On 1 July 2019, XYZ Ltd acquired all the issued shares (cum div.) of ABC Ltd for $150000. At this date the equity of ABC Ltd consisted of:

Share capital $75000

Retained earnings 22500

At this date, ABC Ltd had recorded a dividend payable of $22 500 which was paid in August 2019. All the identifiable assets and liabilities of ABC Ltd were recorded at amounts equal to fair values except for inventory for which the fair value was $3 000 greater than carrying amount. Only 10% of the inventory on hand at 1 July 2019 remained unsold by 30June 2020. The tax rate is 30%.

During the 2019-20 period, the following transactions occurred.

(a) XYZ Ltd sold inventory to ABC Ltd for $90 000 at a profit before tax of $18 000. At30 June 2020, inventory which was sold to ABC Ltd for $37 500 at a profit before tax of $7 500 was still on hand in the records of ABC Ltd.

(b) On 1 January 2020, XYZ Ltd sold machinery to ABC Ltd at a gain of $15 000. The machinery was considered to have a further 5-year life.

(c) During the period ABC Ltd rented a warehouse from XYZ Ltd, paying $3 750 in rent to ABC Ltd.

(d) During the period XYZ Ltd recorded gains from revaluation of land, which is measured using the fair value method. These gains increased the asset revaluation surplus by $6 000 to give a balance of $42 000 at 30 June 2020.

(e) In June 2020, an impairment test was conducted on ABC Ltd and resulted in the recognition of impairment losses on goodwill of $24 000 (recognised in other expenses)

The following financial information was provided by the companies at 30 June 2020:

XYZ Ltd ABC Ltd

Sales revenue $187500 $177000

Dividend revenue 7500

Other income 7500 15000

Gains on sale of non-current assets 7500 15000

Total income 210000 207000

Cost of sales (157500) (135000)

Other expenses (22500) (7500)

Total expenses (180000) (142500)

Profit before income tax 30000 6 4500

Income tax expense (10 125) (14 625)

Profit for the year 19 875 49 875

Retained earnings (1/7/19) 45000 22500

64 875 72 375

Dividend paid (18 750) (7500)

Retained earnings (30/6/20) $46 125 $64 875

Required:

A. Prepare the acquisition analysis and journals at 1 July 2019.

B.Prepare the journals at 30 June 2020

C.Prepare the worksheet for consolidated statement of profit or loss and other comprehensive income, the consolidated statement of profit or loss and other comprehensive income consolidated statement of changes in equity for XYZ Ltd. (You may use the suggested templates)

(Suggested templates)

Consolidation Worksheet - Comprehensive Income Statement

XYZ Ltd ABC Ltd Adjustments Group

Dr Cr

Sales revenue 187 500 177 000

Dividend revenue 7 500 0

Other income 7 500 15 000

202 500 192 000

Cost of sales 157 500 135 000

Other expenses 22 500 7 500

180 000 142 500

Profit from trading 22 500 49 500

Gain/loss on sale of PP 7 500 15 000

Profit before tax 30 000 64 500

Tax expense 10 125 14 625

Profit 19 875 49 875

Retained earnings (1/7/19) 45 000 22 500

Transfer from BCVR 0 0

64 875 72 375

Dividend paid 18 750 7 500

Retained earnings (30/6/20) 46 125 64 875

XYZ LTD

Consolidated Statement of Profit or Loss and Other Comprehensive Income

for the financial year ended 30 June, 2020

Revenue: sales

Other income

Expenses:

Cost of sales

Other

Profit from trading

Gain on sale of non-current assets

Profit before income tax

Income tax expense

Profit for the period

Other comprehensive income:

Gains on revaluation of assets

Comprehensive income for the period

XYZ LTD

Consolidated Statement of Changes in Equity

For the financial year ended 30 June 2020

Retained earnings Asset Revaluation Surplus Share Capital Total

At 1/7/19

At 30/6/20