The Subsidiary, Smashed On 31 December 2016, Parts Palace Limited acquired 60% of the shares in Smashed Limited. On that date, the equity of Smashed Limited comprised: $ 000 Share capital Retained earnings Equity 700 400 $1,100 At acquisition, the book value of the assets and liabilities of Smashed Limited were considered to be at fair value, except for some non-depreciable assets (included under 'Other non-current assets and considered to be part of net identifiable assets) that had a book value of zero and where Parts Palace assessed their fair value to be $170,000. There has been no change to assessed value of these assets since acquisition. Goodwill impairment At the most recent balance date (31 December 2019), the returns from Smashed were not as high as expected. The directors of Parts Palace considered that acquired goodwill had been impaired by $200,000. Tax and Deferred Tax Assume a tax rate of 30% wherever relevant (i.e., for both Phase 1 and Phase 2). Breakdown of Cost of Sales figures supplied below for 31 December 2019 Parts Smashed Palace $000 $000s Opening inventory 450 400 Purchases 1250 Closing inventory 350 Cost of sales 1400 600 550 300 Smashed Financial statements Income statement for year end 31 December & Balance sheet as at 31 December 2019 Parts Palace $000 Sales 4,200 Cost of sales 1,400 Gross profit 2,800 Operating expenses (incl. Interest, Depn & Impairment) 300 Other income (incl. Dividends & Interest) 400 Operating profit before tax 2,900 Income tax 500 Net Profit 2,400 $000s 1,600 600 1,000 400 100 700 300 400 Opening Retained earnings 1,500 3,900 500 900 200 700 800 Dividends paid Closing retained earnings 3,100 Share capital Total equity 2,200 5,300 700 1,400 200 Accounts Payable Deferred tax Other non-current liabilities Total liabilities 800 600 700 2,100 130 800 1,130 Total liabilities and equity 7,400 2,530 80 100 Cash Accounts Receivable Inventory Current assets 100 200 300 600 530 1,300 Investment in Smashed (at Cost) Plant (net) Other non-current assets Non-current assets 2,000 3,700 1,100 6,800 700 2,000 Total assets 7,400 2,530 Phase 1 Required: Prepare the consolidated group financial statements for Parts Palace and Smashed as at 31 December 2019, using the 'Phase 1' tab on the Excel template provided. Use only information provided above, as Al Bruno wants further detail on inter-group transactions left to be dealt with as 'Phase 2'. PHASE 2 Now that you have considered the Phase 1 information and completed the relevant template for Al Bruno's review, he wants you to go on to consider consolidation adjustments for intra-group transactions in more detail. Al wants to ensure you have the basics right before you go on to dealing with the impact of these adjustments on the consolidated financial statements. He tells you that profit on merchandise sales was 60%* for Parts Palace and 70%* for Smashed for all sales transactions including inter-group transactions (* = as a percentage of sales). He has asked you to provide him with a spreadsheet showing the consolidation adjustments in journal form only for the following intra-group transactions during 2019 (all figures below are in $000s): 1. Parts Palace sold Smashed merchandise at a price of $300. 2. Smashed sold Parts Palace merchandise at a price of $400. 3. $75 remained owing by Parts Palace at 31 December 2019 for the merchandise sold to it by Smashed. 4. Parts Palace's inventories included merchandise bought from Smashed of: a. $50 at the beginning of 2019, and b. $60 at the end of 2019. 5. Smashed's 2019 inventories included merchandise bought from Parts Palace of: a. Beginning: $30, and b. Closing: $35. 6. The 'Other non-current assets' on Parts Palace's balance sheet includes a long-term loan to Smashed of $800. 7. The terms of the loan to Smashed require 8% annual interest payments. The loan was made on 1 January 2019 and interest is paid on 31 December each year. Phase 2 Required: ended 31 December 2019. Please use the "Phase 2" tab on the Excel template provided and adhere strictly to the following instructions: a) You will need to choose the most appropriate accounts to which to post each journal adjustment. b) Post a separate numbered journal entry for each numbered piece of information above i.e., - 7. For example, you will need to post a separate journal entry (Dr and Cr) for #3 and a separate journal entry (Dr and Cr) for #4a. c) You are only required to prepare journal entries for Phase 2 i.e., Al does not want you to adjust the Phase 1 figures until he has reviewed and authorised the journal entries. The