Reference no: EM132553952
Assignment - Consolidated worksheet journal entries
On 1 July 2016, Rock Ltd acquired (ex div.) all of the issued capital of Wallaby Ltd. The recorded equity of Wallaby Ltd at this date consisted of:
Share capital $120,000
General reserve 25,000
Retained earnings 55,000
At 1 July 2016, all the identifiable assets and liabilities of Wallaby Ltd were recorded at fair value except for the following assets:
|
|
Carrying amount
|
Fair value
|
|
Land
|
$100,000
|
$130,000
|
|
Inventories
|
78,500
|
86,100
|
|
Machinery (cost $86,000)
|
52 000
|
56 000
|
|
Vehicles (cost $58,000)
|
47,000
|
53,000
|
Additionally, Wallaby Ltd's records showed a dividend payable at 1 July 2016 of $8000. This dividend was paid on 31 October 2016. The assets of Wallaby Ltd at acquisition date included goodwill recorded at $15 000 arising from a business combination transaction in 2012.
At 1 July 2016, Wallaby Ltd owned but had not recorded an internally generated brand name. This brand name was considered by Rock Ltd to have a fair value of $29 000 and an indefinite useful life. An impairment test conducted with respect to the brand name on 30 June 2019 concluded that its recoverable amount at that date was $2000 less than its carrying amount.
The vehicles and machinery were expected to have a further useful life of 6 and 8 years respectively, with benefits to be received evenly over those periods. Inventory on hand at 1 July 2016 was all sold by 31 January 2017. The land owned at 1 July 2016 was sold in September 2017 for $150 000. The machinery on hand at 1 July 2016 was sold on 1 January 2019 for $38 000.
Adjustments for the differences between carrying amounts and fair values of assets and liabilities on hand at acquisition date are recognised on consolidation. When assets are sold or derecognised, any related valuation reserves are transferred to retained earnings.
In June 2018, Wallaby Ltd paid a share dividend worth $20 000 from the general reserve on hand at 1 July 2016.
The trial balances of both companies at 30 June 2019 is in attached file.
Additional information -
(a) Dividends may be declared by either company without shareholder approval.
(b) The tax rate is 30%.
(c) On 1 January 2019, Rock Ltd sold an item of equipment to Wallaby Ltd for $18 000. The equipment had a carrying amount at the date of sale of $21 000. Both companies depreciate equipment at 20% p.a. on a straight-line basis.
(d) On 1 May 2018, Wallaby Ltd sold a machine to Rock Ltd for $7800. The machine had a carrying amount of $7000 at the date of sale. Rock Ltd recorded the machine as inventory. The inventory item was sold to an external party in November 2018 for $8200.
(e) All interest on the 8% debentures has been paid and brought to account in the records of both companies.
(f) During the 2018-19 financial year, Rock Ltd sold inventory to Wallaby Ltd for $75 000. The cost of this inventory to Rock Ltd was $70 000. Of this inventory, 25% is still on hand at 30 June 2019.
(g) The transfer to general reserve recorded by Wallaby Ltd in the current year was from retained earnings recorded at 1 July 2016.
Required - Prepare the consolidation worksheet journal entries for the preparation of the consolidated financial statements of Rock Ltd at 30 June 2019.
Tasks -
(1) Calculate acquisition analysis
(2) Prepare consolidation journal entries at 30/6/2019.
(3) Explain the term realisation of profits and provide an example.