Consolidation with differences between carrying amount and fair value at acquisition date and intragroup transactions Zoe Ltd purchased 100% of the shares of Matilda Ltd on 1 July 2017 for $50 000. At that date the equity of the two entities was as follows. Asset revaluation surplus Retained earnings Share capital Zoe Ltd $25000 14500 50 000 Matilda Ltd $ 4000 2 800 40 000 At 1 July 2017, all the identifiable assets and liabilities of Matilda Ltd were recorded at fair value except for the following Inventories Plant and equipment (cost $80 000) Carrying amount $ 3 000 60 000 Fair value $ 3500 61 000 All of the inventories were sold by December 2017. The plant and equipment had a further 5-year useful life. Any valuation adjustments are made on consolidation. Financial information for Zoe Ltd and Matilda Ltd for the period ended 30 June 2019 is shown below. Matilda Ltd Sales revenue Dividend revenue Total income Cost of sales Other expenses Total expenses Gross profit Gain on sale of furniture Profit before income tax Income tax expense Profit for the period Retained earnings (1/7/18) Zoe Ltd $78 000 4400 82 400 60 000 10 800 70 800 11600 $40 000 1 600 41 600 30 000 5000 35 000 6600 0 500 11 600 3000 7100 2200 8600 14500 23 100 4000 Interim dividend paid Final dividend declared B000 Retained earnings (30/6/19) 11 100 CONSOLIDATION WORKSHEET ENTRIES 30.6.2019 1. BUSINESS COMBINATION VALUATION RESERVE ENTRIES DETAILS I DEBITI CREDIT Working space 2. PRE-ACQUISITION ENTRIES DETAILS DEBITI CREDIT INTRAGROUP ADJUSTMENTS DETAILS DEBIT CREDIT Working space 3. Dividends paid 4. Dividends declared 5. Opening inventory 6. Sale of inventory 7. Closing inventory 6/8 DEBIT CREDIT DETAILS e of furniture Working space 9. Depreciation of furniture Zoe Ltd 78 000 Group Matilda Ltd 40 000 Adjustments Dr Cr Sales revenue Dividend revenue 4400 1 600 82 400 60 000 41 600 30 000 Cost of sales Other expenses 10 800 70 800 11 600 5 000 35 000 6600 500 Profit from trading Gain on sale of furniture Profit before tax Tax expense 11 600 3 000 7 100 2 200 Profit Retained earnings (1/7/18) 8 600 14 500 4900 2 800 Dividend paid Dividend declared 23 100 4000 8 000 12 000 11 100 7700 2000 2 400 4 400 3 300 Retained earnings (30/6/19) ZOE LTD Consolidated Statement of Profit or Loss and Other Comprehensive Income for the financial year ended 30 June 2019 Revenues: Sales revenue Dividend revenue Expenses: Cost of sales Other expenses Profit before income tax Income tax expense Profit for the period Other comprehensive income: Asset revaluations: Increments Comprehensive income for the period Consolidation with differences between carrying amount and fair value at acquisition date and intragroup transactions Zoe Ltd purchased 100% of the shares of Matilda Ltd on 1 July 2017 for $50 000. At that date the equity of the two entities was as follows. Asset revaluation surplus Retained earnings Share capital Zoe Ltd $25000 14500 50 000 Matilda Ltd $ 4000 2 800 40 000 At 1 July 2017, all the identifiable assets and liabilities of Matilda Ltd were recorded at fair value except for the following Inventories Plant and equipment (cost $80 000) Carrying amount $ 3 000 60 000 Fair value $ 3500 61 000 All of the inventories were sold by December 2017. The plant and equipment had a further 5-year useful life. Any valuation adjustments are made on consolidation. Financial information for Zoe Ltd and Matilda Ltd for the period ended 30 June 2019 is shown below. Matilda Ltd Sales revenue Dividend revenue Total income Cost of sales Other expenses Total expenses Gross profit Gain on sale of furniture Profit before income tax Income tax expense Profit for the period Retained earnings (1/7/18) Zoe Ltd $78 000 4400 82 400 60 000 10 800 70 800 11600 $40 000 1 600 41 600 30 000 5000 35 000 6600 0 500 11 600 3000 7100 2200 8600 14500 23 100 4000 Interim dividend paid Final dividend declared B000 Retained earnings (30/6/19) 11 100 CONSOLIDATION WORKSHEET ENTRIES 30.6.2019 1. BUSINESS COMBINATION VALUATION RESERVE ENTRIES DETAILS I DEBITI CREDIT Working space 2. PRE-ACQUISITION ENTRIES DETAILS DEBITI CREDIT INTRAGROUP ADJUSTMENTS DETAILS DEBIT CREDIT Working space 3. Dividends paid 4. Dividends declared 5. Opening inventory 6. Sale of inventory 7. Closing inventory 6/8 DEBIT CREDIT DETAILS e of furniture Working space 9. Depreciation of furniture Zoe Ltd 78 000 Group Matilda Ltd 40 000 Adjustments Dr Cr Sales revenue Dividend revenue 4400 1 600 82 400 60 000 41 600 30 000 Cost of sales Other expenses 10 800 70 800 11 600 5 000 35 000 6600 500 Profit from trading Gain on sale of furniture Profit before tax Tax expense 11 600 3 000 7 100 2 200 Profit Retained earnings (1/7/18) 8 600 14 500 4900 2 800 Dividend paid Dividend declared 23 100 4000 8 000 12 000 11 100 7700 2000 2 400 4 400 3 300 Retained earnings (30/6/19) ZOE LTD Consolidated Statement of Profit or Loss and Other Comprehensive Income for the financial year ended 30 June 2019 Revenues: Sales revenue Dividend revenue Expenses: Cost of sales Other expenses Profit before income tax Income tax expense Profit for the period Other comprehensive income: Asset revaluations: Increments Comprehensive income for the period