looking for last question ,journal entry considerlation

Financial information at 30 June 2016 of Starr Ltd and its subsidiary company, Lennon Ltd include that shown below.

At 1 July 2013, the date Starr Ltd acquired its 80% shareholding in Lennon Ltd, all the identifiable assets and liabilities of Lennon Ltd were at fair value except for the following assets:

Carrying Amount Plant (cost $75 000) $ 50 000 Land 30 000

Fair Value $ 55 000 38 000

The plant has an expected life of 10 years, with benefits being received evenly over that period. Differences between carrying amounts and fair values are adjusted on consolidation. The land on hand at 1 July 2013 was sold on 1 February 2014 for $40,000. Any valuation reserve in relation to the land is transferred on consolidation to retained earnings.

Starr Ltd uses the full goodwill method. The fair value of the non-controlling interest at 1 July 2013 was $31,500.

Financial Information at 30 June 2016

Sales revenue Other revenue:

Debenture interest

Management and consulting fees Dividend from Lennon Ltd

Total revenues

Cost of sales Manufacturing expenses Depreciation on plant Administrative

Financial

Other expenses

Total expenses

Profit before tax

Starr Ltd

$316,000

5,000

5,000 12,000 338,000

130,000 90,000 15,000 15,000 11,000 14,000

275,000 36,000

Lennon Ltd

$220,000

- - -

220,000

85,000 60,000 15,000

8,000

5,000 12,000 185,000 35,000

Assignment: 2103AFE Company Accounting, Trimester 2 2017

2

Starr Ltd

Income tax expense (25,000) Profit 38,000 Retained earnings (1/07/15) 50,000

88,000

Transfer to general reserve 3,000 Interim dividend paid 10,000 Final dividend declared 10,000

23,000

Retained earnings (30/06/16) 65,000 General reserve 50,000 Other components of equity 13,000 Share capital 300,000 Debentures 200,000 Current tax liability 25,000 Dividend payable 10,000 Deferred tax liability - Other liabilities 90,000

$ 753,000

Financial assets 50,000 Debentures in Lennon Ltd 100,000 Shares in Lennon Ltd 131,600 Plant (cost) 120,000 Accumulated depreciation - plant (65,000) Other depreciable assets 76,000 Accumulated depreciation (40,000) Inventory 90,000 Deferred tax asset 85,400 Land 201,000 Dividend receivable 4,000

$ 753,000

Additional information

i. At the date of acquisition of 80% of its issued shares by Starr Ltd, the equity of Lennon Ltd was:

Lennon Ltd

(17,000) 18,000 45,000 63,000

- 10,000 5,000 15,000

48,000 10,000 10,000

100,000 100,000 17,000 5,000 7,000 12,000 309,000

60,000 - - 102,000 (55,000) 55,000 (25,000) 85,000 30,000 57,000 - 309,000

$

Share Capital (100,000 shares) General reserve

Retained earnings

$100,000 3,000 37,000

1. Inventory on hand of Lennon Ltd at 1 July 2015 included a quantity priced at $10,000 that had been sold to Lennon Ltd by its parent. This inventory had cost Starr Ltd $7,500. It was all sold by Lennon Ltd during the year.
2. During the year, intragroup sales by Lennon Ltd to Starr Ltd were $60,000.
3. An item of inventory of Lennon Ltd has been sold to Starr Ltd for $20,000 on 1 January 2015. Starr Ltd has treated this item as an addition to plant and machinery. The item was put into service as soon as it was received by Starr Ltd and depreciation charged at 20% p.a. The item had been fully imported by Lennon Ltd at a total cost of $15,000.

Assignment: 2103AFE Company Accounting, Trimester 2 2017 3

$

1. Management and consulting fees derived by Starr Ltd were all from Lennon Ltd and represented charges made for administration $2,300 and technical services $2,700, with the latter charged by Lennon Ltd to manufacturing expenses.
2. All debentures issued by Lennon Ltd are held by Starr Ltd.
3. Other components of equity relate to movements in the fair values of the financial assets. The balance of this account at 1 July 2015 was $10,000 (Starr Ltd) and $8,000 (Lennon Ltd).

viii. The tax rate is 30%.

Required

1. Prepare:

1. The acquisition analysis (using the full goodwill method);
2. The business combination valuation entries;
3. The pre-acquisition entries.

2. Calculate NCI share of equity at:

1. 1 July 2013;
2. 1 July 2013 - 30 June 2015;
3. 1 July 2015 - 30 June 2016.

3. For the year ended 30 June 2016, prepare:

1. The consolidation journal entries
2. The consolidation worksheet

(6.5 marks) (4.75 marks) (2.5 marks)

(1.5 marks) (2.25 marks) (2.5 marks)

(10 marks) (10 marks)

