Question: Practical - Consolidations - Accounting for Group Structures
The following financial statements of Abercrombie Ltd and its subsidiary Hitch Ltd have been extracted from their financial records at 30 June 2016.
|
|
Abercrombie Ltd ($000)
|
Hitch Ltd ($000)
|
|
Reconciliation of opening and closing retained earnings
|
|
|
|
Sales revenue
|
771.4
|
640
|
|
Cost of goods sold
|
(564)
|
(338)
|
|
Gross profit
|
207.4
|
302
|
|
Dividends received from Hitch Ltd
|
93
|
-
|
|
Management fee revenue
|
26.5
|
-
|
|
Gain on sale of plant
|
40
|
35
|
|
|
Abercrombie Ltd ($000)
|
Hitch Ltd ($000)
|
|
Expenses
|
|
|
|
Administrative expenses
|
(30.8)
|
(38.7)
|
|
Depreciation
|
(29.5)
|
(56.8)
|
|
Management fee expense
|
-
|
(26.5)
|
|
Other expenses
|
(101.1)
|
(72)
|
|
Profit before tax
|
205.5
|
143
|
|
Tax expense
|
61.5
|
42.2
|
|
Profit for the year
|
144
|
100.8
|
|
Retained earnings - 30 June 2015
|
319.4
|
239.2
|
|
|
463.4
|
340
|
|
Dividends paid
|
(137.4)
|
(93)
|
|
Retained earnings - 30 June 2016
|
326
|
247
|
|
|
Abercrombie Ltd ($000)
|
Hitch Ltd ($000)
|
|
Statement of financial position
|
|
|
|
Shareholder's equity
|
|
|
|
Retained earnings
|
326
|
247
|
|
Share capital
|
350
|
200
|
|
Current liabilities
|
|
|
|
Accounts payable
|
54.7
|
46.3
|
|
Tax payable
|
41.3
|
25
|
|
Non-current liabilities
|
|
|
|
Loans
|
173.5
|
116
|
|
|
945.5
|
634.3
|
|
Current assets
|
|
|
|
Accounts receivable
|
70.4
|
62.3
|
|
Inventory
|
92
|
29
|
|
Non-current assets
|
|
|
|
Land and buildings
|
224
|
326
|
|
Plant - at cost
|
299.85
|
355.8
|
|
Accumulated depreciation
|
(85.75)
|
(138.8)
|
|
Investment in Hitch Ltd
|
345
|
-
|
|
|
945.5
|
634.3
|
Other Information -
(a) Abercrombie Ltd acquired its 100% interest in Hitch Ltd on 1 July 2011 that is five years earlier. At that date the capital and reserves of Hitch Ltd were:
Share capital - $200 000
Retained earnings - $180 000
$380 000
At the date of acquisition all assets were considered to be fairly valued.
(b) During the year Hitch Ltd made total sales to Abercrombie Ltd of $60 000.
(c) The closing inventory of Hitch Ltd includes inventory acquired from Abercrombie Ltd at a cost of $22 000. This cost Abercrombie Ltd $20 000 to produce
(d) During the year Abercrombie Ltd made total sales to Hitch Ltd of $70 000.
(e) The closing inventory of Abercrombie Ltd includes inventory acquired from Hitch Ltd at a cost of $35 000. This cost Hitch Ltd $30 000 to produce.
(f) The opening inventory in Abercrombie Ltd as at 1 July 2015 included inventory acquired from Hitch Ltd for $40 000 that cost Hitch Ltd $30 000 to produce.
(g) On the 1 July 2015 Hitch Ltd sold an item of plant to Abercrombie Ltd for $126 000 when its carrying value in Hitch Ltd's accounts was $81 000 (cost $145 000. accumulated depreciation $64 000). This plant is assessed as having a remaining useful life of six years.
(h) Hitch Ltd paid $26 500 in management fees to Abercrombie Ltd.
(i) Hitch Ltd paid $93 000 dividends to Abercrombie Ltd.
[Note: The company income tax rate is 30%.]
Requirement:
Provide the consolidated income statement and statement of financial position of Abercrombie Ltd. together with journal entries and worksheets for year ended 30 June 2016.
Format: Your Group Report must include:
1. Discussion on accounting for group structures
2. Prepare consolidation journal entries
3. Post the consolidated journal entries to the worksheets of statement of comprehensive income and statement of financial position
4. Consolidated statement of comprehensive income of Abercrombie Ltd and its subsidiary for the year ended 30 June 2016
5. Consolidated statement of financial position of Abercrombie Ltd and its subsidiary for the year ended 30 June 2016.
6. Abercrombie Ltd - Statement of changes in equity for the year ended 30 June 2016.