Question

On January 1, 2011, Devco acquired cum div. all the shares of Brooke, at which date the equity and liability sections of Brooke’s statement of financial position showed the following balances:
Share capital (300,000 shares)......... $300,000
Retained earnings ............ 40,000
Other components of equity......... 30,000
Dividend payable.............. 20,000
The dividend payable was subsequently paid in February 2011.
On January 1, 2011, all the identifiable assets and liabilities of Brooke were recorded at fair value except for:
The inventory was all sold by October 2011. The machinery had a further five-year life but was sold on June 30, 2013. At the acquisition date, Brooke had a contingent liability of $20,000 that Devco considered to have a fair value of $12,000. This liability was settled in December 2011. At January 1, 2011, Brooke had not recorded any goodwill. On December 31, 2013, the trial balances of Devco and Brooke were as follows:
Additional information:
1. On January 1, 2012, Devco sold an item of plant to Brooke at a profit before tax of $4,000. Devco depreciates this particular item of plant straight line over 5 years and Brooke depreciates straight line over 10 years.
2. At December 31, 2013, Devco had on hand some items of inventory purchased from Brooke in June 2013 at a profit of $500.
3. Devco charged a management fee of $2,000 per month to Brooke. As of year end, Brooke had not paid the fee for three months.
4. The tax rate is 30%.
Required
(a) Prepare the consolidated statement of comprehensive income, consolidated statement of changes in equity, and the consolidated statement of financial position at December 31, 2013.
(b) In relation to part (1) in the additional information, explain why you made the consolidated financial statement adjustments at December 31, 2013.
P4-3 On December 31, 2009, Jupiter Inc. purchased all of the shares of Europa Ltd. for $4,760,000. On that date, the carrying amount of Europa’s identifiable net assets was $4,080,000. The carrying amount of Europa’s identifiable net assets were equal to their fair values except that the carrying amount of Europa’s inventory was $2,000,000 while its fair value was $2,119,000, and Europa had unrecognized trademarks that were worth $138,000. On the acquisition date, Europa’s retained earnings were $1,080,000. The trademarks were being amortized over 6 years. During 2013, an impairment loss of $170,000 occurred for the goodwill. Prior to 2013 there had not been any goodwill impairment.
Following are separate entity financial statements for 2013:
Additional information:
1. On January 1, 2013, Europa loaned Jupiter $300,000, none of which has been paid back. Europa earned $12,000 in interest on the loan, which has been reported as investment income. The interest has not yet been received.
2. Europa regularly sells inventory to Jupiter at a price that earns a gross profit of 30% for Europa. During 2013
Jupiter purchased $1,000,000 of inventory from Europa and $400,000 of it remained unsold at December 31, 2013. Jupiter did not have any inventory from Europa on hand.
3. On December 31, 2011, Europa had sold some equipment to Jupiter for $700,000 (equipment is still being used by Jupiter). Europa’s carrying amount for this equipment just prior to its sale was $400,000. The remaining useful life of the equipment was 15 years on the date of the sale.
4. Land that originally cost $390,000 had been sold by Jupiter to Europa in 2011 for $490,000. This land is still held by Europa at December 31, 2013.
5. The tax rate is 40%
Required
Prepare Jupiter’s consolidated balance sheet as at December 31, 2013.
At December 31, 2013, the condensed balance sheets for the two companies were as follows:
Additional information:
1. On December 31, 2008, PUC had inventory with a fair value that was $100,000 less than its carrying value.
2. On December 31, 2008, PUC had equipment with a fair value that was $400,000 greater than its carrying value.
The equipment had an estimated remaining useful life of 8 years.
3. Each year, goodwill is evaluated to determine if there has been a permanent impairment. Goodwill has a value of $3,580,000 at December 31, 2012 and $3,200,000 at December 31, 2013.
4. On January 2, 2011, PUC sold a machine to HIT for $1,200,000. PUC purchased the machine on January 1, 2006 for $1,800,000 and was depreciating the machine over 10 years. There was no change in the estimated service life at the time of the intercompany sale.
5. During 2013, HIT sold merchandise to PUC for $600,000, 75% of which remains in PUC’s inventory at December 31, 2013. On December 31, 2012, the inventory of PUC contained $100,000 of merchandise purchased from HIT. HIT earns a gross margin of 30% on its intercompany sales.
6. During 2013, HIT declared and paid dividends of $2,600,000 while PUC declared and paid dividends of $800,000.
7. Both companied pay income tax at the rate of 40%.
Required
(a) Prepare HIT’s consolidated income statement for the year ended December 31, 2013. Show supporting calculations.
(b) Calculate HIT’s consolidated retained earnings at December 31, 2013. Show supporting calculations.