2103AFE Company Accounting Group Assignment Trimester 2, 2017 This assignment requires students to prepare the consolidated financial statements in accordance with AASB 10 Consolidated Financial Statements and to answer basic concepts from the Accounting for Income Tax topic. DUE DATES: Assignment: SPARK ratings: TOTAL WEIGHTING: 8 September, 2017 15 September, 2017 20% This piece of assessment task will consist of Part A- Group work (10%) and Part B- Self & Peer assessment (10%). Part A (10%). The aim of Part A is to apply the knowledge and understanding of Consolidation from lectures and workshops in a practical and detailed manner. The assignment is to be completed in groups of three or four. Students will sign up in a group on Learning@Griffith from Week 4. Part B (10%). This assignment involves the completion of Self and Peer Assessment Ratings and feedbacks using SPARKplus. All information pertaining to SPARKplus is located in the Learning@Griffith course site under Assessment>>SPARKplus Student Resources. Please see the attached rubric for Part B that shows you how the ratings will be assessed. Students who do not rate to their peers (group members) or provide feedback to their peers, will receive 0% in the assessment. REQUIREMENTS: 1. Students are required to complete the assignment in a group. 2. All answers must use proper English, expression and grammar. The assignment must be word-processed using Microsoft Word or Excel, Times New Roman, 12 point font. 3. Students must complete the Self & Peer Assessment Resource Kit (SPARK) Ratings of themselves and each of the group members [see Part B above for details]. Final ratings must be completed by the due date shown above. 4. The assignment is to be submitted on-line by the due date. SUBMISSION: 1. Detailed instructions on how to submit the assignment is available in the Course Home Tab/Assignment Submission on Learning@Griffith. 2. Only one group assignment is to be submitted by the group (only one member submits the assignment on behalf of the group). 3. The assignment should be submitted on-line through the assignment submission tab available on Learning@Griffith and only one assignment is to be submitted per group and each group member must complete the electronic assignment cover sheet. Please refer to Learning@Griffith for further details. 4. Each group member must complete an Academic Integrity Declaration. Assignment: 2103AFE Company Accounting, Trimester 2 2017 1 Assignment (50 marks, worth 20%) Q 1. Income Tax (10 marks) Accounting profit is based on a full accrual model whereas taxable profit is based on a partial accrual model. Explain this comment by reference to the following items: long service leave (2.5 marks) doubtful debts (2.5 marks) prepaid insurance (2.5 marks) rent received in advance. (2.5 marks) (Maximum 250 words. No references are required) Q 2. Consolidation (40 marks) Financial information at 30 June 2016 of Starr Ltd and its subsidiary company, Lennon Ltd include that shown below. At 1 July 2013, the date Starr Ltd acquired its 80% shareholding in Lennon Ltd, all the identifiable assets and liabilities of Lennon Ltd were at fair value except for the following assets: Carrying Amount $ 50 000 30 000 Plant (cost $75 000) Land Fair Value $ 55 000 38 000 The plant has an expected life of 10 years, with benefits being received evenly over that period. Differences between carrying amounts and fair values are adjusted on consolidation. The land on hand at 1 July 2013 was sold on 1 February 2014 for $40,000. Any valuation reserve in relation to the land is transferred on consolidation to retained earnings. Starr Ltd uses the full goodwill method. July 2013 was $31,500. The fair value of the non-controlling interest at 1 Financial Information at 30 June 2016 Sales revenue Other revenue: Debenture interest Management and consulting fees Dividend from Lennon Ltd Total revenues Cost of sales Manufacturing expenses Depreciation on plant Administrative Financial Other expenses Total expenses Profit before tax Assignment: 2103AFE Company Accounting, Trimester 2 2017 Starr Ltd $316,000 Lennon Ltd $220,000 5,000 5,000 12,000 338,000 220,000 130,000 90,000 15,000 15,000 11,000 14,000 275,000 36,000 85,000 60,000 15,000 8,000 5,000 12,000 185,000 35,000 2 Starr Ltd (25,000) 38,000 50,000 88,000 Lennon Ltd (17,000) 18,000 45,000 63,000 3,000 10,000 10,000 23,000 10,000 5,000 15,000 $ 65,000 50,000 13,000 300,000 200,000 25,000 10,000 90,000 753,000 $ 48,000 10,000 10,000 100,000 100,000 17,000 5,000 7,000 12,000 309,000 $ 50,000 100,000 131,600 120,000 (65,000) 76,000 (40,000) 90,000 85,400 201,000 4,000 753,000 $ 60,000 102,000 (55,000) 55,000 (25,000) 85,000 30,000 57,000 309,000 Income tax expense Profit Retained earnings (1/07/15) Transfer to general reserve Interim dividend paid Final dividend