Reference no: EM132937184
Kumar Ltd acquired all the issued shares of Prasad Ltd at 1 July 2019. Kumar Ltd paid $36, 750 in cash and 10,000 preference shares and 10,000 ordinary shares in Kumar Ltd valued at $3.00 per share for preference and $3.00 per share for ordinary. At this date, the equity of Prasad Ltd consisted of $68,000 share capital and $4,000 retained earnings.
At the date of acquisition, all the identifiable assets and liabilities of Prasad Ltd were recorded at amounts equal to their fair values except for:
Carrying Amount
Level 1 Fair Value
Level 2 Fair Value
Level 3 Fair Value
Copyright $90,000 $105,000
Merchandise $18,000 $22,500
Equipment (Cost $150,000) $120,000 $123,000
The book keeping records reveal; (i) the equipment was considered to have a further 5-year life, (ii) the copyrights were sold for $120 000 to an external entity on 18 August 2019, and (iii) the merchandise was all sold by 30 June 2020.
Additional information provided by group CEO
(a) Kumar Ltd sells certain raw materials to Prasad Ltd to be used in its manufacturing process. At 1 July 2020, Prasad Ltd held merchandise sold to it by Kumar Ltd in the previous year at a profit of $600. During the 2020-21 year, Kumar Ltd sold merchandise to Prasad Ltd for $21,000. None of this was on hand at 30 June 2021.
(b) Prasad Ltd also sells items of merchandise to Kumar Ltd. During the 2020-21 year, Prasad Ltd sold goods to Kumar Ltd for $4,500. At 30 June 2021, merchandise which had been sold to Kumar Ltd at a profit of $300 was still on hand in Kumar Ltd's merchandise.
(c) On 1 July 2020, Prasad Ltd sold an item of equipment to Kumar Ltd for $14,000. This equipment had a carrying amount in the records of Prasad Ltd of $15,000 at time of sale. This type of equipment is depreciated at 10% p.a. on cost.
(d) On 1 January 2020, Kumar Ltd sold an item of merchandise to Prasad Ltd for $18,000. The merchandise had cost Kumar Ltd $16,000. This item was classified by Prasad Ltd as equipment. Equipment of this type is depreciated by Prasad Ltd at 20% p.a.
(e) On 1 March 2021, Prasad Ltd sold an item of equipment to Kumar Ltd. Whereas Prasad Ltd classified this as equipment, Kumar Ltd classified it as merchandise. The sales price was $9,000 which included a profit to Prasad Ltd of $1,500. Kumar Ltd sold this to another entity on 31 March 2021 for $9,900.
Required
Problem 1: Prepare all journal entries required for a consolidation worksheet for the preparation of the consolidated financial statements of Kumar Ltd at 30 June 2021 (narrations not required).