P4-5 On January 1, 2013, Sienna acquired all the shares of Danon for $160,000. The financial statements of the two entities at December 31, 2013, contained the following information:
Additional information:
1. At January 1, 2013, all identifiable assets and liabilities of Danon were recorded at fair value except for inventory, for which the fair value was $1,000 greater than the carrying amount. This inventory was all sold by December 31, 2013. At January 1, 2013, Danon had research and development outlays that it had expensed as incurred. Sienna measured the fair value of the in-process research and development at $8,000. By December 31, 2013, it was assessed that $2,000 of this was not recoverable. At January 1, 2013, Danon had reported a contingent liability relating to a guarantee that was considered to have a fair value of $7,000. This liability still existed at December 31, 2013. At January 1, 2013, Danon had not recorded any goodwill.
2. The bonds were issued by Danon at par value on January 1, 2012, and are redeemable on December 31, 2016.
Sienna acquired its holding ($60,000) of these bonds when Danon initially issued them. All interest has been paid and reflected in the records of both entities.
3. During 2013, Sienna sold inventory to Danon for $40,000, at a markup of cost plus 25%. At December 31, 2013, $10,000 worth of inventory was still held by Danon.
4. On June 30, 2013, Danon sold land to Sienna. Sienna paid $30,000 for this land, with Danon having a cost of $24,000.
5. The Other Components of Equity account relates to financial assets, for which an election under IFRS 9 was taken. For 2013, Sienna recorded an increase in these assets of $3,000, and Danon recorded a decrease of $2,000.
6. The income tax rate is 40%.
Required
Prepare the consolidated financial statements for Sienna and its subsidiary for the year ended December 31, 2013.
P4-6 Financial information for Coltron and its 100% owned subsidiary, Tara, for the year ended December 31,
2013, is provided below:
Coltron acquired its shares in Tara on January 1, 2013, buying the 10,000 shares for $20,000. Tara recorded share capital of $10,000. The shares were bought on a cum div. basis as Tara had declared a dividend of $3,000 that was not paid until March 2013.
At January 1, 2013, all identifiable assets and liabilities of Tara were recorded at fair value except for inventory, for which the carrying amount of $2,000 was $400 less than fair value. Some of this inventory has been a little slow to sell, and 10% of it was still on hand at December 31, 2013. Inventory on hand in Tara at December 31, 2013, also includes some items acquired from Coltron during the year. These were sold by Coltron for $5,000, at a profit before tax of $1,000. Half the goodwill was written off as the result of an impairment test on December 31, 2013.During March 2013, Coltron provided some management services to Tara at a fee of $500.
On July 1, 2013, Tara sold machinery to Coltron at a gain of $2,000. This machinery had a carrying amount to Tara of $20,000, and was considered by Coltron to have a five-year life.By December 31, 2013, the financial assets acquired by Coltron and Tara increased by $1,000 and $650, respectively. The tax rate is 30%.
Required
(a) Prepare the consolidated statement of comprehensive income for Coltron and its subsidiary, Tara, at December 31, 2013.
(b) Discuss the concept of "realization" using the intragroup transactions in this question to illustrate the concept.
P4-7 Financial information for Jasmine and Lessard for the year ended December 31, 2013, is shown below:
Additional information:
1. On January 1, 2012, Jasmine purchased 100% of the shares of Lessard for $50,000. At that date the equity of the two entities was as follows:
At January 1, 2012, all the identifiable assets and liabilities of Lessard were recorded at fair value except for the
following:
All of this inventory was sold by December 2012. The plant and equipment had a further five-year life.
2. Jasmine records dividends receivable as revenue when dividends are declared.
3. The opening inventory of Lessard included goods that cost Lessard $2,000. Lessard purchased this inventory from Jasmine at cost plus 33 1/3%.
4. Intragroup sales totaled $10,000 for the year. Sales from Jasmine to Lessard, at cost plus 10%, amounted to $5,600 and are still in the closing inventory of Lessard. The closing inventory of Jasmine included goods that cost it $4,400. Jasmine purchased this inventory from Lessard at cost plus 10%.
5. On December 31, 2012, Lessard sold Jasmine office furniture for $3,000. This furniture originally cost Lessard $3,000 and was written down to $2,500 when sold. Jasmine depreciates furniture at the rate of 10% p.a. on cost.
6. During the year, Jasmine paid rent of $7,000 to Lessard.
7. The tax rate is 30%.
Required
Prepare the consolidated statement of comprehensive income for the year ended December 31, 2013.
P4-8 On April 1, 2013, Abbots acquired all the issued common shares (cum div.) of Evion for $100,000. At that date, relevant balances in the records of Evion were:
Share capital ........ $80,000
Retained earnings ..... 10,000
Dividend payable ...... 4,000
All the identifiable assets and liabilities of Evion were recorded at fair value except for the following:
The plant was expected to have a further five-year life. All the inventory on hand at April 1, 2013, was sold by the end of the financial year. At April 1, 2013, Evion had recorded goodwill of $2,000. As a result of an impairment test on March 31, 2014, Evion wrote goodwill down by $1,500 in its books.The dividend payable was subsequently paid in June 2013.
