Prepare the consolidation worksheet for the preparation

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Reference no: EM133724650

Assignment Question

The following financial statements of Artificial Ltd and its subsidiary Intelligence Ltd have been extracted from their financial records at 30 June 2023.

The accounts of the two companies are presented below.

	Artificial Ltd $	IntelligenceLtd $
Sales	839 250	725 000
Cost of goods sold	(580 000)	(297500)
Gross profit	259250	427500
Dividends revenue	116250	-
Management fee revenue	33125	-
Gain on sale of plant	44 750
	453 375	427 500
Less Expenses
Administrative expenses	(38 500)	(48 375)
Depreciation	(30 625)	(71 000)
Management fee expense	-	(33 125)
Other expenses	(126 375)	(96 250)
Profit before tax	256 875	178750
Tax expense	76875	52750
Profit after tax	180 000	126 000
Retained earnings 1 July 2022	399250	299 000
	579250	425 000
Dvidends paid	(171 750)	(116 250)
Retained earnings 30 June 2023	407 500	308750

Statement of financial position	Artificial Ltd $	Intelligence Ltd $
Shareholders' equity
Retained earnings	407500	308750
Share capital	437500	250 000
Liabilities
Accounts payable	-	57875
Tax payable	100 000	31250
Non-current liabilities
Loans	236 000	145 000
	1 181 000	792 875
Assets
Accounts receivable	74 250	77 875
Inventory	115 000	36250
Non-current assets
Land and buildings	198 750	407 500
Plant - at cost	400 000	444 750
Accumulated depreciation	(107 000)	(173 500)
Investment in Intelligence Ltd	500 000	-
	1 181 000	792 875

Other information:

• Artificial Ltd acquired its 100 percent interest in Intelligence Ltd on 1 July 2016 - seven years earlier. The cost of the investment was $500 000. At that date the capital and reserves of Intelligence Ltd were: $

Share capital 250 000

Retained earnings 200 000

450 000

At the date of acquisition all assets were considered to be fairly valued.

• In applying the impairment test for goodwill in the current year, the directors have determined that a write-down of $3750 is required for consolidation purposes. The cumulative goodwill impairment write-downs for prior years amounted to $20 000.

• During the year Artificial Ltd made total sales to Intelligence Ltd of $81 250, while Intelligence Ltd sold $65 000 in inventory to Artificial Ltd.

• The opening inventory in Artificial Ltd at 1 July 2022 included inventory acquired from Intelligence Ltd for $52 500 that cost Intelligence Ltd $43 750 to produce.

• The closing inventory in Artifical Ltd includes inventory acquired from Intelligence at a cost of $42 000. This cost Inteligence Ltd $35 000 to produce.

• The closing inventory of Intelligence Ltd includes inventory acquired from Artificial Ltd at a cost of $15 000. This cost Artificial Ltd $12 000 to produce.

• An item of plant and equipment owned by Artificial Ltd was sold to Intelligence Ltd on 1 July 2022 for $145 000 when its carrying amount was $101 250 (cost $168 750, accumulated depreciation of $67500). This plant is assessed as having a remaining useful life of six yearys.

The Group has a policy of measuring its property, plant and equipment using the ‘cost model'.
• Intelligence paid management fees to Artificial Ltd.
• The tax rate is 30%.

Required

Question 1. Prepare an acquisition analysis.

Question 2. Prepare the consolidation journal entries necessary to prepare consolidated accounts for the year ending 30 June 2023 for the group comprising Artificial Ltd and Intelligence Ltd. Provide a brief explanation(3-4 lines) for each of the consolidation journal entries, explaining why the entry is being made.

Question 3. Prepare the consolidation worksheet for the preparation of the consolidated financial statements for the period ended 30 June 2023. Prepare the consolidated statement of profit or loss only for the year ended 30 June 2023.

Question 4. Following consolidation, should dividends paid to the parent entity by its subsidiaries be shown in the economic entity's financial statements? In the consolidated financial statements, which dividends would be shown?

Question 5. If a subsidiary sells inventory to the parent entity and some of the inventory is still on hand at year end, what adjustments are necessary at year end? Further, will adjustments be required to restate the balance of opening inventory as at the beginning of the next financial period?

Reference no: EM133724650

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