declared Retained earnings (30/06/16) General reserve Other components of equity Share capital Debentures Current tax liability Dividend payable Deferred tax liability Other liabilities Financial assets Debentures in Lennon Ltd Shares in Lennon Ltd Plant (cost) Accumulated depreciation - plant Other depreciable assets Accumulated depreciation Inventory Deferred tax asset Land Dividend receivable Additional information i. At the date of acquisition of 80% of its issued shares by Starr Ltd, the equity of Lennon Ltd was: Share Capital (100,000 shares) $100,000 General reserve 3,000 Retained earnings 37,000 ii. Inventory on hand of Lennon Ltd at 1 July 2015 included a quantity priced at $10,000 that had been sold to Lennon Ltd by its parent. This inventory had cost Starr Ltd $7,500. It was all sold by Lennon Ltd during the year. iii. During the year, intragroup sales by Lennon Ltd to Starr Ltd were $60,000. iv. An item of inventory of Lennon Ltd has been sold to Starr Ltd for $20,000 on 1 January 2015. Starr Ltd has treated this item as an addition to plant and machinery. The item was put into service as soon as it was received by Starr Ltd and depreciation charged at 20% p.a. The item had been fully imported by Lennon Ltd at a total cost of $15,000. Assignment: 2103AFE Company Accounting, Trimester 2 2017 3 v. Management and consulting fees derived by Starr Ltd were all from Lennon Ltd and represented charges made for administration $2,300 and technical services $2,700, with the latter charged by Lennon Ltd to manufacturing expenses. vi. All debentures issued by Lennon Ltd are held by Starr Ltd. vii. Other components of equity relate to movements in the fair values of the financial assets. The balance of this account at 1 July 2015 was $10,000 (Starr Ltd) and $8,000 (Lennon Ltd). viii. The tax rate is 30%. Required 1. Prepare: i. ii. iii. The acquisition analysis (using the full goodwill method); The business combination valuation entries; The pre-acquisition entries. (6.5 marks) (4.75 marks) (2.5 marks) 2. Calculate NCI share of equity at: i. ii. iii. 1 July 2013; 1 July 2013 - 30 June 2015; 1 July 2015 - 30 June 2016. (1.5 marks) (2.25 marks) (2.5 marks) 3. For the year ended 30 June 2016, prepare: i. The consolidation journal entries (10 marks) ii. The consolidation worksheet (10 marks) Assignment: 2103AFE Company Accounting, Trimester 2 2017 4 Assignment: 2103AFE Company Accounting, Trimester 2 2017 5 SolutionFinancial Information as at 30 June 2016 Sales Revenue Other Revenue Debenture interest Management & consulting fees Dividend from Lennon Ltd Total Revenues Cost of Sales Manufacturing Expenses Depreciation on Plant Administrative Expenses Financial Other Expenses Total Expenses Profit Before Tax Income Tax Expense Profit Retained Earnings (1/07/15) Transfer to general reserve Interim dividend paid Final dividend declared Retained Earnings (30/06/16) General Reserve Other components of Equity Share Capital Debentures Current tax liability Dividends Payable Deferred tax liability Other Liabilities Financial Assets Debentures in Lennon Ltd Shares in Lennon Ltd Plant (cost) Accumulated Depreciation Plant Other depreciable assets Accumulated Depreciation Inventory Deferred tax asset Land Dividend Receivable S. No. 1 Full Goodwill Method Starr Ltd DR 316,000 Lennon Ltd CR 220,000 5,000 5,000 12,000 $338,000 $220,000 130,000 90,000 15,000 15,000 11,000 14,000 275,000 63,000 ($25,000) $38,000 85,000 60,000 15,000 8,000 5,000 12,000 185,000 35,000 ($17,000) $18,000 50,000 $88,000 45,000 $63,000 3,000 10,000 10,000 $23,000 $65,000 10,000 5,000 $15,000 $48,000 50,000 13,000 300,000 200,000 25,000 10,000 90,000 $753,000 50,000 100,000 131,600 10,000 10,000 100,000 100,000 17,000 5,000 7,000 12,000 $309,000 60,000 - 120,000 ($65,000) 76,000 ($40,000) 90,000 85,400 201,000 4,000 $753,000 Account Titles & Explanation Retained Earnings (01/07/2013) Share capital General Reserve Business combination valuation reserve Goodwill Shares in Lennon Ltd 102,000 ($55,000) 55,000 ($25,000) 85,000 30,000 57,000 $309,000 Debit $37,000 $100,000 $3,000 $14,000 $17,500 Credit $165,000 Solution- a. b. Share capital General reserve Retained earnings $100,000 $3,000 $37,000 Consideration paid NCI in Lennon Ltd Sum of a and b $165,000 $31,500 $196,500 Goodwill Amount of NCI of Lennon Ltd in July 1, 2013 is $31,500 So, Fair value = $31,500/0.2= $157,500 Fair value of indetifiable net assets = $140,000 Goodwill of Lennon Ltd = $157,500- $140,000 = 17,500 Control premium to Starr Ltd = $56,500- $17,500 Control premium to Starr Ltd = $39,000 $140,000 $56,500 SolutionS. No. 1 Account Titles & Explanation Goodwill Business combination valuation reserve (Record the goodwill of the subsidiary) Debit $17,500 Credit $17,500 SolutionCalculation of non-controlling interest NCI share of equity July 1, 2013 Retained