Pre Workshop

Review Question 5 .Are adjustments for post-acquisition dividends different from those for pre-acquisition dividends? Explain.

Review Question 8 When are profits realised on transfers of depreciable assets within the group?

Case study 4 The parent entity, Olivia Ltd, has received a bonus dividend paid from its subsidiary's post acquisition profits. The accountant for Olivia Ltd, Lu Rong, is concerned that if on consolidation the total effects of this transaction have to be eliminated, then this will show a misleading financial position for the group. Her concern is that the subsidiary, by making a bonus dividend, has reduced the ability of the group to pay cash dividends. The consolidation adjustments will result in this fact not being made known to the users of the consolidated financial statements.

Required

Discuss whether Lu Rong has cause for concern, and what options are available for her in accounting for the bonus dividend.

Practice Question 11.8 Mallee Ltd owns 100% of the shares of Fowl Ltd. The following events occurred during the period ended 2020:

(a) Fowl Ltd sold inventory for $15 000 in August 2019. This inventory had been sold to it by Mallee Ltd in June 2019 for $13 500. The inventory had originally cost Mallee Ltd $9000.

(b) On 1 January 2019, Fowl Ltd sold machinery to Mallee Ltd for $150 000. The carrying amount of the machinery at time of sale was $120 000. The machinery is depreciated at 10% p.a. on cost.

Required

Prepare the consolidation worksheet entries for the above two transactions for the preparation of consolidated financial statements at 30 June 2020.

During Workshop

Practice question 11.5 Platypus Ltd owns all of the share capital of Wallaby Ltd. In relation to the following intragroup transactions, all parts of which are independent unless specified, prepare the consolidation worksheet adjusting entries for preparation of the consolidated financial statements as at 30 June 2019. Assume an income tax rate of 30%.

(a) Platypus Ltd manufactures items of machinery which are used as property, plant and equipment by other companies, including Wallaby Ltd. On 1 January 2019, Platypus Ltd sold such an item to Wallaby Ltd for $52 000, its cost to Platypus Ltd being only $45 000 to manufacture. Wallaby Ltd charges depreciation on these machines at 20% p.a. on the diminishing balance.

(b) A non-current asset with a carrying amount of $1200 was sold by Wallaby Ltd to Platypus Ltd for $900 on 1 January 2019. Platypus Ltd intended to use this item as inventory, being a seller of second-hand goods. Both entities charged depreciation at the rate of 10% p.a. on the diminishing balance on non-current assets. The item was still on hand at 30 June 2019.

Practice question 11.4 Emu Ltd owns all of the shares of Cassowary Ltd. In relation to the following intragroup transactions, all parts of which are independent unless specified, prepare the consolidation worksheet adjusting entries for preparation of the consolidated financial statements as at 30 June 2019. Assume an income tax rate of 30%.

(a) During June 2019, Cassowary Ltd declared a $2000 dividend. The dividend was paid in August 2020.

(b) In January 2019, Cassowary Ltd paid a $4500 interim dividend.

Practice Question 11.2 Numbat Ltd owns all of the shares of Goanna Ltd. In relation to the following intragroup transactions, all parts of which are independent unless specified, prepare the consolidation worksheet adjusting entries for preparation of the consolidated financial statements as at 30 June 2019. Assume an income tax rate of 30%.

a) On 1 July 2017, Goanna Ltd rented a spare warehouse to be used jointly by Numbat Ltd and Galah Ltd with each company paying half the agreed rent to Goanna Ltd. The rent paid to Goanna Ltd in the 2017-18 year was $300 while the rent paid in the 2018-19 year was $350.

b) Goanna Ltd sold land to Numbat Ltd in December 2018. The land had originally cost Goanna Ltd $20 000, but was sold to Numbat Ltd for only $16000. To help Numbat Ltd pay for the land, Goanna Ltd gave Numbat Ltd an interest-free loan of $9000, and the balance was paid in cash. Numbat Ltd has as yet made no repayments on the loan.