Reference no: EM132115696

Question 1 - Consolidation: Principles and accounting requirements; and intra-group transactions

Koala Ltd purchased all of the issued shares of Kingfisher Ltd on 1 July 2013. At acquisition date, the shareholders' equity of Kingfisher Ltd consisted of:

	$
Share capital	240,000
Retained earnings	60,000
	300,000

At 30 June 2015, two years after acquisition, the accounts of the two companies appear as follows:

	Koala Ltd $	Kingfisher Ltd $
Sales	500,000	220,000
Cost of sales	(266,000)	(92,000)
Gross profit	234,000	128,000
Depreciation expenses	50,000	30,000
Rent expenses		8,000
Other expenses	84,000	60,000
Total expenses	134,000	98,000
	100,000	30,000
Other income
Profit on sale of equipment	14,000	-
Rent revenue	8,000	-
Total other income	22,000	-
Operating profit before tax	122,000	30,000
Income tax expense	(38,000)	(10,000)
Operating profit after tax	84,000	20,000
Retained earnings 1 July 2014	60,000	70,000
Available for appropriation	144,000	90,000
Dividends paid	(70,000)	-
Retained earnings 30 June 2015	74,000	90,000
Share capital	600,000	240,000
Creditors and borrowings	70,000	30,000
Other liabilities	120,000	10,000
	864,000	370,000
Assets
Cash at bank	6,000	4,000
Accounts receivable	60,000	60,000
Inventory	50,000	20,000
Investments in Kingfisher Ltd	310,000	-
Property, plant and equipment	230,000	140,000
Accumulated depreciation	(120,000)	(42,000)
Land and buildings (net)	288,000	158,000
Other assets	40,000	30,000
	864,000	370,000

Additional information:

(a) The identifiable net assets of Kingfisher Ltd were recorded at fair value at the date of acquisition, except for an item of property, plant and equipment (cost $35,000 and accumulated depreciation of $13,500) that had a fair value of $26,500. Property, plant and equipment is expected to have a remaining useful life of 10 years with no residual value.

(b) During the financial year, Kingfisher Ltd paid rent of $8,000 to Koala Ltd.

(c) The opening inventory of Kingfisher Ltd includes unrealised profit of $4,000 on inventory transferred from Koala Ltd during the prior financial year. This entire inventory was sold by Kingfisher Ltd to parties external to the group during the current financial year.

(d) Koala Ltd sold inventory to Kingfisher Ltd for $30,000 during the year. This inventory had an original cost to Koala Ltd of $20,000. Three quarters of this inventory was sold to external entities by Kingfisher Ltd during the year.

(e) An item of equipment owned by Koala Ltd, originally acquired on 1 July 2013, was sold to Kingfisher Ltd for $50,000 on 1 July 2014. At 1 July 2014, this equipment has a cost of $60,000 and accumulated depreciation of $12,000. Koala Ltd depreciated this asset at 20% per annum straight- line. On acquiring the asset, Kingfisher Ltd assessed that the equipment has a remaining economic useful life of four years and therefore has applied a 25% depreciation rate on a straight-line basis, from the date of transfer of the asset.

(f) The tax rate is 30%.

Required:

1. Prepare an acquisition analysis and the consolidation journal entries necessary to prepare consolidated accounts for the year ending 30 June 2015 for the group comprising Koala Ltd and Kingfisher Ltd.

2. Prepared a consolidation worksheet for the year ending 30 June 2015.

Question 2 - Consolidation: Principles and accounting requirements; intra-group transactions and non- controlling interests

On 1 July 2013, Canti Ltd purchased 70% of the issued shares of Fletcher Ltd for a cost of $2,000,000. At acquisition date, the shareholders' equity of Fletcher Ltd consisted of share capital and retained earnings of $1,500,000 and $700,000 respectively. On the same date, all assets of Fletcher Ltd were recorded at fair value.

As at 30 June 2015, two years after date of acquisition, the accounts of the two companies are as follows:

		Canti Ltd	Fletcher Ltd
		$	$
Sales revenue		400,000	100,000
Cost of goods sold		(100,000)	(40,000)
Other expenses		(60,000)	(30,000)
Other revenue		155,000	42,500
Profit		395,000	72,500
Tax		(85,000)	(17,500)
Profit after tax		310,000	55,000
Retained earnings 1 July 2014		1,000,000	800,000
		1,310,000	855,000
Dividends paid		(200,000)	(40,000)
Retained earnings 30 June 2015		1,100,000	815,000
Shareholders' equity
Retained earnings		1,110,000	815,000
Share capital		4,000,000	1,500,000
Current liabilities
Accounts payable		60,000	40,000
Non-current liabilities
Loans		600,000	250,000
		5,770,000	2,605,000
Current assets
Cash	150,000		25,000
Accounts receivable	250,000		175,000
Inventory	500,000		300,000
Non-current assets
Land	1,400,000		1,105,000
Plant	1,470,000		1,000,000
Investment in Fletcher Ltd	2,000,000		-
	5,770,000		2,605,000

The following information is provided for the financial year 30 June 2015.

(a) The management of Canti Ltd values any non-controlling interest at the proportionate share of Fletcher Ltd's identifiable net assets.

(b) During the year, Fletcher Ltd made total sales to Canti Ltd of $22,500. At the year end, Canti Ltd has sold this entire inventory to external parties.

(c) The tax rate is 30%.

Required: Prepare the consolidation worksheet entries necessary for the preparation of consolidated financial statements for Canti Ltd and its subsidiary, Fletcher Ltd, for the financial year ended 30 June 2015. Narrations are not required.