd has sold this entire inventory to external parties.
(c) The tax rate is 30%.
Required: Prepare the consolidation worksheet entries necessary for the preparation of consolidated financial statements for Canti Ltd and its subsidiary, Fletcher Ltd, for the financial year ended 30 June 2015. Narrations are not required.