Subsidiary, Smashed On 31 December 2016, Parts Palace Limited acquired 60% of the shares in Smashed Limited. On that date, the equity of Smashed Limited comprised: $ 000 Share capital Retained earnings Equity 700 400 $1,100 At acquisition, the book value of the assets and liabilities of Smashed Limited were considered to be at fair value, except for some non-depreciable assets (included under 'Other non-current assets and considered to be part of net identifiable assets) that had a book value of zero and where Parts Palace assessed their fair value to be $170,000. There has been no change to assessed value of these assets since acquisition. Goodwill impairment At the most recent balance date (31 December 2019), the returns from Smashed were not as high as expected. The directors of Parts Palace considered that acquired goodwill had been impaired by $200,000. Tax and Deferred Tax Assume a tax rate of 30% wherever relevant (i.e., for both Phase 1 and Phase 2). Breakdown of Cost of Sales figures supplied below for 31 December 2019 Parts Smashed Palace $000 $000s Opening inventory 450 400 Purchases 1250 Closing inventory 350 Cost of sales 1400 600 550 300 Smashed Financial statements Income statement for year end 31 December & Balance sheet as at 31 December 2019 Parts Palace $000 Sales 4,200 Cost of sales 1,400 Gross profit 2,800 Operating expenses (incl. Interest, Depn & Impairment) 300 Other income (incl. Dividends & Interest) 400 Operating profit before tax 2,900 Income tax 500 Net Profit 2,400 $000s 1,600 600 1,000 400 100 700 300 400 Opening Retained earnings 1,500 3,900 500 900 200 700 800 Dividends paid Closing retained earnings 3,100 Share capital Total equity 2,200 5,300 700 1,400 200 Accounts Payable Deferred tax Other non-current liabilities Total liabilities 800 600 700 2,100 130 800 1,130 Total liabilities and equity 7,400 2,530 80 100 Cash Accounts Receivable Inventory Current assets 100 200 300 600 530 1,300 Investment in Smashed (at Cost) Plant (net) Other non-current assets Non-current assets 2,000 3,700 1,100 6,800 700 2,000 Total assets 7,400 2,530 Phase 1 Required: Prepare the consolidated group financial statements for Parts Palace and Smashed as at 31 December 2019, using the 'Phase 1' tab on the Excel template provided. Use only information provided above, as Al Bruno wants further detail on inter-group transactions left to be dealt with as 'Phase 2'. PHASE 2 Now that you have considered the Phase 1 information and completed the relevant template for Al Bruno's review, he wants you to go on to consider consolidation adjustments for intra-group transactions in more detail. Al wants to ensure you have the basics right before you go on to dealing with the impact of these adjustments on the consolidated financial statements. He tells you that profit on merchandise sales was 60%* for Parts Palace and 70%* for Smashed for all sales transactions including inter-group transactions (* = as a percentage of sales). He has asked you to provide him with a spreadsheet showing the consolidation adjustments in journal form only for the following intra-group transactions during 2019 (all figures below are in $000s): 1. Parts Palace sold Smashed merchandise at a price of $300. 2. Smashed sold Parts Palace merchandise at a price of $400. 3. $75 remained owing by Parts Palace at 31 December 2019 for the merchandise sold to it by Smashed. 4. Parts Palace's inventories included merchandise bought from Smashed of: a. $50 at the beginning of 2019, and b. $60 at the end of 2019. 5. Smashed's 2019 inventories included merchandise bought from Parts Palace of: a. Beginning: $30, and b. Closing: $35. 6. The 'Other non-current assets' on Parts Palace's balance sheet includes a long-term loan to Smashed of $800. 7. The terms of the loan to Smashed require 8% annual interest payments. The loan was made on 1 January 2019 and interest is paid on 31 December each year. Phase 2 Required: ended 31 December 2019. Please use the "Phase 2" tab on the Excel template provided and adhere strictly to the following instructions: a) You will need to choose the most appropriate accounts to which to post each journal adjustment. b) Post a separate numbered journal entry for each numbered piece of information above i.e., - 7. For example, you will need to post a separate journal entry (Dr and Cr) for #3 and a separate journal entry (Dr and Cr) for #4a. c) You are only required to prepare journal entries for Phase 2 i.e., Al does not want you to adjust the Phase 1 figures until he has reviewed and authorised the journal entries