Questions -
Q1. The following financial statements of Adelaide Ltd and its subsidiary Barossa Ltd have been extracted from their financial records at 30 June 2012.
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Adelaide Ltd
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Barossa Ltd
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$
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$
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$
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$
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Extract from Statements of Comprehensive Income and Changes in Equity
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Sales Revenue
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1,671,786
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1,344,600
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Cost of Sales
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(1,155,360)
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(592,620)
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Gross Profit
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516,426
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751,980
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Other Revenue
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Dividends received from Barossa
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231,570
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-
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Management fee revenue
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65,985
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-
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Gain on sale of equipment
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99,600
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87,150
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Expenses
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General expenses
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(76,692)
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(96,363)
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Selling expenses
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(251,739)
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(179,280)
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Depreciation
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(73,455)
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(141,432)
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Management fee expense
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-
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(65,985)
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Total expenses
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(401,886)
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(483,060)
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Profit before tax
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511,695
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356,070
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Income tax expense
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(153,135)
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(105,078)
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Profit for the period
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358,560
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250,992
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Retained earnings 30 June 2011
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795,306
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595,608
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1,153,866
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846,600
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Dividends paid
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(342,126)
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(231,570)
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Retained earnings 30 June 2012
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811,740
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615,030
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Statements of Financial Position
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Current assets
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Cash
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30,000
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45,000
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Accounts receivable
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117,906
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110,127
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Inventory
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229,080
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72,210
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Non-current assets
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Investment in Barossa Ltd
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886,440
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-
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Land
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557,760
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811,740
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Equipment (cost)
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746,627
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885,942
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Accumulated depreciation
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(213,518)
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533,109
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(345,612)
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540,330
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Total Assets
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2,354,295
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1,579,407
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Current liabilities
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Accounts payable
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136,203
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115,287
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Short-term loan payable
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102,837
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62,250
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Non-current liabilities
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Long-term debt
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432,015
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288,840
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Shareholders' equity
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Share capital
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871,500
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498,000
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Retained earnings
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811,740
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615,030
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Total Liabilities & Equity
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2,354,295
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1,579,407
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Other information:
Adelaide Ltd acquired the 100 per cent interest in Barossa Ltd on 1 July 2007, that is five (5) years earlier. At that time the capital and retained earnings of Barossa Ltd were:
Share capital $498,000
Retained earnings $448,200
$946,200
At the date of acquisition all assets were valued at their fair value.
• During the year Adelaide Ltd made total sales to Barossa Ltd of $149,400, and Barossa Ltd sold $124,500 of inventory to Adelaide Ltd.
• The opening inventory in Adelaide Ltd as at 1 July 2011 included inventory acquired from Barossa Ltd for $99,600 that had cost Barossa Ltd $74,700.
• The closing inventory of Adelaide Ltd includes inventory acquired from Barossa Ltd at a cost of $82,170. This inventory had cost Barossa $69,720.
• The closing inventory of Barossa Ltd includes inventory acquired from Adelaide Ltd at a cost of $29,880. This inventory had cost Adelaide Ltd $24,900.
• On 1 July 2011 Barossa Ltd sold an item of equipment to Adelaide Ltd for $288,840 when its carrying value in Barossa Ltd's books was $201,690 (cost $336,150, accumulated depreciation $134,460). This equipment is assessed as having a remaining useful life of six (6) years.
• Barossa Ltd paid $65,985 in management fees to Adelaide Ltd.
• The tax rate is 30 per cent.
Required:
a. Prepare the journal entries necessary for the preparation of consolidated financial statements.
b. Prepare a consolidated statement of financial position as at 30 June 2012 and a consolidated statement of comprehensive income and a consolidated statement of changes in equity for the period ended 30 June 2012 for Adelaide Ltd and its subsidiaries.
You are strongly advised to use a consolidation worksheet to support your answers, however it is NOT required for this assignment, and no marks will be awarded for it. You should show ALL workings.
Q2. On 30th June 2011 Oranges Ltd acquired 100 per cent of the shares in Lemons Ltd for $1,138,800.
The following shows the financial positions of the companies as at 30 June 2011 (immediately following the acquisition).
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Oranges Ltd
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Lemons Ltd
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Equity
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$
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$
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Share capital
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2,049,840
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455,520
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Retained earnings
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683,280
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341,640
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2,733,120
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797,160
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Accounts payable
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250,536
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159,432
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Long-term loans
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455,520
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432,744
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Total liabilities
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$706,056
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592,176
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Total equity and liabilities
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$3,439,176
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$1,389,336
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Assets
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Cash
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227,760
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113,880
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Accounts receivable
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296,088
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204,984
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Inventory
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455,520
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250,536
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Investment in Lemons Ltd
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1,138,800
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Land
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683,280
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227,760
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Property, Plant and Equipment (PPE)
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911,040
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797,160
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Accumulated depreciation on PPE
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(273,312)
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(204,984)
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Total assets
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$3,439,176
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$1,389,336
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Additional Information:
• All of the assets and liabilities of Lemons Limited were valued at fair value at acquisition with the exception of the land, which had a fair value of $319,020.
• The tax rate is 30 per cent.
Required:
Prepare the consolidation journal entries and consolidation worksheet for the above entities. You should show ALL workings.
Adapted from Leo et al. (2009) Company accounting (8th ed) John Wiley and Sons Australia Queensland.