Assignment:
Q: Alpha Ltd owns 100% of the shares of Belmont Ltd, acquired on 1 July 2010 for $3.5 million when the shareholders' funds of Belmont Ltd were:
Share Capital 1,750,000
Retained Earnings 1,400,000
3,150,000
All assets of Belmont Ltd are fairly stated at acquisition date. The directors believe that there has been an impairment loss on the goodwill of $35,000 for the year ended 30 June 2011. During the 2011 financial year, Belmont Ltd sells inventory to Alpha Ltd at a sales price of $700,000. The inventory cost Belmont Ltd $420,000 to produce. At 30 June 2011, half of the inventory is still on hand with Alpha Ltd.
The tax rate is 30%.
The accounts of Alpha Ltd and Belmont Ltd as 30 June 2011 are as follows;
Alpha Belmont
Eliminations and
adjustments Consolidated
Company Company Dr Cr Statement
$000 $000 $000 $000 $000
Income statement
Sales revenue 4 200 1 400
Less: cost of goods sold (1 750) (490)
Less: other expenses (210) (105)
Other revenue 245 87.5
Profit 2 485 892.5
Tax expense 700 350
Profit after tax 1 785 542.5
Retained earnings
1 July 2010 3 500 1 400
5 285 1 942.5
Dividends paid 700 140
Retained earnings
30 June 2011 4 585 1 802.5
Balance sheet
Shareholders' equity
Retained earnings
30 June 2011 4 585 1 802.5
Share capital 14 000 1 750
Current liabilities
Accounts payable 350 297.5
Non-current liabilities
Loans 2 100 875
21 035 4 725
Current assets
Cash 875 87.5
Accounts receivable 525 612.5
Inventory 2 100 1 050
Non-current assets
Land 5 040 1 400
Plant 8 645 1 400
Investment in Belmont Ltd 3 500 -
Deferred tax asset 350 175
Goodwill
21 035 4 725
Required
Prepare the consolidated journals for Alpha Ltd and its controlled entity for 2011
Use the above worksheet and complete the consolidated statement.
a. Determine goodwill or gain on acquisition
b. Eliminate inter-company sales transaction.
c. Eliminate unrealized profit in closing inventory
d. Adjust the tax expense for unrealized profit or losses
e. Eliminate dividend paid by Belmont to Alpha
f. Impair goodwill