Reference no: EM132712158
On 1 July 2020, George Ltd acquired all the issued shares of Peanut Ltd for $50 000. At this date the equity of Peanut Ltd consisted of:
Share capital Peanut $25 000
Retained earnings $7 500
At this date, Peanut Ltd had recorded a dividend payable of $7500 which was paid in August 2016. All the identifiable assets and liabilities of Peanut Ltd were recorded at amounts equal to fair values except for inventory for which the fair value was $1000 greater than carrying amount. Only 10% of the inventory on hand at 1 July 2020 remained unsold by 30 June 2021. During the 2020-21 period, the following transactions occurred.
1. George Ltd sold inventory to Peanut Ltd for $30 000 at a profit before tax of $6000. At 30 June 2021, inventory which was sold to Peanut Ltd for $12 500 at a profit before tax of $2500 was still on hand in the records of Peanut Ltd.
2. On 1 January 2021, George Ltd sold machinery to Peanut Ltd at a gain of $5000. The machinery was considered to have a further 5-year life.
3. During the period Peanut Ltd rented a warehouse from George Ltd, paying $1250 in rent to George Ltd.
4. During the period George Ltd recorded gains from revaluation of land, which is measured using the fair value method. These gains increased the asset revaluation surplus by $2000 to give a balance of $14 000 at 30 June 2021.
5. In June 2021, an impairment test was conducted on Peanut Ltd and resulted in the recognition of impairment losses on goodwill of $8000 (recognised in other expenses)
The following financial information was provided by the companies at 30 June 2021:
Sales Revenue- George Ltd:$62 500 Peanut Ltd:$59 000
Dividend Revenue- George Ltd: $2500 Peanut Ltd: -
Other income- George Ltd: $2500 Peanut Ltd: $5000
Gains on sale of non-current assets: George Ltd: $2500 Peanut Ltd: $5000
Total Income- George ltd: $70,000 Peanut: $69 000
Cost of sales: George (52,000) Peanut: (45000)
other expenses: George (7500) Peanut: (2500)
Total Expenses; George (60 000) Peanut: (47500)
Profit before tax; george 10 000 Peanut: 21500
Income tax expense- george (3375) peanut (4875)
Profit for year- george 6625 peanut 16625
retained earnings 1/7/16 george 15 000 peanut 7500
total- george 21 625 peanut 24125
dividend paid george; 6250 peanut; 2500
retained earnings 30/6/17
Required:
Problem 1: Prepare the consolidated journal entries required for george ltd's group for the year ended 30 june 2021. show all workings.