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Cherry Ltd purchased 100% of the shares of Durian Ltd on 1 July 2018 for $155,000. At that date the equity of Durian Ltd was
Cherry Ltd purchased 100% of the shares of Durian Ltd on 1 July 2018 for $155,000. At that date the equity of Durian Ltd was as follows:
Share capital 60,000 shares | $ 60,000 |
General reserve | 36,000 |
Retained earnings | 21,000 |
At acquisition date, all the identifiable assets and liabilities of Durian Ltd were recorded at amounts equal to fair value except for:
Carrying amount | Fair value | |
Machinery (cost = $17,000) | $15,000 | $16,000 |
Equipment (cost = $30,000) | 24,000 | 32,000 |
Inventory | 50,000 | 57,000 |
Land | 18,480 | 24,480 |
The tax rate is 30%
Additional information relating to the acquisition:
- The machinery, which had a further 5-year life on acquisition date, was sold on 1 January 2021.
- The equipment was estimated to have a further 8-year life.
- The inventory held by Durian Ltd at 1 July 2018 were sold by 31 December 2018.
- The land on hand was sold by 1 March 2020.
- On 30 June 2021, half of the goodwill was written off as a result of an impairment test.
- Valuation adjustments are made on consolidation.
Additional information relating to intragroup transactions:
- On 1 July 2020, Durian Ltd has inventory on hand of $12,000 transferred from Cherry Ltd in June 2020. The inventory had previously cost Cherry Ltd $11,800. By 30 June 2021, Durian Ltd had sold all $12,000 of the inventory to external parties.
- On 1 January 2021, Cherry Ltd acquired $15,000 worth of inventory for cash from Durian Ltd. The inventory had previously cost Durian Ltd $11,000. By 30 June 2021, Cherry Ltd had sold $11,250 of the transferred inventory for $16,000 to external entities.
- On 1 January 2020, Durian Ltd sold equipment to Cherry Ltd for $8,000. This had originally cost Durian Ltd $12,000 and had a carrying amount at the time of sale of $7,000. Both entities charge depreciation on the straight-line basis at 10% per year.
- On 1 January 2021, Cherry Ltd sold an item of inventory to Durian Ltd for use as machinery. This item cost Cherry Ltd $4,000 and was sold to Durian Ltd for $6,000. Durian Ltd depreciated the item on the straight-line basis at 10% per year.
- On 1 February 2021, Durian Ltd paid an interim dividend of $2,000. Durian Ltd declared a final dividend of $3,000 in June 2021 that is still to be paid. Shareholder approval is not required in relation to dividends.
- In March 2020, Cherry Ltd made an interest free loan of $10,000 to Durian Ltd that remains outstanding at 30 June 2021.
- On 30 June 2021, the trial balances of Cherry Ltd and Durian Ltd were as follows:
Cherry Ltd Durian Ltd Debit balances Shares in Durian Ltd $155,000 $0 Inventory 171,580 70,320 Other current assets 8,620 3,100 Deferred tax assets 16,200 7,400 Machinery 28,000 22,000 Land 0 24,480 Equipment 34,000 37,300 Cost of sales 65,000 53,500 Other expenses 22,000 27,000 Income tax expense 7,200 2,000 Interim dividend paid 4,000 2,000 Final dividend declared 10,000 3,000 Advance to Durian Ltd 10,000 0 531,600 252,100 Credit balances Share capital 170,000 60,000 General reserve 41,000 36,000 Retained earnings (1/7/20) 33,800 35,500 Debentures 120,000 0 Final dividend payable 10,000 3,000 Current tax liabilities 8,000 2,500 Other payables 34,800 10,100 Advance from Cherry Ltd 0 10,000 Sales 85,000 65,000 Other revenue 19,000 21,000 Gains/(losses) on sale of non-current assets 4,000 1,000 Accumulated depreciation machinery 4,000 2,000 Accumulated depreciation equipment 2,000 6,000 531,600 252,100
Required:
- Prepare the consolidation journal entries as at 30 June 2021.
- Prepare the consolidation worksheet for the preparation of the consolidated financial statements as at 30 June 2021.
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