Reference no: EM133019416
Question - FIPE Ltd acquired 100% of the shares of ZAIN Ltd on 1 July 2017 for $600,000, when the equity of ZAIN Ltd consisted of:
Share capital $450,000
General Reserve $70,000
Retained earnings $45,000
Asset revaluation reserve $10,800
All identifiable assets and liabilities of ZAIN Ltd are recorded at fair value at this date except for inventories for which the fair value was $10,000 greater than carrying amount, and plant which had a carrying amount of $150,000 (net of $40,000 accumulated depreciation) and a fair value of $170,000. The inventories were all sold by 30 June 2018, and the plant had a further 5-year life with depreciation based on the straight-line method.
Financial information for both companies at 30 June 2020 is as follows:
|
|
FIPE Ltd
|
ZAIN Ltd
|
|
Sales revenue
|
720,000
|
530,000
|
|
Other revenue
|
240,000
|
120,000
|
|
|
960,000
|
650,000
|
|
Cost of sales
|
(610,000)
|
(410,000)
|
|
Other expenses
|
(230,000)
|
(160,000)
|
|
|
(840,000)
|
(570,000)
|
|
Profit before tax
|
120,000
|
80,000
|
|
Tax expense
|
(40,000)
|
(25,000)
|
|
Profit for the period
|
80,000
|
55,000
|
|
Retained earnings at 1/7/19
|
200,000
|
112,000
|
|
|
280,000
|
167,000
|
|
Dividend paid
|
(20,000)
|
(10,000)
|
|
Dividend declared
|
(25,000)
|
(15,000)
|
|
|
(45,000)
|
(25,000)
|
|
Retained earnings at 30/6/20
|
235,000
|
142,000
|
|
Share capital
|
600,000
|
500,000
|
|
Asset revaluation surplus*
|
20,000
|
60,000
|
|
General reserve
|
80,000
|
100,000
|
|
Total equity
|
935,000
|
802,000
|
|
Dividend payable
|
25,000
|
15,000
|
|
Other liabilities
|
25,000
|
25,000
|
|
Total liabilities
|
50,000
|
40,000
|
|
Total equity and liabilities
|
985,000
|
842,000
|
|
Receivables
|
40,000
|
30,000
|
|
Inventory
|
100,000
|
170,000
|
|
Plant and equipment
|
200,000
|
500,000
|
|
Accumulated depreciation
|
(115,000)
|
(88,000)
|
|
Land at fair value
|
80,000
|
80,000
|
|
Shares in ZAIN Ltd
|
600,000
|
-
|
|
Deferred tax assets
|
50,000
|
40,000
|
|
Other assets
|
30,000
|
110,000
|
|
Total assets
|
985,000
|
842,000
|
* The balances of the surplus at 1 July 2019 were $35,000 (FIPE Ltd) and $50,000 (ZAIN Ltd)
The following transactions took place between FIPE Ltd and ZAIN Ltd:
a) During the 2019-20 period, ZAIN Ltd sold inventory to FIPE Ltd for $23 000, recording a profit before tax of $3 000. FIPE Ltd has since resold half of these items.
b) During the 2019-20 period, FIPE Ltd sold inventory to ZAIN Ltd for $18 000, recording a profit before tax of $2 000. ZAIN Ltd has not resold any of these items.
c) On 1 June 2020, ZAIN Ltd paid $1000 to FIPE Ltd for services rendered.
d) During the 2018-19 period, ZAIN Ltd sold inventory to FIPE Ltd. At 30 June 2019, FIPE Ltd still had inventory on hand on which ZAIN Ltd had recorded a before-tax profit of $4000.
e) On 1 July 2018, ZAIN Ltd sold plant to FIPE Ltd for $150 000, recording a profit of $20 000 before tax. FIPE Ltd applies a 10% p.a. straight-line method of deprecation in relation to assets.
Required - Make the consolidation worksheet entries for FIPE Ltd for the year ended 30 June 2020. Assume an income tax rate of 30%.