Reference no: EM131579979
Question:
On 1 September 2010, Mega Store Limited acquired a hundred percent of the ordinary share capital of Mini Market Limited for $1,400,000. On the day of acquisition all the assets of Mini Market Limited are considered to be fairly valued and the shareholder equity of the company was as follows:
Contributed Capital - $1,000,000
Retained Earnings - $90,000
Revaluation reserve - $70,000
During the financial year ended 31 December 2013, Mega Store Limited made sales to Mini Market Limited amounting to $340,000. Mega Store Limited had always sold goods to Mini Market Limited at a mark-up of 25% on cost. During the financial year ended 31 December 2013 Mini Market Limited sold goods to Mega Store Limited amounting to $120,000. Mini Market Limited had always sold good to Mega Store Limited at a mark-up of 25% on cost.
The inventory of Mega Store Limited as at 1 January 2013 consists of items amounting to $80,000 that was purchased from Mini Market Limited. Of the inventory Mega Store Limited has on hand at 31 December 2013, $60,000 was purchased from Mini Market Limited.
The inventory of Mini Market Limited as at 31 December 2013 consists of items amounting to $20,000 that was purchased from Mega Store Limited. This was the first year that Mini Market Limited had purchased inventory from Mega Store Limited.
For the year ended 31 December 2013 Mini Market Limited paid management fees of $50,000 to Mega Store Limited.
For the year ended 31 December 2013 Mini Market Limited paid interim dividends of $40,000 and declared a final dividend of $40,000.
There have been no intra-group transfer of non-current assets and no transfers to or from revaluation reserve took place during the year.
The directors of Mega Store Limited were of the opinion that an amount of $15,000 of goodwill arising from the acquisition has been impaired during the year ending 31 December 2013. For the previous financial years the impairment of goodwill was $25,000.
Mega Store Limited remained the sole owner of Mini Market Limited as at 31 December 2013.
Assume income tax rate of 28%.
Required: Prepare notional journal entries (with narrations) to consolidate the financial statements of Mega Store Limited and its wholly owned subsidiary Mini Market Limited for the year ended 31 December 2013.