earnings July 1, 2013 Share Capital General reserve Business combination valaution reserve NCI NCI share of Equity from 1 July 2013-30 June 2015 Retained earnings (1/07/2015) General reserve NCI (20% of change in retained earnings 20% of change in General reserve) NCI shre of equity 1 July 2015-30 June 2016 NCI share of profit NCI (20% of 18,000) $7,500 $20,000 $600 $3,400 $3,900 $3,500 $19,500 $17,500 $3,600 $31,500 $7,400 $3,600 SolutionS. No. 1 Account Titles & Explanation Land Deferred Tax liability Business combination valuation reserve Debit $8,000 2 Plant Deferred tax liability Business combination valuatio reserve $5,000 3 Accumulated depreciation-plant Plant $7,500 4 Goodwill Business combination valuation reserve $17,500 Credit $2,400 $5,600 $1,500 $3,500 $7,500 $17,500 Solution- Consolidation work Financial information as at 3 Sales revenue Other revenue Debenture interest Management and consulting fees Dividend from Lenno Ltd Total revenues Starr Ltd $316,000 $5,000 $5,000 $12,000 $338,000 Cost of sales Manufacturing expenses Depreciation on plant Administrative Financial Other expenses Total expenses Profit before tax $130,000 $90,000 $15,000 $15,000 $11,000 $14,000 $275,000 $36,000 Income tax expense Profit Retained earnings (01/07/2015) ($25,000) $38,000 $50,000 $88,000 $3,000 $10,000 $10,000 $23,000 Transfer to general reserve Interim dividend Final dividend declared Retained earnings (30/06/16) General reserve Other componets of equity Share capital Debentures Current tax liability Divident payable Deferred tax liability other liabilities $65,000 $50,000 $13,000 $300,000 $200,000 $25,000 $10,000 $90,000 $753,000 Financial assets Debentures in Lennon Ltd Shares in Lennon Ltd Plant Accumulated depreciation-plant Other depreciable assets Accumulated depreciation $50,000 $100,000 $131,600 $120,000 ($65,000) $76,000 ($40,000) Inventory Deferred tax asset Land Dividend receivable $90,000 $85,400 $201,000 $4,000 $753,000 Consolidation worksheet Financial information as at 30th June 2016 Lennon Ltd $220,000 Consolidation worksheet Debit Credit $220,000 $85,000 $60,000 $15,000 $80,000 $50,000 $12,000 $185,000 $35,000 ($17,000) $18,000 $45,000 $63,000 $10,000 $5,000 $15,000 $48,000 $10,000 $10,000 $100,000 $100,000 $17,000 $5,000 $7,000 $12,000 $309,000 $60,000 $102,000 ($55,000) $55,000 ($25,000) ($17,000) $18,000 $45,000 $63,000 $10,000 $5,000 $48,000 $10,000 $10,000 $100,000 $85,000 $30,000 $570,000 $309,000 Consolidated $536,000 $5,000 $5,000 $12,000 $558,000 $215,000 $150,000 $30,000 $95,000 $61,000 $26,000 $460,000 $71,000 ($25,000) $38,000 $50,000 $88,000 $3,000 $10,000 $10,000 $23,000 $65,000 $50,000 $13,000 $300,000 $300,000 $42,000 $15,000 $7,000 $102,000 $1,062,000 $110,000 $100,000 $131,600 $222,000 ($120,000) $131,000 ($65,000) $175,000 $115,400 $771,000 $4,000 $1,062,000 SolutionS. No. 1 2 3 4 Account Titles & Explanation Land Deferred Tax liability Business combination valuation reserve Debit $8,000 Plant Deferred tax liability Business combination valuation reserve $5,000 Accumulated depreciation-plant Plant $7,500 Goodwill Business combination valuation reserve $17,500 Credit $2,400 $5,600 $1,500 $3,500 $7,500 $17,500 Consolidation worksheet Financial information as at 30th June 2016 Consolidation worksheet Starr Ltd Lennon Ltd Debit Credit $316,000 $220,000 Consolidated Sales revenue Other revenue Debenture interest Management and consulting fees Dividend from Lenno Ltd Total revenues $5,000 $5,000 $12,000 $338,000 $220,000 $5,000 $5,000 $12,000 $558,000 Cost of sales Manufacturing expenses Depreciation on plant Administrative Financial Other expenses Total expenses Profit before tax $130,000 $90,000 $15,000 $15,000 $11,000 $14,000 $275,000 $36,000 $85,000 $60,000 $15,000 $80,000 $50,000 $12,000 $185,000 $35,000 $215,000 $150,000 $30,000 $95,000 $61,000 $26,000 $460,000 $71,000 Income tax expense Profit Retained earnings (01/07/2015) ($25,000) $38,000 $50,000 $88,000 $3,000 $10,000 $10,000 ($17,000) $18,000 $45,000 $63,000 $10,000 $5,000 Transfer to general reserve Interim dividend Final dividend declared ($17,000) $18,000 $45,000 $63,000 $10,000 $5,000 $536,000 ($25,000) $38,000 $50,000 $88,000 $3,000 $10,000 $10,000 Solution$23,000 $15,000 Retained earnings (30/06/16) General reserve Other components of equity Share capital Debentures Current tax liability Divident payable Deferred tax liability other liabilities $65,000 $50,000 $13,000 $300,000 $200,000 $25,000 $10,000 $90,000 $753,000 $48,000 $10,000 $10,000 $100,000 $100,000 $17,000 $5,000 $7,000 $12,000 $309,000 Financial assets Debentures in Lennon Ltd Shares in Lennon Ltd Plant Accumulated depreciation-plant Other depreciable assets Accumulated depreciation Inventory Deferred tax asset Land Dividend receivable $50,000 $100,000 $131,600 $120,000 ($65,000) $76,000 ($40,000) $90,000 $85,400 $201,000 $4,000 $753,000 $60,000 $102,000 ($55,000) $55,000 ($25,000) $85,000 $30,000 $570,000 $309,000 $23,000 $48,000 $10,000 $10,000 $100,000 $65,000 $50,000 $13,000 $300,000 $300,000 $42,000 $15,000 $7,000 $102,000 $1,062,000 $110,000 $100,000 $131,600 $222,000 ($120,000) $131,000 ($65,000) $175,000 $115,400 $771,000 $4,000 $1,062,000 Calculation of non-controlling interest NCI share of equity July 1, 2013 Retained earnings July 1, 2013 Share Capital General reserve Business combination valaution reserve NCI NCI share of Equity from 1 July 2013-30 June 2015 Retained earnings (1/07/2015) General reserve NCI (20% of change in retained earnings 20% of change in General reserve) $7,500 $20,000 $600 $3,400 $31,500 $3,900 $3,500 $7,400 $19,500 $17,500 SolutionNCI shre of equity 1 July 2015-30 June 2016 NCI share of profit NCI (20% of 18,000) $3,600 $3,600 QUESTION 1 Fair value of INA of Jane Ltd = ($600,000 + $50,000) (equity) = $650,000 FV acquired by Olivia Ltd = 40% x $650,000 = $260,000 Cost = $300,000 Goodwill = $40,000 (a) 1/7/17 - 30/6/18 Profit for the period 150,000 Adjustment for inter-entity transactions: Realised profit on plant ($50,000 - $40,000) x (1 - 30%) x 20% 1,400 Realised profit in opening inventory $4,000 x (1 - 30%) 2,800 154,200 Olivia's share - 40% 61,680 General journal entry in records of Olivia Ltd: Investment in Associates/JVs Dr Share of Profit or Loss of Associates and JVs Cash Cr Dr Investment in Associates/JVs Cr (40% x $30,000) 1 61,680 61,680 12,000 12,000 (b) 1/7/15 - 30/6/17 Change in retained earnings ($120,000 - $50,000) 70,000 Adjustment for inter-entity transactions: Unrealised profit on plant: $10,000 x (1 - 30%) (7,000) Realised profit on plant: $7,000 x 20% x year* 700 Unrealised profit in closing inventory: $4,000 x (1 - 30%) (2,800) 60,900 * year represents 6 months from date of sale of plant on 1/1/17 to 30/6/17 Olivia's share - 40% 24,360 Consolidation worksheet general journal entry: Investment in Associates/JVs Dr 86,040 Share of Profit or Loss of Associates and JVs Cr 61,680 Retained Earnings (1/7/17) Cr 24,360 Dividend Revenue Dr Investment in Associates/JVs Cr (40% x $30,000) 2 12,000 12,000 QUESTION 2 JOURNAL ENTRIES IN RECORDS OF HERTFORD LTD $'000 $'000 1 July 2017 Cash in JO Machinery in JO Cash Dr Dr Cr 1 000 1 000 Dr Cr 3 000 (2 000/2) (2 000/2) 2 000 2017 - 2018 Cash in JO Cash 3 000 Note: Cash in JO = $4 000 [1 000 + 3 000] 30 June 2018 Machinery in JO Accum Depreciation in JO Supplies in JO Work in Progress in JO Inventory Operating Expenses in JO* Accrued Wages in JO Creditors in JO Cash in JO Dr Cr Dr Dr Dr Dr Cr Cr Cr 400 280 200 1 000 2 700 100 20 150 3 950 (2800/2 - 1 000) (560/2) (400/2) (2 000/2) (5 400/2) (200/2) (40/2) (300/2) (100/2 - 4 000) *Operating expenses not included in the 'cost of inventory' JOURNAL ENTRIES IN THE RECORDS OF LONDON LTD $'000 $'000 1 July 2017 Cash in JO Machinery in JO Gain on sale Machinery Dr Dr Cr Cr 1 000 950 Dr Cr 3 000 50 1 900 2017 - 2018 Cash in JO Cash 3 000 3 (2 000/2) (1 900/2) (100/2) 30 June 2018 Machinery in JO Accum Depreciation in JO Supplies in JO Work in Progress in JO Inventory Operating Expenses in JO Accrued Wages in JO Creditors in JO Cash in JO Dr Cr Dr Dr Dr Dr Cr Cr Cr 400 280 200 1 000 2 700 100 20 150 3 950 (2800/2 - 1 000) (560/2) (400/2) (2 000/2) (5 400/2) (200/2) (40/2) (300/2) (100/2 - 4 000) Depreciation Expense for London Ltd = 270 (20% x (Machinery in JO: 950 + 400 = 1 350) Accum Depreciation in JO Dr 10 Inventory Cr Work in Progress in JO Cr (Adjustment for depreciation being based on carrying amount rather than fair value) Working Inventory Work in Progress in JO 2 700 1 000 3 700 73% 27% 7 3 7 3 10 Explanation London Ltd contributed some of its' own machinery to the JO that had a carrying amount of $1,900,000 so London records an entry at 1/7/17 of Machinery in JO of $950,000 ($1,900,000/2). However, the machinery has a fair value of $2,000,000 for the JO and it is this amount that the JO uses to record depreciation which in turn is capitalised into the cost of inventory. For the JO, total depreciation is $560,000 (20% x $2,800,000 [$2,000,000 [FV contributed by London Ltd] + $800,000 [acquired 2/7/17 by the JO - see payments details in question]]. As JO accumulated depreciation is $560 000, then 50% of $560,000 ($280 000) is picked up by London Ltd being its' share from the JO. However, London Ltd views depreciation expense being only $270,000 (20% x $1,350,000 [$950,000 Machinery in JO + $400,000 share of machinery acquired 2/7/17]. Thus London's share of accumulated depreciation in JO and the depreciation expense, which is now part of inventory and WIP, needs to be reduced by $10,000 ($280,000 - $270,000). As shown in the solution, the total for inventory ($2,700,000) + WIP ($1,000,000) is $3,700,000. The percentage for inventory is calculated as: $2,700,000 / $3,700,000 = 73%. So most of the depreciation expense is now in inventory. Thus, reduce inventory by $7,000 (73% x $10,000). For WIP: $1,000,000 / $3,700,000 = 27%, and reduce WIP by $3,000 (27% x $10,000). Note, solution is rounded to the nearest $'000. 