During the period ending March 31, 2014, intragroup sales consisted of $40,000 from Abbots to Evion at a profit to Abbots of $10,000. These were all sold to external entities by Evion for $42,000 before March 31, 2014. Evion also sold some inventory to Abbots for $10,000. This had cost Evion $6,000. Abbots since has sold all the items to external entities for $8,000, except one batch on which Evion recorded a $500 profit before tax (original cost to Evion was $1,000).
On October 1, 2013, Abbots sold an item, regarded by Abbots as a non-current asset, to Evion. At the time of sale, the item’s carrying amount to Abbots was $28,000, and it was sold to Evion for $30,000. Abbots was using a 10% p.a. depreciation rate applied to cost.
The following information was obtained from the companies for the year ended March 31, 2014:
Required
Prepare the consolidated statement of comprehensive income as at March 31, 2014. Assume a tax rate of 40%.
P4-9 On December 31, 2009, Lara acquired all the issued shares of Jade. On this date, the share capital of Jade consisted of 200,000 shares paid at $0.50 per share. Retained earnings of Jade at this date were $45,000.
At December 31, 2009, all the identifiable assets and liabilities of Jade were recorded at fair value except for some plant and machinery. This plant and machinery, which cost $100,000, had a carrying amount of $85,000 and a fair value of $90,000. The estimated remaining useful life was 10 years. Immediately after acquisition, a dividend of $10,000 was declared and paid out of retained earnings.
The trial balances of Lara and Jade at December 31, 2013, were as shown below:
Additional information:
1. During the current period, Lara sold inventory to Jade for $20,000. This had originally cost Lara $18,200. Jade has, by December 31, 2013, sold half this inventory for $12,310.
2. One of the plant items held by Lara at December 31, 2013, had been purchased from Jade on July 1, 2010, for $25,000. It had a carrying amount to Jade of $17,500. Lara depreciates straight line over 10 years.
3. At January 1, 2011, Jade sold land to Lara for $50,000. This item cost Jade $55,000.
4. The tax rate is 30%.
Required
Prepare the consolidated financial statements as at December 31, 2013.
P4-10 On January 1, 2012, Tilford acquired all the shares of Sifton for $137,200. At acquisition date, the equity of Sifton consisted of:
Share capital ...... $80,000
Retained earnings .... 37,000
On this date, all the identifiable assets and liabilities of Sifton were recorded at fair value except for the following assets:
The inventory and land on hand in Sifton at January 1, 2012, were sold during the following 12 months. The motor vehicles, which at acquisition date were estimated to have a four-year life, were sold on June 30, 2013. The furniture and fixtures were estimated to have a further eight-year life. At January 1, 2012, Sifton had not recorded any goodwill.
The following trial balances were prepared for the companies at December 31, 2013:
Additional information:
1. Intragroup transfers of inventory consisted of:
2012:
Sales from Tilford to Sifton ....... $12,000
Profit in inventory on hand 31/12/12 ..... 200
2013:
Sales from Tilford to Sifton ........ 15,000
Profit in inventory on hand 31/12/13
(incl. $50 from previous period sales) .... 1,000
2. On June 30, 2013, Sifton sold furniture and fixtures to Tilford for $8,000. This had originally cost Sifton $12,000 and had a carrying amount at time of sale of $7,000. Both entities charge depreciation at the rate of 10% p.a. on cost.
3. The tax rate is 40%.
Required
Prepare the consolidated financial statements for the period ended December 31, 2013.
P4-11 On January 1, 2013, Miran acquired all the shares of Winter for $160,000. The financial statements of the two entities at December 31, 2013, contained the following information:
Additional information:
1. At January 1, 2013, all identifiable assets and liabilities of Winter were recorded at fair value except for inventory, for which the fair value was $1,000 greater than the carrying amount. This inventory was all sold by December 31, 2013. At January 1, 2013, Winter had research and development outlays that it had expensed as incurred. Miran measured the fair value of the in-process research and development at $8,000. By December 31, 2013, it was assessed that $2,000 of this was not recoverable. At January 1, 2013, Winter had reported a contingent liability relating to a guarantee that was considered to have a fair value of $7,000. This liability still existed at December 31, 2013. At January 1, 2013, Winter had not recorded any goodwill.
2. The bonds were issued by Winter at par value on January 1, 2012, and are redeemable on December 31, 2016. Miran acquired its holding ($60,000) of these bonds on the open market on January 1, 2013. All interest has been paid and reflected in the records of both entities.
3. During 2013, Miran sold inventory to Winter for $40,000, at a markup of cost plus 25%. At December 31, 2013, $10,000 worth of inventory was still held by Winter.
4. On June 30, 2013, Winter sold land to Miran. Miran paid $30,000 for this land, with Winter having a cost of $24,000.
5. The Other Components of Equity account relates to financial assets, for which an election under IFRS 9 was taken. For 2013, Miran recorded an increase in these assets of $3,000, and Winter recorded a decrease of $2,000.
6. The income tax rate is 40%.
Required
Prepare the consolidated financial statements for Miran and its subsidiary for the year ended December 31, 2013.


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