Every year during the European summer, Gino and his family travel to Italy for a holiday where they have a holiday home. It is the one time of the year that Gino can truly get away and think and it is often when he has his best business ideas.   As a result of the last trip, a new growth plan was formed where he wants to increase the level of vertical integration in the business and build on the strategy of being able to offer a one stop shop for his clients.

Gino feels that one service he can’t really provide to the market at the moment is to provide house and land packages, particularly targeting the first home owner. However, in order to do this, he needs to be able to secure large parcels of land that he can sell with a building contract. Rather than create this business himself, he decides that he wants to buy a share in an existing property development business. After several months of searching and negotiating, on 1 July 2015, Gino acquires a 50% interest in LandStock Pty Ltd for $5m. (GINO owns 100% of Gino wines Pty Ltd)

Anna warns Gino that as a result of this transaction and the establishment of Gino Wines Pty Ltd, that they will need to prepare consolidated accounts which will increase the level of complexity and the amount of time that she takes to complete these. She is reviewing the information that she has on these entities and has compiled a list of questions to ask the external accountant in relation to how to account for these entities. Some of the important details that she has found include;

(1) During the year, Gino Wines Pty Ltd sold wine for $15000 to Gino Constructions Pty Ltd. This wine cost Gino Wines Pty Ltd $8000 to produce and the 50% of the stock sold was produced in the prior year and the balance in the current year. All of the wine has been distributed to suppliers and customers as Xmas gifts and for other marketing purposes before the end of the year. However, Gino Constructions has only paid Gino Wines for $10000 of this wine.

(2) Gino Wines declared and paid a $100000 dividend during the year.

(3) Gino is by far the largest shareholder in Landstock Pty Ltd, with the other 50% of shares being spread between 10 other unrelated shareholders, many of whom are foreigners and play no part in the decision making of the organisation. The company is currently run by an employed CEO who also has a 10% stake in the company. Gino’s shares were acquired from another overseas shareholder who was looking to liquidate his Australian assets.

(4) On 1 July 2015, all identifiable assets & liabilities were recorded at fair value except their business premises where the fair value was $150000 greater than cost. The NCI fair value was $3m. Landstock’s equity at the date of acquisition consisted of Share capital of $4m and Retained earnings of $1m.

Question

Complete the consolidation intra group journals for the sale of the wine and the dividend

Answer rating: 100% (QA)

As per Regulatory standards it stated that accounts should be consolidated if one has control over ... View the full answer