Question 5. Marks: 49 The following financial information of Parem Ltd and its subsidiary Sublit Ltd has been extracted from their financial records at 30 June 2017. Parem Ltd ($) Sublit Ltd ($) Detailed reconciliation of opening and closing retained earnings Sales revenue 98,000 95,000 Cost of goods sold 55,000 85,000 Gross profit 43,000 10,000 Other revenue 2,000 Gain on sale of land 15,000 Depreciation expense 3,000 3,000 Other expenses 5,000 2,000 Profit before tax 37,000 20,000 Tax expense 11,100 6,000 Profit for the year 25,900 14,000 Retained earnings - 30 June 2016 120,000 45,000 Retained earnings - 30 June 2017 145,900 59,000 Statement of financial position Parem Ltd ($) Sublit Ltd ($) Shareholders' equity Retained earnings 145,900 59,000 Share capital 40,000 40,000 Other reserves 50,000 Current liabilities Accounts payable 50,000 80,000 Deferred tax liability 30.000 40,000 Total liabilities and equity 315.900 219.000 Current assets Cash 60,900 79,000 Inventory 100,000 100,000 Non-current assets Land 30,000 Machinery at cost 80,000 15,000 Accumulated depreciation (20,000) (10,000) Investment in Sublit Ltd 60,000 Deferred tax asset 5.000 35.000 Total assets 315.900 219.000 Additional information: Parem Ltd acquired its 60% interest in Sublit Ltd on 1 July 2015 for $60,000. At that date the capital and reserves of Sublit Ltd were: Share capital Retained earnings $40,000 $20,000 $60,000 Total The management of Parem Ltd measures the non-controlling interest in Sublit Ltd at fair value. At the date of acquisition, all assets of Sublit Ltd were stated at fair value except for machinery. The fair value of machinery was greater than the carrying value by $3,000. The cost of machinery was $15,000 and accumulated depreciation was $5,000, with a remaining useful life of 3 years. The opening inventory (Brickplaster) of Parem Ltd as at 1 July 2016 included inventory acquired from Sublit Ltd for $60,000, which had cost $40,000 to produce. This inventory was sold outside the group during the current period. During the year ending 30 June 2017, Sublit Ltd sold Cement to Parem Ltd for $50,000. The closing inventory in Parem Ltd includes Cement inventory acquired from Sublit at a cost of $5,000. During the year ending 30 June 2017, Sublit Ltd paid $5,000 management fees to Parem Ltd The income tax rate is 30%. Each entity pays its own tax. The current year is considered as year ending 30 June 2017. Required: Prepare and show: (a) Consolidation journal entries for the elimination of Parem Ltd's investment in Sublit Ltd for the year ending 30 June 2017. Show detailed workings for each answer in a format that includes a description of each entry. (5 marks) (b) Consolidation journal entry on the pre-tax sale of brickplaster inventory sold by Sublit Ltd Parem Ltd in the previous period and its associated tax effect in the current period which was sold outside the group in the year ending 30 June 2017 (4 marks) (c) Consolidation journal entries for the fair value adjustment of the machinery in Sublit Ltd to be done at the date of acquisition to prepare group accounts for the ending 30 June 2017. (6 marks) (d) Consolidation journal entries relating to depreciation resulting because of fair value adjustment of the machinery to prepare group accounts for the ending 30 June 2017 (3 marks) (e) Consolidation journal entries relating to tax effect result from the depreciation entry resulting because of fair value adjustment of the machinery to prepare group accounts for the ending 30 June 2017 (3 marks) (f) Consolidation journal entries Parem Ltd sold Cement to Sublit during the year ending 30 June 2017, the closing inventory, and the tax effect because of the closing inventory of Cement. (6 marks) (e) Consolidation entry for Sublit Ltd paying management fees to Parem Ltd during the year ending 30 June 2017. (2 marks) (h) Itemise and show the non-controlling interest including goodwill assigned on the acquisition date (.e. 1 July 2015). (4 marks) (i) Itemise and show the non-controlling interest in the movements in share capital and reserves between the date of Parem Ltd's acquisition of Sublit Ltd (1 July 2015) and the beginning of the current reporting period (1 July 2016). (5 marks) 0 Itemise and show the non-controlling interests in equity item for the year ending 30 June 2017 (7 marks) (k) If we assume that Parem Ltd acquired its 100% interest in Sublit Ltd on 1 July 2015 for $60,000. At that date the capital and reserves of Sublit Ltd were: Share capital $40,000; Retained earnings $20,000. It is also assumed that there were no fair value adjustments necessary for assets in Sublit Ltd at the date of acquisition. Consolidation journal entries for the elimination of Parem Ltd's investment in Sublit Ltd for the year ending 30 June 2017. (4 