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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:

  1. The machinery, which had a further 5-year life on acquisition date, was sold on 1 January 2021.
  2. The equipment was estimated to have a further 8-year life.
  3. The inventory held by Durian Ltd at 1 July 2018 were sold by 31 December 2018.
  4. The land on hand was sold by 1 March 2020.
  5. On 30 June 2021, half of the goodwill was written off as a result of an impairment test.
  6. Valuation adjustments are made on consolidation.

Additional information relating to intragroup transactions:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. In March 2020, Cherry Ltd made an interest free loan of $10,000 to Durian Ltd that remains outstanding at 30 June 2021.
  7. 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:

  1. Prepare the consolidation journal entries as at 30 June 2021.
  2. Prepare the consolidation worksheet for the preparation of the consolidated financial statements as at 30 June 2021.

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