ASSIGNMENT: (Consolidation Accounting)
Ocean Blue Ltd is a large Australian mining company. Its business has grown significantly in the last ten years. It considered expanding its operations into manufacturing business. On 1 July 2013, Ocean Blue Ltd acquired 60% interest in East Coast Ltd, a company operates in the manufacturing industry. The payment totaled for $800,000 in cash. On that day, the equity of East Coast Ltd was:
Share capital $720,000
Retained earnings 280,000
$1,000,000
At the time of acquisition, East Coast Ltd recorded all its assets at their fair values except for an item of plant and some land. Ocean Blue Ltd considered that an item of plant shown in the accounts of East Coast Ltd was less than its fair value. The fair value should be 85,500, not 67,500 as shown in East Coast Ltd's accounts. The plant was assessed to have a remaining useful life of 6 years and was to be depreciated on a straight-line basis. The land was recorded in the accounts of East Coast Ltd of $60,000 and Ocean Blue Ltd considered its fair value to be $100,000. On 25 May 2018, the land was sold to an unrelated party of Ocean Blue Ltd and East Coast Ltd. On 30 June 2018, the financial statements of Ocean Blue Ltd and East Coast Ltd are as follows:
Statements of Comprehensive Income of Ocean Blue Ltd and East Coast Ltd for the year ended 30 June 2018
Ocean Blue Ltd East Coast Ltd
Sales revenue $5,400,000 $3,770,000
Cost of goods sold -1,700,000 -1,660,000
Gross profit 3,700,000 2,110,000
Other income (expense) -250,000 25,000
Operating income 3,450,000 2,135,000
Expenses -1,760,000 -860,000
Net profit before tax 1,690,000 1,275,000
Income tax expenses -507,000 -382,500
Net profit after tax (NPAT) $1,183,000 $892,500
Retained earnings at 1 July 2017 182,000 299,500
Dividend declared and approved,
but not yet paid -120,000 -200,000
Retained earnings at 30 June 2018 $1,245,000 $992,000
Statements of Financial Position of Ocean Blue Ltd and East Coast Ltd as at 30 June 2018:
Ocean Blue Ltd Ltd East Coast Ltd
Assets
Cash 415,500 651,500
Accounts Receivable 316,000 195,800
Less: Allowance for doubtful accounts 19,500 296,500 8,600 187,200
Dividend Receivable 80,000 -
Inventory 279,000 51,300
Total Current Assets 1,071,000 890,000
Non-current assets
Deferred Tax assets 442,000 337,000
Investment in East Coast Ltd 700,000 -
Land 235,000 167,000
Property, Plant and Equipment (PPE) 1,600,000 1,200,000
Less: Accumulated depreciation of PPE 400,000 1,200,000 450,000 750,000
Total non-current assets 2,577,000 1,254,000
Total Assets
Liabilities and Equity 3,648,000 2,144,000
Current Liabilities
Accounts Payable 231,100 243,500
Dividend Payable 120,000 200,000
Income tax payable 378,000 80,000
Other payable 20,900 13,500
Total current liabilities 750,000 537,000
Non-Current Liabilities
Bank Loan 350,000
Total Liabilities 1,100,000 537,000
Shareholders' Equity
Share capital 1,080,000 585,000
Retained earnings 1,245,000 992,000
Revaluation Reserve 223,000 30,000
Total shareholders' equity 2,548,000 1,607,000
Total Equity and Liabilities 3,648,000 2,144,000
The following information is available at 30 June 2018:
• During the financial year ending 30 June 2018, East Coast Ltd sold inventory to Ocean Blue Ltd for $350,000. The inventory cost East Coast Ltd $200,000 to produce. 30% of this inventory was sold to other entities outside the group at the end of the financial year. Both Ocean Blue Ltd and East Coast Ltd use the perpetual inventory system.
• During the financial year ending 30 June 2017, East Coast Ltd had sold inventory to Ocean Blue Ltd at a price of $140,000. The cost of the inventory was $80,000. For the financial year ended 30 June 2017, only 25% of this inventory had been sold by Ocean Blue Ltd to its customers. During the financial year ending 30 June 2018, a further 70% of the opening balance of this inventory was sold by Ocean Blue Ltd to its customers.
• East Coast Ltd sold an item of plant to Ocean Blue Ltd for $175,000 on 1 July 2016. The original cost of this plant was $250,000 and the carrying amount was $150,000 as at 1 July 2016. Ocean Blue Ltd estimated this item of plant had a remaining useful life of 5 years with no residual value.
• Ocean Blue Ltd sold an item of equipment to East Coast Ltd for $35,000 on 31 January 2018. The carrying amount recorded in Ocean Blue Ltd's account was $40,000 as at 31 January 2018. The equipment has an estimated remaining useful life of five years with no residual values.
• The recoverable amount of goodwill as at 30 June 2018 was determined to be $75,000. As at 30 June 2017, goodwill has been impaired for $10,000. Prior to 30 June 2017, no impairment loss was recorded because the carrying amount of goodwill was lower than its recoverable
amount.
• Dividend was declared and approved by East Coast Ltd on 1 June 2018. No other dividend had been paid by East Coast Ltd during the financial year.
• Income tax rate is 30%
Required:
1. Prepare acquisition analysis on 1 July 2013, and journal entries to record the acquisition of 60% interest in East Coast Limited in Ocean Blue Limited's records.
2. Prepare the consolidated adjustments for Ocean Blue Ltd and its controlled entity on 30 June 2018, and offset deferred tax liabilities as at 30 June 2018 (if any) with deferred tax assets arose from the consolidation adjustments.
3. Calculate non-controlling interest (NCI) in the profit for the financial year ended 30 June 2018, the opening retained earnings as at 1 July 2017, and the reserves and share capital as at 30 June 2018. Prepare the consolidated entries for NCI for the financial year ended 30 June 2018.
4. Prepare the consolidation worksheet and post all consolidation journal entries into the worksheet,offsetting deferred tax liabilities with deferred tax assets (if any) as at 30th June 2018.