Case Study 7

On 1 July 2017 South Ltd acquired all the share capital of West Ltd for $160,000. At that date the accounts of West Ltd show the following:

Share capital	$100,000
General reserve	30,000
Retained earnings	20,000

Additional information for the year ended 30 June 2017

1. Sales by West Ltd to South Ltd during the year amounted to $ 110,000.

2. Unrealised profit in inventory of South Ltd:

01/07/2016                      $5,000

30/06/2017                      $3,000

3. On 1 January 2010 South Ltd sold an item of plant to West Ltd for $45,000, making a profit on the sale of $10,000. West Ltd depreciates plant at 20% per annum on cost.

4. Included in the other assets of South Ltd is a three-year loan of $20,000 at 15% per annum to West Ltd made on 1 April 2017. Three months interest was accrued by both companies at 30 June 2016.

5. Goodwill is tested annually for impairment; goodwill has been impaired by:

$1,000 for the year ended 30 June 2016; and

$2,000 for the year ended 30 June 2017.

 

• Complete the consolidation worksheet.

Consolidation Worksheet	South Ltd	West Ltd	Eliminations		Consolidated
30 June 2017			Dr	Cr	Statements
Sales	900,000	500,000
Inventory 01/07/2016	70,000	60,000
Purchases	510,000	400,000
	580,000	460,000
Inventory 30/06/2017	90,000	80,000
Less Cost of Goods Sold	490,000	380,000
Gross Profit	410,000	120,000
Expenses	210,000	40,000
	200,000	80,000
Add Other Income
Profit on Sale of Plant	10,000	0
Interest Income	750	0
Dividends from West Ltd	30,000	0
Profit before Tax	240,750	80,000
Less Income Tax expense	90,000	30,000
Profit	150,750	50,000
Retained Earnings 01/07/2016	80,000	40,000
Available	230,750	90,000
Appropriations:
Dividend - Paid	40,000	30,000
Dividend - Declared	50,000	20,000
Total Appropriations	90,000	50,000
Retained Earnings 30/06/2017	140,750	40,000
General Reserve	100,000	50,000
Share Capital	200,000	100,000
Dividend Payable	50,000	20,000
Other Current Liabilities	110,000	60,000
Non-Current Liabilities	60,000	20,000
	660,750	290,000
Shares in West Ltd	160,000	0
Plant and Equipment (net)	260,000	120,000
Inventory	90,000	80,000
Other Assets	150,750	90,000
Goodwill on Consolidation		0
Accum Impairment - Goodwill
	660,750	290,000