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consolidation, Accounting Basics

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Perth Ltd acquired 80% of the share capital of Summer Ltd on 1 July 2011. The following equity balances appeared in the records of Summer Ltd at the date of acquisition:
Share capital (210,000 shares) $210,000
General reserve 6,100
Retained earnings 75,000

Financial information at 30 June 2016 of Perth Ltd and its subsidiary company, Summer Ltd, is shown below.
Perth Ltd Summer Ltd
$ $
Sales revenue 708,000 492,000
Cost of sales (273,000) (178,500)
Gross Profit 435,000 313,500
Other revenue:
Debenture interest — 10,500
Management fees 10,500 —
Dividend from Summer Ltd 16,800 —
462,300 324,000
Administrative expenses (31,500) (16,800)
Distribution expenses (189,000) (126,000)
Depreciation on machinery (31,500) (31,500)
Finance expenses (27,600) (12,000)
Other expenses (29,400) (25,200)
Total operating expenses (309,000) (211,500)
Profit before tax 153,300 112,500
Income tax expense (52,500) (34,500)
Profit after tax 100,800 78,000
Retained earnings (1/7/2015) 105,000 94,500
205,800 172,500
Transfer to general reserve (6,300) —
Interim dividend paid (31,500) (21,000)
Final dividend declared (37,800) (42,000)
(75,600) (63,000)
Retained earnings (30/6/2016) 130,200 109,500
General reserve 105,000 36,000
Other components of equity (1/7/2015) 27,300 21,000
Share capital 630,000 210,000

Liabilities:
Debentures 255,000 60,000
Deferred tax liability — 14,700
Current tax liability 52,500 35,700
Dividend payable 37,800 42,000
Other current liabilities 189,000 25,200
1,426,800 554,100
Cash and cash equivalents 107,100 6,000
Trade receivables 68,250 40,200
Inventory 189,000 58,500
Debentures in Perth Ltd 105,000
Shares in Summer Ltd 270,000 —
Machinery (cost) 252,000 214,200
Accumulated depreciation – machinery (136,500) (115,500)
Other depreciable assets 159,600 115,500
Accumulated depreciation (84,000) (52,500)
Deferred tax asset 179,250 63,000
Land 422,100 119,700
1,426,800 554,100

Additional information
i. At 1 July 2011, all the identifiable assets and liabilities of Summer Ltd were recorded at fair value except for the following assets:
Carrying amount Fair value
Land $62,000 $80,000
Machinery (cost 135,000) 105,000 120,000
Receivable 42,000 36,000

The machinery has an expected life of 10 years, with benefits being received evenly over that period. Differences between carrying amounts and fair values are adjusted on consolidation. The land on hand at 1 July 2011 was sold on 1 March 2013 for $84,000. Any valuation reserve in relation to the land is transferred on consolidation to retained earnings. By 30 June 2012, receivables had all been collected.

ii. Perth Ltd uses the full goodwill method. The fair value of the non-controlling interest at 1 July 2011 was $66,000.

iii. Opening inventory of Summer Ltd includes unrealised profit of $5,000 on inventory sold by Perth Ltd. It was all sold by Summer Ltd during the year.

iv. During the year, intragroup sales by Summer Ltd to Perth Ltd were $80,000. The mark-up on cost of all sales was 25%. At 30 June 2016, Perth Ltd’s inventory included $35,000 of items acquired from Summer Ltd.

v. On 1 January 2016, Summer Ltd sold an item of inventory to Perth Ltd for $18,000 at a profit before tax of $3000. Perth Ltd had treated this item as an addition to its machinery and depreciated at 10% p.a. straight-line.
vi. On 1 April 2016, Perth Ltd sold $15,000 worth of inventory to Summer Ltd. The cost of this inventory was $9000. By 30 June 2016, Summer Ltd had sold 60% of the inventory to outside entities.

vii. Some of the items manufactured by Summer Ltd are used as machinery by Perth Ltd. One of the machinery items held by Perth Ltd at 30 June 2016 was purchased from Summer Ltd on 1 January 2015. It had cost Summer Ltd $17,500 to manufacture this item and was sold to Perth Ltd for $25,000. Perth Ltd depreciates such items at 10% p.a. on cost.

viii. Management fees derived by Perth Ltd were all from Summer Ltd and represented charges made for administration.

ix. The tax rate is 30%.


Required:

Prepare i) the consolidation journal entries; ii) consolidation worksheet (Show all workings) for the year ended at 30 June 2016.

Note: Consolidation worksheet and all calculation should be presented in the same format as used in Leo, Hoggett and Sweeting, 10ed textbook.

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