Reference no: EM131504590

Assignment Questions

Question 1 -

On 1 July 2015, WC Ltd acquired all the shares in SC Ltd for $400,000. The equity and liability sections of SC Ltd's balance sheet showed the following:

Share capital (300,000 shares)	$300,000
General reserve	$60,000
Retained earnings	$10,000
Dividend payable	$5,000

At acquisition date, all the identifiable assets and liabilities of SC Ltd were recorded at amounts equal to fair value except for:

	Carrying amount	Fair value
Inventory	$120,000	$130,000
Machinery (cost $200,000)	$150,000	$165,000

In June 2017, a $4,000 dividend was declared by SC Ltd from post-acquisition profits to be paid in August 2017.

The inventory was all sold by 30 June 2016. The machinery had a further five year life and is depreciated on a straight line basis. This machinery was sold on 1 January 2017.

At the acquisition date, SC Ltd had a contingent liability of $20,000 that WC Ltd considered to have a fair value of $12,000. This liability was settled in full at its fair value in June 2017.

Goodwill was not impaired in any period. In the year ending 30 June 2016, SC Ltd transferred $2,000 from pre-acquisition retained earnings to general reserve.

In the year ending 30 June 2017, SC Ltd transferred $5,000 to retained earnings from the general reserve pre-acquisition.

On 30 June 2017, the trial balances of WC Ltd and SC Ltd were as follows:

	WC Ltd	SC Ltd
Shares in SC Ltd	$390 000	-
Inventory	174 000	$160 000
Other current assets	54 000	25 000
Machinery	572 500	412 000
Land	166 200	65 000
Income tax expenses	25 000	30 000
Goodwill	-	5 000
Interim dividend paid	10 000	5 000
Dividend declared	10 000	4 000
	1 401 700	706 000
Share capital	$800 000	$330 000
General reserve	150 000	57 000
Retained earnings (30/06/2017)	15 000	15 000
Profit before tax	80 000	90 000
Debentures	100 000	40 000
Dividend payable	10 000	4 000
Other current liabilities	34 700	60 000
Accumulated depreciation - Machinery	212 000	110 000
	1 401 700	706 000

Additional information:

a) On 1 January 2017, SC Ltd sold inventory costing $15,000 to WC Ltd for $25,000. Half of this inventory was sold by WC Ltd to external parties and the other half of the inventory was still on hand at 30 June 2017.

b) On 31 March 2017, WC Ltd sold machinery to SC Ltd for $6,000 which was $1,000 below its carrying amount at that date. SC Ltd charged depreciation at the rate of 20% per annum on this machinery.

c) The tax rate is 30%.

REQUIREMENTS: Prepare the consolidation worksheet journal entries for the year ended 30 June 2017. Include narrations and show any relevant workings also in the narrations.

Question 2 -

On 1 July 2016, Sierra Ltd acquired 80% of the share capital of Sahara Ltd for $264 800. On that date, the statement of financial position of Sahara Ltd consisted of:

Share capital	$250 000
General reserve	10 000
Asset revaluation surplus	15 000
Retained earnings	10 000
Liabilities	180 000
	$465 000
Cash	$ 35 000
Inventories	70 000
Land	65 000
Plant and equipment	300 000
Accumulated depreciation - plant and equipment	(130 000)
Trademark	100 000
Goodwill	25 000
	$ 465 000

At 1 July 2016, all identifiable assets and liabilities of Sahara Ltd were recorded at fair value except for:

	Carrying amount	Fair value
Inventories	$ 70 000	$ 80 000
Land	65 000	85 000
Plant and equipment (cost $200 000)	70 000	90 000
Trademark	100 000	110 000

During the year ended 30 June 2017, all inventories on hand at the beginning of the year were sold, and the land was sold on 28 February 2017 to Oasis Ltd for $80 000. The plant and equipment had a further 5-year life beyond 1 July 2016 and was expected to be used evenly over that time. The trademark was considered to have an indefinite life. Any adjustments for differences at acquisition date between carrying amounts and fair values are made in the consolidation worksheet.

Sierra Ltd uses the partial goodwill method. The tax rate is assumed to be 30%. Financial information for Sierra Ltd and Sahara Ltd for the year ended 30 June 2017 is shown below.

	Sierra Ltd	Sahara Ltd
Sales revenue	$200 000	$172 000
Other income	75 000	30 000
	275 000	202 000
Cost of sales	162 000	128 000
Other expenses	53 000	31 000
	215 000	159 000
Profit from trading	60 000	43 000
Gains/(losses) on sale of non-current assets	10 000	5 000
Profit before tax	70 000	48 000
Income tax expense	20 000	18 000
Profit for the period	50 000	30 000
Retained earnings (1/7/16)	30 000	10 000
Transfer from general reserve	-	8 000
	80 000	48 000
Interim dividend paid	12 000	10 000
Final dividend declared	6 000	4 000
	18 000	14 000
Retained earnings (30/6/17)	$ 62 000	$ 34 000
Asset revaluation surplus (1/7/16)		$ 15 000
Gain on revaluation of specialised plant		5 000
Asset revaluation surplus (30/6/17)		$ 20 000

During the year ended 30 June 2017, Sahara Ltd sold inventories to Sierra Ltd for $8000. The original cost of these items to Sahara Ltd was $5000. One-third of these inventories were still on hand at the end of the year.

On 31 March 2017, Sahara Ltd transferred an item of plant with a carrying amount of $10 000 to Sierra Ltd for $15 000. The item was still on hand at the end of the year. Sahara Ltd applied a 20% depreciation rate to this type of plant.

Required:

1. Prepare the acquisition analysis and all consolidation worksheet entries (narrations not required) necessary for preparation of the consolidated financial statements for Sierra Ltd and its subsidiary for the year ended 30 June 2017.

2. Prepare the Statement of Changes in Shareholders Equity at 30 June 2017.