On 1 July 2010 Parent Ltd purchased 100% of the issued capital of Sub Ltd for a purchase price of $200,000. At that date the shareholders’ equity of Sub Ltd disclosed:
Share capital $100,000
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Retained earnings $60,000
Goodwill $30,000
Additional information:
- At the date of acquisition, all net identifiable assets of Sub Ltd were recorded at fair value, except that one of the equipment that Sub Ltd owns has a fair value of $90,000. This equipment was initially acquired for $70,000 and the accumulated depreciation at the date of acquisition was $50,000. Sub Ltd is using cost model and has not revalued plant and equipment in its accounting record. Upon the revaluation, the group decides the revalued equipment has a further useful life of 7 years.
- On 1 July 2010, Sub Ltd acquired land from Parent Ltd for $40,000 cash. Prior to the transfer, the land was shown in the accounting records of Parent Ltd at cost, $60,000.
- Sales by Sub to Parent Ltd were $30,000.
- Unrealised profit in the opening inventory (1.7.2011) of Sub Ltd for goods sold by Parent Ltd was $32,000. Unrealised profit in the closing inventory (30.6.2012) of Parent Ltd for goods sold by Sub Ltd was $65,000
- On 1 January 2011 Sub Ltd sold an item of plant to Parent Ltd for $14,000. The carrying amount at the time of sale was $8,000 (cost was $14,000). At the time of the sale the asset had a remaining useful life of 5 years.
- Included in the accounts payable of Sub Ltd is $30,000 owing to Parent Ltd.
- Parent Ltd charges Sub Ltd 10% interest for the $20,000 loan given on 1 July 2011.
- Company tax rate is 30%
Required:
- Prepare consolidation journal entries for the year ended 30 June 2012
- Complete the consolidation worksheet provided below; and
- Prepare consolidated financial statements.
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