Question 1

UESTION 1 On 1 July 2020, George Ltd acquired all the issued shares of Peanut Lid for $50 000. At this date the equity of Peanut Ltd consisted of: Share capital Peanut $ 25 000 Retained earnings 7 500 At this date, Peanut Ltd had recorded a dividend payable of $7500 which was paid in August 2016. All the identifiable assets and liabilities of Peanut Ltd were recorded at amounts equal to fair values except for inventory for which the fair value was $1000 greater than carrying amount. Only 10% of the inventory on hand at 1 July 2020 remained unsold by 30 June 2021. During the 2020-21 period, the following transactions occurred. 1. George Lid sold inventory to Peanut Lid for $30 000 at a profit before tax of $6000. At 30 June 2021, inventory which was sold to Peanut Lid for $12 500 at a profit before tax of $2500 was still on hand in the records of Peanut Ltd. 2. On 1 January 2021, George Lid sold machinery to Peanut Lid at a gain of $5000. The machinery was considered to have a further 5-year life. 3. During the period Peanut Ltd rented a warehouse from George Ltd, paying $1250 in rent to George Ltd. 4. During the period George Lid recorded gains from revaluation of land, which is measured using the fair value method. These gains increased the asset revaluation surplus by $2000 to give a balance of $14 000 at 30 June 2021. 5. In June 2021, an impairment test was conducted on Peanut Lid and resulted in the recognition of impairment losses on goodwill of $8000 (recognised in other expenses)The following financial information was provided by the companies at 30 June 2021: George Lid Sales revenue Peanut Ltd Dividend revenue $62 500 $59 000 Other income 2 500 2 500 5 000 Gains on sale of non-current 2 500 5 000 assets Total income 70 000 69 000 Cost of sales (52 500) (45 000) Other expenses (7 500) (2 500) Total expenses (60 000) (47 500) Profit before income tax 10 000 21 500 Income tax expense (3 375) (4 875) Profit for the year 6 625 16 625 Retained earnings (1/7/16) 15 000 7 500 21 625 24 125 Dividend paid (6 250) (2 500) Retained earnings (30/6/17) $15 375 $21 625 Required: Prepare the consolidation journal entries required for George Lid's Group for the year ended 30 June 2021. Show all workings. (20 marks)