marks) Question 5. Marks: 49 The following financial information of Parem Ltd and its subsidiary Sublit Ltd has been extracted from their financial records at 30 June 2017. Parem Ltd ($) Sublit Ltd ($) Detailed reconciliation of opening and closing retained earnings Sales revenue 98,000 95,000 Cost of goods sold 55,000 85,000 Gross profit 43,000 10,000 Other revenue 2,000 Gain on sale of land 15,000 Depreciation expense 3,000 3,000 Other expenses 5,000 2,000 Profit before tax 37,000 20,000 Tax expense 11,100 6,000 Profit for the year 25,900 14,000 Retained earnings - 30 June 2016 120,000 45,000 Retained earnings - 30 June 2017 145,900 59,000 Statement of financial position Parem Ltd ($) Sublit Ltd ($) Shareholders' equity Retained earnings 145,900 59,000 Share capital 40,000 40,000 Other reserves 50,000 Current liabilities Accounts payable 50,000 80,000 Deferred tax liability 30.000 40,000 Total liabilities and equity 315.900 219.000 Current assets Cash 60,900 79,000 Inventory 100,000 100,000 Non-current assets Land 30,000 Machinery at cost 80,000 15,000 Accumulated depreciation (20,000) (10,000) Investment in Sublit Ltd 60,000 Deferred tax asset 5.000 35.000 Total assets 315.900 219.000 Additional information: Parem Ltd acquired its 60% interest in Sublit Ltd on 1 July 2015 for $60,000. At that date the capital and reserves of Sublit Ltd were: Share capital Retained earnings $40,000 $20,000 $60,000 Total The management of Parem Ltd measures the non-controlling interest in Sublit Ltd at fair value. At the date of acquisition, all assets of Sublit Ltd were stated at fair value except for machinery. The fair value of machinery was greater than the carrying value by $3,000. The cost of machinery was $15,000 and accumulated depreciation was $5,000, with a remaining useful life of 3 years. The opening inventory (Brickplaster) of Parem Ltd as at 1 July 2016 included inventory acquired from Sublit Ltd for $60,000, which had cost $40,000 to produce. This inventory was sold outside the group during the current period. During the year ending 30 June 2017, Sublit Ltd sold Cement to Parem Ltd for $50,000. The closing inventory in Parem Ltd includes Cement inventory acquired from Sublit at a cost of $5,000. During the year ending 30 June 2017, Sublit Ltd paid $5,000 management fees to Parem Ltd The income tax rate is 30%. Each entity pays its own tax. The current year is considered as year ending 30 June 2017. Required: Prepare and show: (a) Consolidation journal entries for the elimination of Parem Ltd's investment in Sublit Ltd for the year ending 30 June 2017. Show detailed workings for each answer in a format that includes a description of each entry. (5 marks) (b) Consolidation journal entry on the pre-tax sale of brickplaster inventory sold by Sublit Ltd Parem Ltd in the previous period and its associated tax effect in the current period which was sold outside the group in the year ending 30 June 2017 (4 marks) (c) Consolidation journal entries for the fair value adjustment of the machinery in Sublit Ltd to be done at the date of acquisition to prepare group accounts for the ending 30 June 2017. (6 marks) (d) Consolidation journal entries relating to depreciation resulting because of fair value adjustment of the machinery to prepare group accounts for the ending 30 June 2017 (3 marks) (e) Consolidation journal entries relating to tax effect result from the depreciation entry resulting because of fair value adjustment of the machinery to prepare group accounts for the ending 30 June 2017 (3 marks) (f) Consolidation journal entries Parem Ltd sold Cement to Sublit during the year ending 30 June 2017, the closing inventory, and the tax effect because of the closing inventory of Cement. (6 marks) (e) Consolidation entry for Sublit Ltd paying management fees to Parem Ltd during the year ending 30 June 2017. (2 marks) (h) Itemise and show the non-controlling interest including goodwill assigned on the acquisition date (.e. 1 July 2015). (4 marks) (i) Itemise and show the non-controlling interest in the movements in share capital and reserves between the date of Parem Ltd's acquisition of Sublit Ltd (1 July 2015) and the beginning of the current reporting period (1 July 2016). (5 marks) 0 Itemise and show the non-controlling interests in equity item for the year ending 30 June 2017 (7 marks) (k) If we assume that Parem Ltd acquired its 100% interest in Sublit Ltd on 1 July 2015 for $60,000. At that date the capital and reserves of Sublit Ltd were: Share capital $40,000; Retained earnings $20,000. It is also assumed that there were no fair value adjustments necessary for assets in Sublit Ltd at the date of acquisition. Consolidation journal entries for the elimination of Parem Ltd's investment in Sublit Ltd for the year ending 30 June 2017. (4 marks)