Question
PART A CONSOLIDATED STATEMENT AND CASH FLOW Question 1 Sham Ltd owns 100 per cent of the shares of Jackson Ltd, acquired on 1 July
PART A CONSOLIDATED STATEMENT AND CASH FLOW
Question 1
Sham Ltd owns 100 per cent of the shares of Jackson Ltd, acquired on 1 July 2017 for $3.5 million when the shareholders funds of Jackson Ltd were:
Share capital | $1 750 000 |
Retained earnings | $1 400 000 |
$3 150 000 |
All assets of Sham Ltd are fairly stated at acquisition date. The directors believe that there has been an impairment loss on the goodwill of $35 000 for the year ended 30 June 2018.
During the 2018 financial year, Jackson Ltd sells inventory to Sham Ltd at a sale price of $700 000. The inventory cost Jackson Ltd $420 000 to produce. At 30 June 2018, half of the inventory is still on hand with Sham Ltd. The tax rate is 28 per cent.
The financial statements of Sham Ltd and Jackson Ltd at 30 June 2018 are as follows:
Sham Ltd ($000) | Jackson Ltd ($000) | |
Reconciliation of opening and closing retained earnings | ||
Sales revenue | 4 200 | 1 400 |
less Cost of goods sold | (1 750) | (490) |
less Other expenses | (210) | (105) |
Other revenue | 245 | 87.50 |
Profit | 2 485 | 892.50 |
Tax expense | 696 | 250 |
Profit after tax | 1 789 | 642.50 |
Retained earnings1 July 2017 | 3 500 | 1400 |
5 289 | 2042.50 | |
Dividends paid | 700 | 140 |
Retained earnings30 June 2018 | 4 589 | 1 902.50 |
Statement of financial position Shareholders equity | ||
Retained earnings | 4 589 | 1 902.50 |
Share capital | 14 000 | 1 750 |
Current liabilities |
| |
Accounts payable | 350 | 297.50 |
Non-current liabilities |
| |
Loans | 2 100 | 875 |
21 039 | 4 825 | |
Current assets |
| |
Cash | 875 | 87.50 |
Accounts receivable | 525 | 612.50 |
Inventory | 2 100 | 1 050 |
Non-current assets |
| |
Land | 5 044 | 1 500 |
Plant | 8 645 | 1 400 |
Investment in Ltd | 3 500 |
|
Future income tax benefit | 350 | 175 |
Goodwill |
|
|
21 039 | 4 825 |
Required:
- Prepare all the relevant adjusting journal entries.
- Provide the consolidated worksheet showing all the eliminations, adjustments and consolidated statement for Sham Ltd and its controlled entity for the period ended 30 June, 2018.
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