Reference no: EM133064732

Question 1:

What is the purpose of the substitution elimination journal and why is this journal required to be repeated each time the consolidation worksheet is prepared. Will this journal always remain the same as control date - provide a supporting example as part of your answer.

Question 2:

On 1 January 2016 Walker Ltd gained control of Jones Ltd by acquiring all of its shares for an amount of $50,000. At this date the equity of Jones Ltd was as follows

                                            $

Share Capital                       10,000

Retained Profits                   17,000

                                        27,000

The purchase was based on the following fair value for Jones Ltd assets, which differ from their carrying amount at control date

	Carrying amount $	Fair value $
Accounts Receivable	17,000	15,000
Plant & Equipment	70,000	78,000
Brandname	-	12,000

Additional information - Control date (fair value adjustments)
(i) The adjustment for accounts Receivable should have been recorded in the books of Jones Ltd
(ii) Jones Ltd uses the cost model in its books for plant & equipment. The original cost of this item was $75,000.The asset is required to be depreciated an additional $1,500 each year on the consolidation worksheet from control date as a result of the fair value adjustment
(iii) The brandname represents an intangible assets not recorded by Jones Ltd in accordance with AASB 138 'Intangible Assets'

Additional information - Intragroup transactions
(i) All dividends paid by the group are from post-control profits
(ii) Walker Ltd advanced Jones Ltd $25,000 in the form of a loan on 1 January 2017. They charged interest at 10% p.a. This amount was settled prior to 31 December 2017.
(iii) On 31 December 2017 Walker Ltd sold Jones Ltd a parcel of land for
$28,000. This asset had a carrying amount of $20,000 at the time of the sale and resulted in a gain on sale to Walker Ltd of $8,000.
(iv) The following information relates to intra-group sales of inventory

Question 2

On 1 January 2016 Walker Ltd gained control of Jones Ltd by acquiring all of its shares for an amount of $50,000. At this date the equity of Jones Ltd was as follows

                                            $

Share Capital                       10,000

Retained Profits                   17,000

                                         27,000

The purchase was based on the following fair value for Jones Ltd assets, which differ from their carrying amount at control date

	Carrying amount $	Fair value $
Accounts Receivable	17,000	15,000
Plant & Equipment	70,000	78,000
Brandname	-	12,000

Additional information - Control date (fair value adjustments)
(i) The adjustment for accounts Receivable should have been recorded in the books of Jones Ltd
(ii) Jones Ltd uses the cost model in its books for plant & equipment. The original cost of this item was $75,000.The asset is required to be depreciated an additional $1,500 each year on the consolidation worksheet from control date as a result of the fair value adjustment
(iii) The brandname represents an intangible assets not recorded by Jones Ltd in accordance with AASB 138 'Intangible Assets'

Additional information - Intragroup transactions
(i) All dividends paid by the group are from post-control profits
(ii) Walker Ltd advanced Jones Ltd $25,000 in the form of a loan on 1 January 2017. They charged interest at 10% p.a. This amount was settled prior to 31 December 2017.
(iii) On 31 December 2017 Walker Ltd sold Jones Ltd a parcel of land for
$28,000. This asset had a carrying amount of $20,000 at the time of the sale and resulted in a gain on sale to Walker Ltd of $8,000.
(iv) The following information relates to intra-group sales of inventory

	Amount $	Profit $	% Unsold (EOP)
Walker Ltd to Jones Ltd	9,000	3,000	40%

REQUIRED

Complete the consolidation worksheet on the following page for the 31 December 2017 (including the substitution elimination journal). No narrations required. Marks will only be allocated for the worksheet entries.