Question
Rule Ltd acquired all the issued capital of Book Ltd on 1 July 2014 for $1,500,000. At that date the shareholders' equity of Book Ltd
Rule Ltd acquired all the issued capital of Book Ltd on 1 July 2014 for $1,500,000. At that date the shareholders' equity of Book Ltd was:
Share Capital $1,100,000
Retained Earnings $ 300,000
Additional information for the year ended 30 June 2016:
Inter-company sales:
Rule Ltd to Book Ltd $11,000
Book Ltd to Rule Ltd $19,000
Unrealised profits in closing inventory as at 30 June 2016 is $2,400 for goods sold by Book Ltd to Rule Ltd and $1,200 for goods sold by Rule Ltd to Book Ltd.
Unrealised profit in opening inventory for goods sold by Rule Ltd to Book Ltd as at 1 July 2015 is $2,100 and for goods sold by Book to Rule is $1,400.
Rule Ltd employees provide legal advice to Book Ltd. For these services, Book Ltd pays an annual fee of $8,000 per annum.
The final dividend of $16,500, declared as at 30 June 2015, was paid by Book Ltd in October 2015.
An interim dividend of $14,000 was paid on 31 January and a final dividend was declared $20,000 at 30 June, 2016.
On 30 June 2016, Rule Ltd purchased a motor vehicle from Book Ltd for $15,000. Book Ltd made profit on this sale of $3,500.
Book Ltd raised funds from Rule Ltd by borrowing $100,000 at an interest rate of 10% per annum. The annual interest charge was paid by Book Ltd on 30 June 2016.
The directors review the balance of goodwill each year. They agree that for the year ended 30 June 2016, goodwill is to be unpaired by $20,000.
Please complete a Consolidated Worksheet
| Consolidation Worksheet 30 June 2016 | Rule Ltd | Book Ltd | Eliminations Dr Cr | Consolidated Accounts | |
| Sales | 1,485,000 | 825,000 |
|
|
|
| Less Cost of Sales |
|
|
|
|
|
| Inventory 01/07/2015 | 120,000 | 52,000 |
|
|
|
| Purchases | 625,000 | 313,000 |
|
|
|
|
| 745,000 | 365,000 |
|
|
|
| Inventory 30/06/2016 | 115,000 | 49,000 |
|
|
|
| Cost of Goods Sold | 630,000 | 316,000 |
|
|
|
| Gross Profit | 855,000 | 509,000 |
|
|
|
| Legal fees received | 8,000 | 0 |
|
|
|
| Gain on sale of plant | 0 | 3,500 |
|
|
|
| Dividends received | 30,500 | 0 |
|
|
|
| Interest received from Book Ltd | 10,000 | 0 |
|
|
|
|
| 903,500 | 512,500 |
|
|
|
| Less: Expenses - selling expenses | 80,000 | 35,500 |
|
|
|
| - Admin expenses | 291,500 | 314,000 |
|
|
|
| - Financial expenses | 52,000 | 8,000 |
|
|
|
|
| 423,500 | 357,500 |
|
|
|
| Operating profit before tax | 480,000 | 155,000 |
|
|
|
| Less tax expense | 144,000 | 46,500 |
|
|
|
| Profit after tax | 336,000 | 108,500 |
|
|
|
| Retained earnings 01/07/2015 | 588,000 | 421,500 |
|
|
|
| Available for appropriation | 924,000 | 530,000 |
|
|
|
| Appropriations |
|
|
|
|
|
| Interim dividend paid | 80,000 | 14,000 |
|
|
|
| Final dividend declared | 140,000 | 20,000 |
|
|
|
| Total appropriations | 220,000 | 34.000 |
|
|
|
| Retained earnings 30/06/2016 | 704,000 | 496,000 |
|
|
|
| Share capital | 2,000,000 | 1,100,000 |
|
|
|
| Loan from Rule Ltd | 0 | 100,000 |
|
|
|
| Accounts payable | 72,000 | 36,000 |
|
|
|
| Dividends payable | 140,000 | 20,000 |
|
|
|
| Taxation Payable | 94,000 | 25,000 |
|
|
|
|
| 3,010,000 | 1,777,000 |
|
|
|
| Property, Plant & Equip (net) | 732,000 | 900,000 |
|
|
|
| Shares in Book Ltd | 1,500,000 | 0 |
|
|
|
| Loan to Book Ltd | 100,000 | 0 |
|
|
|
| Other non-current assets | 335,000 | 650,000 |
|
|
|
| Inventory | 115,000 | 49,000 |
|
|
|
| Other current assets | 228,000 | 178,000 |
|
|
|
| Goodwill on consolidation |
|
|
|
|
|
|
| 3,010,000 | 1,777,000 |
|
|
|
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Integrated Audit Practice Case
Authors: David S. Kerr, Randal J. Elder, Alvin A. Arens
7th Edition
0912503688, 978-0912503684
