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

services

On $1$ July $2019,$ Naomi Ltd acquired all the issued shares of Ashley Ltd$.$ The recorded equity of Ashley Ltd

at this date consisted of:

Share capital $ $120000$

General reserve $25000$

Retained earnings $55000$

At $1$ July $2019,$ all the identifiable assets and liabilities of Ashley Ltd were recorded at fair value except for

the following assets:

Carrying amount Fair value

Land $ $100000$ $ $130000$

Inventories $7850086100$

Machinery $($cost $$86000)5200056000$

Vehicles $($cost $$58000)4700053000$

At $1$ July $2019,$ Ashley Ltd owned but had not recorded an internally generated brand name. This brand

name was considered by Naomi Ltd to have a fair value of $$29000$ and an indefinite useful life. An

impairment test conducted with respect to the brand name on $30$ June $2022$ concluded that its recoverable

amount at that date was $$2000$ less than its carrying amount.

The vehicles and machinery were expected to have a further useful life of $6$ and $8$ years respectively, with

benefits to be received evenly over those periods. Inventories on hand at $1$ July $2019$ were all sold by $31$

January $2020.$ The land owned at $1$ July $2019$ was sold in September $2020$ for $$150000.$ The machinery

on hand at $1$ July $2019$ was sold on $1$ January $2022$ for $$38000.$

Adjustments for the differences between carrying amounts and fair values of assets and liabilities on hand

at acquisition date are recognised on consolidation. When assets are sold or derecognised, any related

valuation reserves are transferred to retained earningsThe trial balances of both companies at $30$ June $2022$ showed the following balances:

Debit balances Naomi Ltd Ashley Ltd

Cash $ $2500$ $ $1250$

Receivables $2700013000$

Inventories $3970024500$

Other current assets $152008200$

Deferred tax assets $75003500$

Vehicles $88000158000$

Equipment $42000$

Land $140000180000$

Financial assets $6800014800$

Intangible assets $2800015000$

Shares in Ashley Ltd $250000$

Debentures in Naomi Ltd $25000$

Dividend paid $100005000$

Dividend declared $2000012000$

Transfer to general reserve $100005000$

Cost of sales $210000192550$

Income tax expense $3000032000$

Depreciation and other expenses $3900036000$

Carrying amount of machinery sold $30500$

Carrying amount of equipment sold $21000$

$ $1005900$ $ $798300$

Credit balances

Share capital $ $200000$ $ $120000$

General reserve $3500030000$

Retained earnings $(1/7/21)5130067500$

Accounts payable $6950036000$

Loan payable $($due $30/6/26)2500015000$

Dividend payable $2000012000$

Provisions $125009300$

Current tax liability $4300034000$

Deferred tax liability $118005000$

Accumulated depreciation vehicles $1640060000$

Accumulated depreciation equipment $34500$

$8\%$ Debentures $($mature $30/6/25)25000$

Sales revenue $450000320000$

Dividend revenue $17000$

Other income $1140017000$

Proceeds on sale of equipment $18000$

Proceeds on sale of machinery $\_\_\_\_\_\_\_38000$

$ $1005900$ $ $798300$Additional information

$($a$)$ On $1$ January $2022,$ Naomi Ltd sold an item of equipment to Ashley Ltd for $$18000.$ The equipment

had a carrying amount at the date of sale of $$21000.$ Both companies depreciate equipment at $20\%$ p$.$a$.$

on a straight$-$line basis.

$($b$)$ On $1$ May $2021,$ Ashley Ltd sold a machine to Naomi Ltd for $$7800.$ The machine had a carrying

amount of $$7000$ at the date of sale. Naomi Ltd recorded the machine as inventories. In November $2021,$

the item was sold to an external party for $$8200.$

$($c$)$ On $1$ July $2020,$ Naomi Ltd issued $250$ $$100$ debentures to Ashley Ltd with interest at $8\%$ p$.$a$.$ paid on

$30$ June and $31$ December each year. The debentures are due for redemption on $30$ June $2025.$

$($d$)$ During the $202122$ financial year, Naomi Ltd sold inventories to Ashley Ltd for $$75000.$ The cost of

these inventories to Naomi Ltd was $$70000.$ Of these inventories, $25\%$ are still on hand at $30$ June $2022.$

$($e$)$ During the $202122$ financial year, Ashley Ltd paid an interim dividend of $$5000$ to Naomi Ltd and

declared a further dividend of $$12000$ that has not been paid by year end.

$($f$)$ The transfer to general reserve recorded by Ashley Ltd in the current year was from retained earnings

earned after $1$ July $2019.$

$($g$)$ The tax rate is $30\%.$Required

Prepare the consolidation worksheet of the Naomi Ltd group for $30$ June $2022.$ Show all workings.

$1.$ Calculate acquisition analysis as at $1$ July $2019$

$2.$ 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 AASB$10$ for wholly owned entities,

explain intragroup adjustments $($a$)$ and $($c$)$ in additional information above.