Question
On 1 July 2021 Garden Ltd acquires 70 per cent of the equity capital of Richards Ltd at a cost of $4 million. At the
On 1 July 2021 Garden Ltd acquires 70 per cent of the equity capital of Richards Ltd at a cost of $4 million. At the date of acquisition all assets of Richards Ltd are fairly stated, and the total shareholders' funds of Richards Ltd are $4.4 million, consisting of:
| Share capital | $3 000 000 |
| Retained earnings | $1 400 000 |
| $4 400 000 |
As at 30 June 2023 (two years after the date of acquisition) the financial statements of the two companies are as follows:
| Garden Ltd ($000) | Richards Ltd ($000) | |
|---|---|---|
| Detailed reconciliation of opening and closing retained earnings | ||
| Sales revenue | 800 | 200 |
| Cost of goods sold | (200) | (80) |
| Other expenses | (120) | (60) |
| Other revenue | 310 | 85 |
| Profit | 790 | 145 |
| Tax | (170) | (35) |
| Profit after tax | 620 | 110 |
| Retained earnings1 July 2022 | 2 000 | 1 600 |
| 2 620 | 1 710 | |
| Dividends paid | (400) | (80) |
| Retained earnings30 June 2023 | 2 220 | 1 630 |
| Statement of financial position | ||
| Shareholders' equity | ||
| Retained earnings | 2 220 | 1 630 |
| Share capital | 8 000 | 3 000 |
| Current liabilities | ||
| Accounts payable | 120 | 80 |
| Non-current liabilities | ||
| Loans | 1 200 | 500 |
| 11 540 | 5 210 | |
| Current assets | ||
| Cash | 300 | 50 |
| Accounts receivable | 500 | 350 |
| Inventory | 1 000 | 600 |
| Non-current assets | ||
| Land | 2 800 | 2 210 |
| Plant | 2 940 | 2 000 |
| Investment in Richards Ltd | 4 000 | - |
| 11 540 | 5 210 |
Additional information
- The management of Garden Ltd measures any non-controlling interest in Richards Ltd at fair value.
- During the 2023 financial year, Richards Ltd sells $45 000 of inventory to Garden Ltd. At year end, Garden Ltd has sold all of this inventory.
The tax rate is 35 per cent.
REQUIRED
- CalculateGoodwill on acquisition date.
- Prepare necessary consolidation journal entries for Garden Ltd as at 30 June 2023.
- Post the journal entries to the consolidation worksheet of Garden Ltd as at 30 June 2023.
- Prepare the consolidated statement of financial position of Garden Ltd as at 30 June 2023.
- Prepare consolidated statement of profit or loss and other comprehensive income of Garden Ltd for financial year ended 30 June 2023.
- Prepare consolidated statement of changes in equity of Peterson Ltd as at 30 June 2023.
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Introduction To Management Accounting A User Perspective
Authors: Michael L Werner, Kumen H Jones
2nd Edition
0130327506, 9780130327505
