The following financial statements of Ripple Ltd and its subsidiary Razan Ltd have been extracted from their
Question:
The following financial statements of Ripple Ltd and its subsidiary Razan Ltd have been extracted from their financial records at 30 June 2023.
Ripple Ltd ($) | Razan Ltd ($) | |
Detailed reconciliation of opening and closing retained earnings | ||
Sales revenue | 1 725 000 | 1 450 000 |
Cost of goods sold | (1 160 000) | (595 000) |
Gross profit | 565 000 | 855 000 |
Dividend revenue—from Razan Ltd | 186 000 | – |
Management fee revenue | 66 250 | – |
Profit on sale of plant | 87 500 | – |
Expenses | ||
Administrative expenses | (77 000) | (96 750) |
Depreciation | (61 250) | (142 000) |
Management fee expense | – | (66 250) |
Other expenses | (252 750) | (192 500) |
Profit before tax | 513 750 | 357 500 |
Tax expense | (153 750) | (105 500) |
Profit for the year | 360 000 | 252 000 |
Retained earnings—1 July 2022 | 798 500 | 598 000 |
1 158 500 | 850 000 | |
Dividends paid | (343 500) | (232 500) |
Retained earnings—30 June 2023 | 815 000 | 617 500 |
Statement of financial position | ||
Shareholders’ equity | ||
Retained earnings | 815 000 | 617 500 |
Share capital | 875 000 | 500 000 |
Current liabilities | ||
Accounts payable | 136 750 | 115 750 |
Tax payable | 103 250 | 62 500 |
Non-current liabilities | ||
Loans | 433 750 | 290 000 |
2 363 750 | 1 585 750 | |
Current assets | ||
Accounts receivable | 148 500 | 155 750 |
Inventory | 230 000 | 72 500 |
Non-current assets | ||
Land and buildings | 560 000 | 815 000 |
Plant—at cost | 749 625 | 889 500 |
Accumulated depreciation | (214 375) | (347 000) |
Investment in Razan Ltd | 890 000 | – |
2 363 750 | 1 585 750 | |
Other information
- RippleLtd had acquired its 80 per cent interest in Razan Ltd on 1 July 2014, that is, nine years earlier. At that date the capital and reserves of Razan Ltd were:
Share capital
$500 000
Retained earnings
$425 000
$925 000
- At the date of acquisition all assets were considered to be fairly valued.
- The management of Ripple Ltd measures any non-controlling interest at the proportionate share of RazansLtd’s identifiable net assets.
- During the year, Ripple Ltd made total sales to Razan Ltd of $162 500, while Razan Ltd sold $130 000 in inventory to Ripple Ltd.
- The opening inventory in Ripple Ltd as at 1 July 2022 included inventory acquired from RazanLtd of $105 000 that had cost Razan Ltd $87 500 to produce.
- The closing inventory in Ripple Ltd includes inventory acquired from Razan Ltd at a cost of $84 000. This had cost Razan Ltd $70 000 to produce.
- The closing inventory of Razan Ltd includes inventory acquired from Ripple Ltd at a cost of $30 000. This had cost Ripple Ltd $24 000 to produce.
- The management of Ripple Ltd believe that goodwill acquired was impaired by $7500 in the current financial year. Previous impairments of goodwill amounted to $56 250.
- On 1 July 2022 Ripple Ltd sold an item of plant to Razan Ltd for $290 000 when its carrying value in RippleLtd’s accounts was $202 500 (cost of $337 500, accumulated depreciation of $135 000). This plant is assessed as having a remaining useful life of six years.
- Razan Ltd paid $66 250 in management fees to Ripple Ltd.
- The tax rate is 30 per cent
- REQUIRED
1.Prepare the consolidation worksheet journal entries for Ripple Ltd and its controlled entity as at 30 June 2023 and post them to a consolidation worksheet.