Question 2

UESTION 2 On 1 July 2015, Frankland Ltd acquired all the share capital of Flinders Lid for $218 500. At this date, Flinders Ltd's equity comprised: Share capital - 100 000 shares $100 000 General reserve 50 000 Retained earnings 36 000 All identifiable assets and liabilities of Flinders Ltd were recorded at fair value as at 1 July 2015 except for the following: Carrying Amount Fair Value Inventory $27 000 $35 000 Land 75 000 90 000 Equipment (cost $100 000) 50 000 60 000The equipment is expected to have a further 10-year life. The entire inventory was sold by June 2016. The following transactions take place between Frankland Lid and Flinders Ltd from 1 July 2015 to 30 June 2016. a) During the year, Flinders Lid sold $50 000 worth of inventory to Frankland Lid. Flinders Ltd recorded a $10 000 profit on these transactions. At 30 June 2016, Frankland Ltd has one-quarter of these goods still on hand. b) Flinders Ltd sold a warehouse to Frankland Lid for $100 000. This had originally cost Flinders Ltd $82 000. The transactions took place on 1 July 2015. Frankland Ltd and Flinders Lid charge depreciation at 5% per annum on straight-line basis. c) On 25 June 2016, Frankland Ltd declared a dividend of $100 000. On the same day, Flinders Ltd declared a $5 000 dividend. Required a) Prepare the notional consolidation journal entries for the preparation of consolidated financial statements for Frankland Lid and its subsidiary Flinders Ltd as at 1 July 2015. (Ignore all tax effects). (10 marks) b) Prepare notional consolidation journal entries on 30 June 2016 to eliminate all intragroup transactions between Frankland Lid and Flinders Lid. (Ignore all tax effects). (10 marks)