User Account

All Pages

consolidation, Accounting Basics

Assignment Help:
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.

Related Discussions:- consolidation

Significance of accounting standards, Significance of Accounting Standards:...

Significance of Accounting Standards: Setting of Standards is an effort to standardize the reporting of accounting information across the country and also transversely the glob

What does the 2011, At December 31, 2011 and 2010, Miley Corp. had 180,000 ...

At December 31, 2011 and 2010, Miley Corp. had 180,000 shares of common stock and 10,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were decl

Economic substance of the transaction, Q. Economic substance of the transac...

Q. Economic substance of the transaction? In a few business transactions the economic substance of the transaction conflicts with its legal form. For instance a contract that i

Completing the accounting cycle, Q. Completing the accounting cycle? Su...

Q. Completing the accounting cycle? Subsequent to studying this chapter you should be able to - Recapitulate the steps in the accounting cycle. - Organize a work sheet fo

Difference between finance and accounts?, Finance: It is the part of econo...

Finance: It is the part of economics that studies the management of money and other assets. In easier terms it can be explained as the commercial activity of providing funds and c

A store receives $400 cash after offering a chain discount, A store receive...

A store receives $400 cash after offering a chain discount of 10/10/5 on a good. What was the list price? A. $492.20 B. $519.82 C. $533.33 D. $612.00

Ryan''s express has total credit sales for the year, Ryan's Express has tot...

Ryan's Express has total credit sales for the year of $178,000 and estimates that 3% of its credit sales will be uncollectible. Record the end-of-period adjusting entry on Decemb

Income statement , Astra Company sells financial calculators and offers ins...

Astra Company sells financial calculators and offers instruction on their use. During its first year it expects to sell 3000 calculators at $30 each and offer 5000 hours of instruc

These questions are based on the following information, These questions are...

These questions are based on the following information and should be viewed as independent situations. Popper Co. acquired 80% of the common stock of Cocker Co. on January 1, 200

Comparability in accounting information, Q. Comparability in accounting inf...

Q. Comparability in accounting information? When comparability exists reported similarities and differences in financial information are real and not the result of differing ac

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd