ACCT2201 GROUP CASE STUDY

On 1 July 2013 Mario Limited acquired all of the share capital of Luigi Limited for

a consideration of $500,000 cash.

At the date of acquisition the equity of Luigi Ltd consisted of:

At that date all the identifiable assets and liabilities were recorded at fair value with the exception o

For the net assets at acquisition:

The inventory was all sold by 30/6/14.

The accounts receivable were collected by 30/6/14 for $21,000.

The land was sold on 30/12/16 for $45,000.

The remaining useful life of the plant is 7 years. The plant was on hand still at 30/6/17.

Information from the trial balances of Mario Ltd and Luigi Ltd at 30 June 2017 is presented overleaf.

Additional Information

1. On 1 Jan 2017 Luigi Ltd sold inventory to Mario Ltd costing $27,000 for $38,000. One quarter of this inventory was still on hand as at 30/6/17.

2. On 1 Jan 2016 Luigi Ltd sold inventory costing $4700 to Mario Ltd for $8000. Mario Ltd

treats the item as equipment and depreciates it at 10% per annum.

3.On 1 July 2016 Luigi sold plant to Mario for $7,000. The plant had cost Luigi $8,000 on

1 July 2014 and it was being depreciated at 10% per annum. Mario regards the plant as inventory. The inventory was all sold by 30th July 2016.

4. At 1 July 2016 Luigi Ltd held inventory that it had purchased from Mario Ltd on 1 June

2016 at a profit of $8000. All inventory was sold by 30 June 2017

5. Mario Ltd accrues dividends from Luigi Ltd once they are declared.

6. Mario Ltd has earned $1200 in interest revenue in the 2017 financial year from Luigi Ltd. 7. Mario Ltd has earned $2400 in service revenue in the 2017 financial year from Luigi Ltd. 8. Assume a tax rate of 30%.

Required:

C. Prepare the BCVR and preacquisition journal entries at 30 June 2017.

D. Prepare the consolidation worksheet journal entries to eliminate the effects of

interentity transactions as at 30 June 2017.