Question
Case Study 7 On 1 July 2017 South Ltd acquired all the share capital of West Ltd for $160,000. At that date the accounts of
Case Study 7
On 1 July 2017 South Ltd acquired all the share capital of West Ltd for $160,000. At that date the accounts of West Ltd show the following:
Share capital
$100,000
General reserve
30,000
Retained earnings
20,000
Additional information for the year ended 30 June 2017
1. Sales by West Ltd to South Ltd during the year amounted to $ 110,000.
2. Unrealised profit in inventory of South Ltd:
01/07/2016$5,000
30/06/2017$3,000
3. On 1 January 2010 South Ltd sold an item of plant to West Ltd for $45,000, making a profit on the sale of $10,000. West Ltd depreciates plant at 20% per annum on cost.
4. Included in the other assets of South Ltd is a three-year loan of $20,000 at 15% per annum to West Ltd made on 1 April 2017. Three months interest was accrued by both companies at 30 June 2016.
5. Goodwill is tested annually for impairment; goodwill has been impaired by:
$1,000 for the year ended 30 June 2016; and
$2,000 for the year ended 30 June 2017.
Task 7
a.Complete the consolidation worksheet.
Consolidation Worksheet
South Ltd
West Ltd
Eliminations
Consolidated
30 June 2017
Dr
Cr
Statements
Sales
900,000
500,000
110,000
=900,000+500,000-110,000=1,290,000
Inventory 01/07/2016
70,000
60,000
5,000
125,000
Purchases
510,000
400,000
110,000
800,000
580,000
460,000
Inventory 30/06/2017
90,000
80,000
3,000
=90000+80000-3000=167,000
Less Cost of Goods Sold
490,000
380,000
758,000
Gross Profit
410,000
120,000
532,000
750
Expenses
210,000
40,000
2,000
1,000
250,250
200,000
80,000
281,750
Add Other Income
Profit on Sale of Plant
10,000
0
10,000
0
Interest Income
750
0
750
0
Dividends from West Ltd
30,000
0
30000
0
Profit before Tax
240,750
80,000
160,750
Less Income Tax expense
90,000
30,000
60,000
Profit
150,750
50,000
100,750
Retained Earnings 01/07/2016
80,000
40,000
40,000
Available
230,750
90,000
140,750
Appropriations:
Dividend - Paid
40,000
30,000
10,000
Dividend - Declared
50,000
20,000
30,000
Total Appropriations
90,000
50,000
40,000
Retained Earnings 30/06/2017
140,750
40,000
100,750
General Reserve
100,000
50,000
50,000
Share Capital
200,000
100,000
100,000
Dividend Payable
50,000
20,000
30,000
Other Current Liabilities
110,000
60,000
Non-Current Liabilities
60,000
20,000
660,750
290,000
Shares in West Ltd
160,000
0
160,000
0
Plant and Equipment (net)
260,000
120,000
Inventory
90,000
80,000
Other Assets
150,750
90,000
Goodwill on Consolidation
0
Accum Impairment - Goodwill
660,750
290,000
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Modern Advanced Accounting in Canada
Authors: Hilton Murray, Herauf Darrell
8th edition
1259087557, 1057317623, 978-1259087554
