Question:

Sigatoka Ltd acquired all issued share capital of Nadi Ltd on 1 July 2011 for a cash payment of

$885,000. Nadi Ltd is the only subsidiary of Sigatoka Ltd. The share capital and reserves of Nadi

Ltd at the date of acquisition were:

Share capital $598,000

Retained earnings $102,000

Revaluation surplus $50,000

As at the date of acquisition, all assets of Nadi Ltd were at fair value, other than the property,

plant and equipment, which had a fair value of $250,000. The cost of the property, plant and

equipment was $328,000 and it had accumulated depreciation of $178,000. The property, plant

and equipment were expected to have a remaining useful life of eight years. At the date of

acquisition, the notes to Nadi Ltd's financial statements identify a contingent liability related to

an unsettled legal claim with a fair value of $10,000 which would be tax deductible when paid.

On 1 May 2012, the liability relating to the legal claim was settled and paid in full. There were

no intra-group transactions between Sigatoka Ltd and Nadi Ltd between 1 July 2011 and 30 June

2014.

On 1 March 2015 Nadi Ltd sold an item of equipment to Sigatoka Ltd for $43,200 when its

carrying value in Nadi's books was $36,000 (original cost $60,000 and original estimated life of

ten years). There were no other intra-group transactions between Sigatoka Ltd and Nadi Ltd for

year ended 30 June 2015.

On 1 June 2016 Sigatoka Ltd sold an item of plant to Nadi Ltd for $74,240 when its carrying

value, and original cost, in Sigatoka's books was $80,000 and estimated remaining useful life

was four years. There were no other intra-group transactions between Sigatoka Ltd and Nadi Ltd

for year ended 30 June 2016.

During year 2017, Sigatoka Ltd made sales of inventory to Nadi Ltd for on-sale to external

parties. The inventory had originally cost Sigatoka Ltd $26,000. At the year end, Nadi Ltd still

had a quarter of the inventory on hand. On-hand inventory was expected to be sold in the

following financial period. There were no other intra-group transactions between Sigatoka Ltd

and Nadi Ltd for year ended 30 June 2017.

During year 2018, Nadi Ltd made sales of inventory to Sigatoka Ltd for on-sale to external

parties. The inventory had originally cost Nadi Ltd $28,000. All intra-group inventories were

sold in 2018. Sigatoka Ltd provided management services to Nadi Ltd in 2018. Nadi Ltd paid

$5,000 for those services and has a balance of 1,000 for management fees payable at the year

end. Nadi Ltd declared and paid dividend of $10,000 at year end 2018. There were no other

intra-group transactions between Sigatoka Ltd and Nadi Ltd for year ended 30 June 2018.

Required:

1. What is the acquisition analysis and all adjustment/elimination journal entries for consolidation

at acquisition, 1 July 2011?

2. What are the adjustment/elimination journal entries for consolidation as at 30 June 2012?

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3. What are the adjustment/elimination journal entries for consolidation as at 30 June 2017?

4. What are the adjustment/elimination journal entries for consolidation as at 30 June 2018.

After meeting with your supervisor you gathered the following information which might be needed for the work:

1. Sigatoka Ltd has the following accounting policies for the group:

Revaluation adjustments on acquisition are to be made on consolidation only, not in the

books of the subsidiary;

All plants are depreciated using the straight-line method with no residual value. For partyears,

depreciation is to be calculated on the number of months the asset is held in the

relevant year.

Intragroup sales of inventory to be at a mark-up of 10% on cost.

All calculated amounts are to be rounded to the nearest whole dollar. Companies in the

group do not show cents in any journals, worksheets, or financial statements.

2. The company tax rate is currently 30% and this rate has not changed for a number of years.

3. Journal narrations are required.

4. Number each year consolidation elimination/adjusting journal entries by 1, 2, 3, ..., etc;.

Where more than one journal entry is needed for an event to be completely accounted for add

the letters a,b,c,...etc to them as necessary.