4 QUESTION 3 Inventories Plant and machinery Liquidation costs payable Accumulated losses Liquidation $219,600 Cash (inventories) 211 400 Cash (plant & mach.) 20 000 Gain on sale of L&B (100 000 - 60 000) 50 000 Shareholders' distribution (deficiency) $501 000 Opening balance Inventories Plant and machinery Land & buildings (100 000 - 40 000) Liquidation 161 000 $501 000 Cash $9 000 Liquidation costs payable 140 000 Accounts payable 160 000 Shareholders' distribution 60 000 $369 000 Cash $140 000 160 000 40 000 $20 000 160 000 189 000 $369 000 Shareholders' distribution $189 000 Share capital - ordinary shares 161 000 $350 000 5 $350 000 $350 000 QUESTION 4 (a) Acquisition analysis At 1 July 2014: Net fair value of assets and liabilities of Margaret Ltd (a) Consideration transferred (b) NCI in Margaret Ltd Aggregate of (a) and (b) Goodwill = = = = = = = = $250,000 + $400,000 + $100,000 (equity) + $20,000 (1 - 30%) (inventory) + $50,000 (1 - 30%) (machinery) $799,000 $650,000 30% x $799,000 $239,700 $889,700 $889,700 - $799,000 $90,700 1. Business combination valuation entries Accumulated Depreciation Machinery Deferred Tax Liability Business Combination Val'n Res. Dr Cr Cr Cr 100,000 Depreciation Expense: Machinery Retained Earnings (1/7/16) Accumulated Depreciation ($50,000/10 years = $5,000 p. a.) Dr Dr Cr 5,000 10,000 Deferred Tax Liability Income Tax Expense Retained Earnings (1/7/16) Dr Cr Cr 4,500 6 50,000 15,000 35,000 15,000 1,500 3,000 2. Pre-acquisition entries Retained Earnings (1/7/16)* Share Capital General Reserve Business Combination Val'n Reserve** Goodwill Shares in Margaret Ltd Dr Dr Dr Dr Dr Cr 184,800 280,000 70,000 24,500 90,700 650,000 *$184,800 = (70% x $264,000 ($250,000 [1/7/14] + $14,000 [trf. from BCVR: Inventory] = $264,000) **$24,500 = (70% x $35,000 [machinery]) 3. NCI share of equity at 1/7/14 Retained Earnings (1/7/16) Dr 75,000 Share Capital Dr 120,000 General Reserve Dr 30,000 Business Combination Val'n Reserve* Dr 14,700 NCI** Cr 239,700 *$14,700 = (30% x $49,000 ($14,000 [inventory] + $35,000 [machinery] = $49,000)) **$239 700 = 30% x $799,000 [FVINA Margaret Ltd] - see acquisition analysis 4. NCI share of equity: 1/7/14 - 30/6/16 Retained Earnings (1/7/16) General Reserve Business Combination Val'n Res. NCI Dr Dr Cr Cr 87,900 6,000 4,200 89,700 RE: 30% x ($550,000 [1/7/16] - $250,000 [1/7/14] - ($10,000 - $3,000) [depreciation: machinery]) GR: 30% x ($120,000 [1/7/16] - $100,000 [1/7/14]) BCVR: 30% x $14,000 [inventory] 5. NCI share of equity: 1/7/16 - 30/6/17 NCI Share of Profit Dr 28,950 NCI Cr (30% x ($100,000 - ($5,000 - $1,500) [depreciation: machinery]) Transfer from General Reserve (RE) General Reserve (30% x $10,000) Dr Cr 3,000 NCI Dr Cr 1,500 Interim Dividend Paid (30% x $5,000) 7 28,950 3,000 1,500 6. Unrealised profit in opening inventory: Margaret Ltd to Carroll Ltd Retained Earnings (1/7/16) Income Tax Expense Cost of Sales 7. 28,000 12,000 Dr Cr 8,400 Dr Cr 3,500 40,000 NCI adjustment NCI Share of Profit Retained Earnings (1/7/16) (30% x ($40,000 - $12,000)) 8. Dr Dr Cr 8,400 Interim Dividend Paid Dividend Revenue Interim Dividend Paid (70% x $5,000) 3,500 (b) Shares in Margaret Ltd: Nil (eliminated due to the pre-acquisition entry) Business Combination Valuation Reserve: Nil (created by the BCVR entries, then eliminated due to subsequent entries) 8 S. No. 1 2 Account Titles & Explanation NCI share of equity July 1, 2013 Retained earnings July 1, 2013 Share Capital General reserve Business combination valuation reserve NCI NCI share of Equity from 1 July 2013-30 June 2015 Retained earnings (1/07/2015) General reserve NCI (20% of change in retained earnings 20% of change in General reserve) 3 NCI shre of equity 1 July 2015-30 June 2016 NCI share of profit NCI (20% of 18,000) S. No. 1 2 3 4 Account Titles & Explanation Land Deferred Tax liability Business combination valuation reserve Debit Credit $7,500 $20,000 $600 $3,400 $31,500 $3,900 $3,500 $7,400 $19,500 $17,500 $3,600 $3,600 Debit $8,000 Credit $2,400 $5,600 Plant Deferred tax liability Business combination valuatio reserve $5,000 Accumulated depreciation-plant Plant $7,500 Goodwill Business combination valuation reserve $17,500 $1,500 $3,500 $7,500 $17,500 Consolidation worksheet Financial information as at 30th June 2016 Consolidation worksheet Starr Ltd Lennon Ltd Debit Credit $316,000 $220,000 Consolidated Sales revenue Other revenue Debenture interest Management and consulting fees Dividend from Lenno Ltd Total revenues $5,000 $5,000 $12,000 $338,000 $220,000 $5,000 $5,000 $12,000 $558,000 Cost of sales Manufacturing expenses Depreciation on plant Administrative Financial Other expenses Total expenses Profit before tax $130,000 $90,000 $15,000 $15,000 $11,000 $14,000 $275,000 $36,000 $85,000 $60,000 $15,000 $80,000 $50,000 $12,000 $185,000 $35,000 $215,000 $150,000 $30,000 $95,000 $61,000 $26,000 $460,000 $71,000 Income tax expense Profit Retained earnings (01/07/2015) ($25,000) $38,000 $50,000 $88,000 $3,000 $10,000 $10,000 $23,000 ($17,000) $18,000 $45,000 $63,000 $10,000 $5,000 $15,000 Retained earnings (30/06/16) General reserve Other components of equity Share capital Debentures Current tax liability Divident payable Deferred tax liability other liabilities $65,000 $50,000 $13,000 $300,000 $200,000 $25,000 $10,000 $90,000 $753,000 $48,000 $10,000 $10,000 $100,000 $100,000 $17,000 $5,000 $7,000 $12,000 $309,000 Financial assets Debentures in Lennon Ltd Shares in Lennon Ltd Plant $50,000 $100,000 $131,600 $120,000 $60,000 $102,000 Transfer to general reserve Interim dividend Final dividend declared ($17,000) $18,000 $45,000 $63,000 $10,000 $5,000 $48,000 $10,000 $10,000 $100,000 $536,000 ($25,000) $38,000 $50,000 $88,000 $3,000 $10,000 $10,000 $23,000 $65,000 $50,000 $13,000 $300,000 $300,000 $42,000 $15,000 $7,000 $102,000 $1,062,000 $110,000 $100,000 $131,600 $222,000 Accumulated depreciation-plant Other depreciable assets Accumulated depreciation Inventory Deferred tax asset Land Dividend receivable ($65,000) $76,000 ($40,000) $90,000 $85,400 $201,000 $4,000 $753,000 ($55,000) $55,000 ($25,000) $85,000 $30,000 $570,000 $309,000 ($120,000) $131,000 ($65,000) $175,000 $115,400 $771,000 $4,000 $1,062,000 SolutionS.No. 1 2 3 4 5 6 7 S. No. 1 2 3 Consolidation worksheet Financial information as at 30th Jun Sales revenue Other revenue Debenture interest Management and consulting fees Dividend from Lenno Ltd Total revenues Cost of sales Manufacturing expenses Depreciation on plant Administrative Financial Other expenses Total expenses Profit before tax Income tax expense Profit Retained earnings (01/07/2015) Transfer to general reserve Interim dividend Final dividend declared Retained earnings (30/06/16) General reserve Other componets of equity Share capital Debentures Current tax liability Divident payable Deferred tax liability other liabilities Financial assets Debentures in Lennon Ltd Shares in Lennon Ltd Plant Accumulated depreciation-plant Other depreciable assets Accumulated depreciation Inventory Deferred tax asset Land Dividend receivable Account Title & Explanation Income from Subsidiary Company Investment in Subsidiary *Journal Entry to Record 80% Share of Subsidiary Company's Debit $316,000 Retained Earnings Income from Subsidiary Company Investment in Subsidiary *Basic Elimination Entry $65,000 $316,000 Depreciable Assets Inventory Investment in Subsidiary *Excess Value (Differential) Reclassification Entry $185,000 $175,000 Sales Revenue Administrative Expenses *Eliminate Consulting Service Intercompany Transaction $536,000 Current Liabilities Accounts Receivable $7,000 *Eliminate Accounts Payable and Accounts Receivable Balances from Intercompany Sale of Inventory Sales Revenue Cost of Goods Sold Inventory *Eliminate Intercompany Sale of Inventory Transaction $536,000 $215,000 Accumulated Depreciation Depreciable Assets *Accumulated Depreciation Elimination Entry $185,000 Account Title & Explanation NCI share of equity July 1, 2013 Retained earnings July 1, 2013 Share Capital General reserve Business combination valaution reserve NCI NCI share of Equity from 1 July 2013-30 June 2015 Debit $7,500 $20,000 $600 $3,400 Retained earnings (1/07/2015) General reserve NCI (20% of change in retained earnings 20% of change in General reserve) $3,900 $3,500 $19,500 $17,500 NCI shre of equity 1 July 2015-30 June 2016 NCI share of profit NCI (20% of 18,000) $3,600 Consolidation worksheet Financial information as at 30th June 2016 Starr Ltd $316,000 Lennon Ltd $220,000 $5,000 $5,000 $12,000 $338,000 $220,000 $130,000 $90,000 $15,000 $15,000 $11,000 $14,000 $275,000 $36,000 $85,000 $60,000 $15,000 $80,000 $50,000 $12,000 $185,000 $35,000 ($25,000) $38,000 $50,000 $88,000 $3,000 $10,000 $10,000 $23,000 ($17,000) $18,000 $45,000 $63,000 $10,000 $5,000 $15,000 $65,000 $50,000 $13,000 $300,000 $200,000 $48,000 $10,000 $10,000 $100,000 $100,000 $25,000 $10,000 $90,000 $753,000 $17,000 $5,000 $7,000 $12,000 $309,000 $50,000 $100,000 $131,600 $120,000 ($65,000) $76,000 ($40,000) $90,000 $85,400 $201,000 $4,000 $753,000 $60,000 $102,000 ($55,000) $55,000 ($25,000) $85,000 $30,000 $570,000 $309,000 Credit $316,000 $381,000 $360,000 $536,000 $7,000 $751,000 $185,000 Credit $31,500 $7,400 $3,600 Consolidation worksheet Debit Credit Consolidated $536,000 $5,000 $5,000 $12,000 $558,000 $215,000 $150,000 $30,000 $95,000 $61,000 $26,000 $460,000 $71,000 ($17,000) $18,000 $45,000 $63,000 $10,000 $5,000 $48,000 $10,000 $10,000 $100,000 ($25,000) $38,000 $50,000 $88,000 $3,000 $10,000 $10,000 $23,000 $65,000 $50,000 $13,000 $300,000 $300,000 $42,000 $15,000 $7,000 $102,000 $1,062,000 $110,000 $100,000 $131,600 $222,000 ($120,000) $131,000 ($65,000) $175,000 $115,400 $771,000 $4,000 $1,062,000 SolutionStarr Ltd S.No. 1 2 3 4 5 6 7 Lennon Ltd S.No. 1 2 3 4 5 6 7 S. No. 1 2 3 Consolidation worksheet Financial information as at 30th Jun Sales revenue Other revenue Debenture interest Management and consulting fees Dividend from Lenno Ltd Total revenues Cost of sales Manufacturing expenses Depreciation on plant Administrative Financial Other expenses Total expenses Profit before tax Income tax expense Profit Retained earnings (01/07/2015) Transfer to general reserve Interim dividend Final dividend declared Retained earnings (30/06/16) General reserve Other componets of equity Share capital Debentures Current tax liability Divident payable Deferred tax liability other liabilities Financial assets Debentures in Lennon Ltd Shares in Lennon Ltd Plant Accumulated depreciation-plant Other depreciable assets Accumulated depreciation Inventory Deferred tax asset Land Dividend receivable Starr Ltd Account Title & Explanation Income from Subsidiary Company Investment in Subsidiary *Journal Entry to Record 80% Share of Subsidiary Company's Debit $316,000 Retained Earnings Income from Subsidiary Company Investment in Subsidiary *Basic Elimination Entry $65,000 $316,000 Depreciable Assets Inventory Investment in Subsidiary *Excess Value (Differential) Reclassification Entry $76,000 $90,000 Sales Revenue Administrative Expenses *Eliminate Consulting Service Intercompany Transaction $338,000 Current Liabilities Accounts Receivable $17,000 *Eliminate Accounts Payable and Accounts Receivable Balances from Intercompany Sale of Inventory Sales Revenue Cost of Goods Sold Inventory *Eliminate Intercompany Sale of Inventory Transaction $316,000 $130,000 Accumulated Depreciation Depreciable Assets *Accumulated Depreciation Elimination Entry $40,000 Lennon Ltd Account Title & Explanation Income from Subsidiary Company Investment in Subsidiary *Journal Entry to Record 80% Share of Subsidiary Company's Retained Earnings Debit $220,000 $48,000 Income from Subsidiary Company Investment in Subsidiary *Basic Elimination Entry $220,000 Depreciable Assets Inventory Investment in Subsidiary *Excess Value (Differential) Reclassification Entry $55,000 $85,000 Sales Revenue Administrative Expenses *Eliminate Consulting Service Intercompany Transaction $220,000 Current Liabilities Accounts Receivable $13,000 *Eliminate Accounts Payable and Accounts Receivable Balances from Intercompany Sale of Inventory Sales Revenue Cost of Goods Sold Inventory *Eliminate Intercompany Sale of Inventory Transaction $220,000 $85,000 Accumulated Depreciation Depreciable Assets *Accumulated Depreciation Elimination Entry $25,000 Account Title & Explanation NCI share of equity July 1, 2013 Retained earnings July 1, 2013 Share Capital General reserve Business combination valaution reserve NCI NCI share of Equity from 1 July 2013-30 June 2015 Retained earnings (1/07/2015) General reserve NCI (20% of change in retained earnings 20% of change in General reserve) NCI shre of equity 1 July 2015-30 June 2016 Debit $7,500 $20,000 $600 $3,400 $3,900 $3,500 $19,500 $17,500 NCI share of profit NCI (20% of 18,000) $3,600 Consolidation worksheet Financial information as at 30th June 2016 Starr Ltd $316,000 Lennon Ltd $220,000 $5,000 $5,000 $12,000 $338,000 $220,000 $130,000 $90,000 $15,000 $15,000 $11,000 $14,000 $275,000 $36,000 $85,000 $60,000 $15,000 $80,000 $50,000 $12,000 $185,000 $35,000 ($25,000) $38,000 $50,000 $88,000 $3,000 $10,000 $10,000 $23,000 ($17,000) $18,000 $45,000 $63,000 $10,000 $5,000 $15,000 $65,000 $50,000 $13,000 $300,000 $200,000 $25,000 $10,000 $90,000 $753,000 $48,000 $10,000 $10,000 $100,000 $100,000 $17,000 $5,000 $7,000 $12,000 $309,000 $50,000 $60,000 $100,000 $131,600 $120,000 ($65,000) $76,000 ($40,000) $90,000 $85,400 $201,000 $4,000 $753,000 $102,000 ($55,000) $55,000 ($25,000) $85,000 $30,000 $570,000 $309,000 Credit $316,000 $381,000 $166,000 $338,000 $17,000 $446,000 $40,000 Credit $220,000 $268,000 $140,000 $220,000 $13,000 $305,000 $25,000 Credit $31,500 $7,400 $3,600 Consolidation worksheet Debit Credit Consolidated $536,000 $5,000 $5,000 $12,000 $558,000 $215,000 $150,000 $30,000 $95,000 $61,000 $26,000 $460,000 $71,000 ($17,000) $18,000 $45,000 $63,000 $10,000 $5,000 $48,000 $10,000 $10,000 $100,000 ($25,000) $38,000 $50,000 $88,000 $3,000 $10,000 $10,000 $23,000 $65,000 $50,000 $13,000 $300,000 $300,000 $42,000 $15,000 $7,000 $102,000 $1,062,000 $110,000 $100,000 $131,600 $222,000 ($120,000) $131,000 ($65,000) $175,000 $115,400 $771,000 $4,000 $1,062,000