Exercise 29.15 Undervalued assets, partial goodwill method, intragroup transactions On 1 July 2019, Marcus Ltd acquired 80% of the issued shares of Jett Ltd for $264 800. On that date, the statement of financial position of Jett Lid consisted of: Share capital General reserve Asset revaluation surplus Retained earnings Liabilities Cash Inventories Land Plant and equipment Accumulated depreciation - plant and equipment Trademark Goodwill $ 250 000 10000 15000 10000 180 000 $ 465 000 35 000 70 000 65000 300 000 (130 000) 100 000 25 000 $ 465000 At 1 July 2019, all identifiable assets and liabilities of Jett Ltd were recorded at fair value except for the following. Inventories Land Plant and equipment cost $300 000) Trademark Carrying amount $ 70000 65 000 170000 100 000 Fair value $ 80000 85 000 190 000 110 000 During the year ended 30 June 2020, all inventories on hand at the beginning of the year were sold, and the land was sold on 28 February 2020 to Outback Ltd for $70 000. The plant and equipment had a further 5-year life beyond 1 July 2019 and was expected to be used evenly over that time. The trademark was considered to have an indefinite life. Any adjustments for differences at acquisition date between carrying amounts and fair values are made in the consolidation worksheet. Marcos Ltd uses the partial goodwill method. The tax rate is assumed to be 30%. Financial information for Marcus Lid and Jett Lad for the year ended 30 June 2020 is shown below. Sales revenue Other income Cost of sales Other expenses Marcus Ltd $200 000 75 000 275000 162 000 53000 215000 60 000 10000 70 000 20000 50000 30 000 Profit from trading Gains/Mosses) on sale of non-current assets Profit before tax Income tax expense Profit for the period Retained earnings (1/7/19) Transfer from general reserve Jett Ltd $172 000 30000 202000 128 000 31000 159000 43000 5000 48000 18000 30 000 10000 8000 48000 10000 4000 14 000 $ 34 000 $ 15000 5000 $ 20000 80 000 12 000 Interim dividend paid Final dividend declared 6000 18000 $ 62 000 Retained earnings (30/6/20) Asset revaluation surplus (1/7/19) Gain on revaluation of specialised plant Asset revaluation surplus (30/6/20) The transfer from general reserve for Jeff Ltd is from pre-acquisition equity. During the year ended 30 June 2020, Jett Ltd sold inventories to Marcus Lid for $8000. The original cost of these items to Jett Ltd was S5000. One-third of these inventories were still on hand at the end of the year. On 31 March 2020, Jett Ltd transferred an item of plant with a carrying amount of S10 000 to Marcus Ltd for S15 000. Marcus Lid treated this item as inventories. The item was still on hand at the end of the year. Jett Lid applied a 20% pa, depreciation rate to this type of plant. Required 1. Prepare the consolidation worksheet entries necessary for preparation of the consolidated financial statements for Jett Ltd and its subsidiary for the year ended 30 June 2020. 2. Prepare the consolidated statement of profit or loss and other comprehensive Income and statement of changes in equity for Marcus Lid and its subsidiary at 30 June 2020. (LO3, LO4, LOS and LO6) Exercise 29.15 Undervalued assets, partial goodwill method, intragroup transactions On 1 July 2019, Marcus Ltd acquired 80% of the issued shares of Jett Ltd for $264 800. On that date, the statement of financial position of Jett Lid consisted of: Share capital General reserve Asset revaluation surplus Retained earnings Liabilities Cash Inventories Land Plant and equipment Accumulated depreciation - plant and equipment Trademark Goodwill $ 250 000 10000 15000 10000 180 000 $ 465 000 35 000 70 000 65000 300 000 (130 000) 100 000 25 000 $ 465000 At 1 July 2019, all identifiable assets and liabilities of Jett Ltd were recorded at fair value except for the following. Inventories Land Plant and equipment cost $300 000) Trademark Carrying amount $ 70000 65 000 170000 100 000 Fair value $ 80000 85 000 190 000 110 000 During the year ended 30 June 2020, all inventories on hand at the beginning of the year were sold, and the land was sold on 28 February 2020 to Outback Ltd for $70 000. The plant and equipment had a further 5-year life beyond 1 July 2019 and was expected to be used evenly over that time. The trademark was considered to have an indefinite life. Any adjustments for differences at acquisition date between carrying amounts and fair values are made in the consolidation worksheet. Marcos Ltd uses the partial goodwill method. The tax rate is assumed to be 30%. Financial information for Marcus Lid and Jett Lad for the year ended 30 June 2020 is shown below. Sales revenue Other income Cost of sales Other expenses Marcus Ltd $200 000 75 000 275000 162 000 53000 215000 60 000 10000 70 000 20000 50000 30 000 Profit from trading Gains/Mosses) on sale of non-current assets Profit before tax Income tax expense Profit for the period Retained earnings (1/7/19) Transfer from general reserve Jett Ltd $172 000 30000 202000 128 000 31000 159000 43000 5000 48000 18000 30 000 10000 8000 48000 10000 4000 14 000 $ 34 000 $ 15000 5000 $ 20000 80 000 12 000 Interim dividend paid Final dividend declared 6000 18000 $ 62 000 Retained earnings (30/6/20) Asset revaluation surplus (1/7/19) Gain on revaluation of specialised plant Asset revaluation surplus (30/6/20) The transfer from general reserve for Jeff Ltd is from pre-acquisition equity. During the year ended 30 June 2020, Jett Ltd sold inventories to Marcus Lid for $8000. The original cost of these items to Jett Ltd was S5000. One-third of these inventories were still on hand at the end of the year. On 31 March 2020, Jett Ltd transferred an item of plant with a carrying amount of S10 000 to Marcus Ltd for S15 000. Marcus Lid treated this item as inventories. The item was still on hand at the end of the year. Jett Lid applied a 20% pa, depreciation rate to this type of plant. Required 1. Prepare the consolidation worksheet entries necessary for preparation of the consolidated financial statements for Jett Ltd and its subsidiary for the year ended 30 June 2020. 2. Prepare the consolidated statement of profit or loss and other comprehensive Income and statement of changes in equity for Marcus Lid and its subsidiary at 30 June 2020. (LO3, LO4, LOS and LO6)