Consolidated financial statements, rationale for adjustments

Lead beaters Ltd acquired all the issued shares (cum div.) of Possum Ltd on 1 July 2014. At this

date the shareholders equity of Possum Ltd was:

Share capital 100 000 shares General reserve Asset revaluation surplus Retained earnings

$

450 000 45 000 45 000 15 000

At 1 July 2014, the accounting records of Possum Ltd contained a dividend payable of $15 000.

This dividend was paid in August 2014. All the identifiable assets and liabilities at acquisition

date were recorded at amounts equal to their fair values except for:

	Carrying amount	Fair value
Plant (cost $290 000)	$220 000	$227 500
Inventory	160 000	175 000

The plant was considered to have a further 4-year life. It was sold on 1 January 2017 for

$118 000. The inventory was all sold by 30 June 2015. Possum Ltd did not record a contingent

liability relating to a lawsuit by a customer for faulty goods. Possum Ltd considered this liability

had a fair value of $18 000. The lawsuit was settled in May 2015 when Possum Ltd was required

to pay damages of $20 000.

Additional information

(a) On 1 July 2015, Lead beaters Ltd sold plant to Possum Ltd at a before-tax profit of $6000.

This class of non-current asset is depreciated at 25% p.a. on cost by Lead beaters Ltd while

Possum Ltd uses a rate of 10% p.a. on cost.

(b) In June 2016 Possum Ltd sold $50 000 worth of inventory to Lead beaters Ltd at a before-tax profit of $5400. At 30 June 2017, inventory on which Possum Ltd had made a profit of $750 on sale to Lead beaters Ltd was still on hand.

(c) On 10 February 2017, Possum Ltd used the whole of the general reserve existing at 1 July

2014 to pay a bonus dividend of three shares for every ten held.

(d) Both Lead beaters Ltd and Possum Ltd use the valuation method to measure land. In June

2017, Leadbeaters Ltd recorded revaluation increases of $15 000 while Possum Ltd recorded increases of $12 000.

(e) The tax rate is 30%.

Financial information provided by the companies at 30 June 2017 was as follows:

	Lead beaters Ltd	Possum Ltd
Plant	$ 558 750	$ 318 000
Accumulated depreciation plant	(318 000)	(165 000)
Land	531 300	397 500
Shares in Possum Ltd	580 000
Inventory	280 000	240 000
Receivables	43 500	22 500
Cash	37 500	15 000
Total assets	$1 713 050	$ 828 000
Dividend payable	15 000	6 000
Other current liabilities	52 050	60 000
Loans	150 000	60 000
Total liabilities	$ 217 050	$ 126 000
Share capital	$1 200 000	$495 000
Asset revaluation surplus	225 000	120 000
Retained earnings (1/7/16)	22 500	18 000
Revenues	162 000	210 000
Expenses	(48 000)	(80 000)
Gains/(losses) on sale of non-current assets	6 000	5 000
Tax expense	(52 500)	(60 000)
Dividend declared	(15 000)	(6 000)
Total equity	$1 500 000	$ 702 000

Required

Prepare the consolidated financial statements for Lead Beaters Ltd at 30 June 2017.

Show the following

• acquisition analysis (8 marks),
• consolidation journals (8 marks)
• worksheet entries (5 marks).
• Explain the rationale of intragroup transactions for (a) and (b) above. (4 marks)
• Presentation and referencing (5 marks)