Topic: Consolidation worksheet with adjustment entries for intragroup transactions: inventories, PPE, services

Task Details: On 1 July 2018, Priscilla Ltd acquired all the issued shares of Lisa Marie Ltd. The consideration for the acquisition was $30000 in cash and 20000 shares in Priscilla Ltd, valued at $3 per share. At this date, the equity of Lisa Marie Ltd consisted of $66000 share capital and $6000 retained earnings. At 1 July 2018, all the identifiable assets and liabilities of Lisa Marie Ltd were recorded at amounts equal to their fair values except for:

Carrying amountFair valuePlant (cost $150000)$ 120000$ 123000Patents90000105000Inventories1800022500

The plant was considered to have a further 5-year life. The patents were sold for $120000 to an external entity on 18 August 2018. The inventories were all sold by 30 June 2019. Additional information:

(a) Priscilla Ltd sells certain raw materials to Lisa Marie Ltd to be used in its manufacturing process. At 1 July 2021, Lisa Marie Ltd held inventories sold to it by Priscilla Ltd in the previous year at a profit of $600. During the 202122 year, Priscilla Ltd sold inventories to Lisa Marie Ltd for $21 000. None of the inventories are on hand at 30 June 2022.

(b) Lisa Marie Ltd also sells items of inventories to Priscilla Ltd. During the 202122 year, Lisa Marie Ltd sold goods to Priscilla Ltd for $4500. At 30 June 2022, inventories which had been sold to Priscilla Ltd at a profit of $300 are still on hand in Priscilla Ltds inventories.

(c) On 1 July 2021, Lisa Marie Ltd sold an item of plant to Priscilla Ltd for $15000 that had cost Lisa Marie Ltd $14 000 on the same date. This type of plant is depreciated at 10% p.a. on cost.

(d) On 1 January 2021, Priscilla Ltd sold inventories to Lisa Marie Ltd for $18000. The inventories had cost Priscilla Ltd $16000. This item was classified by Lisa Marie Ltd as plant and depreciated at 20% p.a.

(e) On 1 March 2022, Lisa Marie Ltd sold an item of plant to Priscilla Ltd. Whereas Lisa Marie Ltd classified this as plant, Priscilla Ltd classified it as inventories. The sales price was $9000, which included a profit to Lisa Marie Ltd of $1500. Priscilla Ltd sold this asset to another entity on 31 March 2022 for $9900.

(f) The tax rate is 30%.

The following financial information was provided by the two companies for 30 June 2022:

Priscilla LtdLisa Marie LtdDEBITCREDITDEBITCREDITSales revenue6450078000Cost of sales3090046350Trading expenses48009000Office expenses79504050Depreciation expenses18003900Proceeds on sale of plant900015000Carrying amount of plant sold750014000Income tax expense111007300Share capital9600066000Retained earnings (1/7/21)4800031500Current liabilities2110010500Deferred tax liability1100015000Plant57000107250Accumulated depreciation - plant1830033450Intangible1200011100Deferred tax assets81009450Shares in Lisa Marie Ltd900000Inventories2850024600Receivables825012450267900267900249450249450

Required

1. Calculate acquisition analysis as at 1 July 2018

2. Prepare the consolidation journal entries for 30 June 2022

3. Complete the consolidated worksheet for 30 June 2022

4. Prepare the consolidated financial statements at 30 June 2022

5. Write a report to explain the consolidation process as per AASB10 for wholly owned entities and provide suitable explanations for intragroup adjustments (a) and (c) in additional information above

Consolidation Worksheet for 30 June 2022:

Priscilla

Ltd

Lisa Marie

Ltd

AdjustmentsGroupDrCrSales revenue64 50078 000Cost of sales(30 900)(46 350)Gross profit33 60031 650Trading expenses(4 800)(9 000)Office expenses(7 950)(4 050)Depreciation exp(1 800)(3 900)(14 550)(16 950)Profit from trading19 05014 700Proceeds from sale of plant9 00015 000Carrying amount of plant sold(7 500)(14 000)Profit before tax20 55015 700Income tax expense(11 100)(7 300)Profit for the year9 4508 400Retained earnings (1/7/21)48 00031 500Retained earnings (30/6/22)57 45039 900Share capital96 00066 000BCVR----Total equity153 450105 900Current liabilities21 10010 500Deferred tax liability11 00015 000Total liabilities32 10025 500Total equity and liabilities185 550131 400