Question
Large Ltd owns 100% of the shares of Small Ltd. These shares were acquired on 1 July 2019 for $1 million when the shareholders funds
Large Ltd owns 100% of the shares of Small Ltd. These shares were acquired on 1 July 2019 for $1 million when the shareholders funds of Small Ltd were:
Share capital $500,000
Retained earnings $400,000
$900,000
All assets of Small Ltd were fairly stated at acquisition date, except for a land that had a fair value $50000 more than carrying value. During the 2019/2020 financial year, Small Ltd sold inventory to Large Ltd at a sales price of $200,000. The inventory cost Small Ltd $120,000 to produce. At 30 June 2020 half of the stock was still on hand with Large Ltd. In addition, Small Ltd paid an interim dividend of $40,000 out of post-acquisition profits to Large Ltd during the 2019/2020 financial year. The tax rate is 30%. Based on the above information, prepare the consolidation journal entries that Large Ltd will need to pass on 30 June 2020.
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