Instructions

Lily Bhd $($LB$)$ purchased Roses Bhd $($RB$)$ and Daisy Bhd $($DB$)$ on $1$ Jan $2020.$ On the date of purchase, the Retained Profits and Other Components of Equity $($OCE$)$ of RB and DB were as follows.

$\backslash$begin$\{$tabular$\}\{$lccc$\}$

& Roses Bhd & & Daisy Bhd $\backslash \backslash$

& & & $($RM$)\backslash \backslash$

Retained Profits & $30,000$ & & $20,000\backslash \backslash$

OCE & $20,000$ & & $10,000$

$\backslash$end$\{$tabular$\}$

The Statement of Financial Positions and Comprehensive Income and retained Profits of the three companies for the year ended $2022$ were as follows.

$\backslash$begin$\{$tabular$\}\{|$c$|$c$|$c$|$c$|\}$

$\backslash$hline & $\backslash$begin$\{$tabular$\}\{$l$\}$

$($RM$)\backslash \backslash$

Lily Bhd

$\backslash$end$\{$tabular$\}$ & $\backslash$begin$\{$tabular$\}\{$l$\}$

$($RM$)\backslash \backslash$

Roses Bhd

$\backslash$end$\{$tabular$\}$ & $\backslash$begin$\{$tabular$\}\{$l$\}$

$($RM$)\backslash \backslash$

Daisy Bhd

$\backslash$end$\{$tabular$\}\backslash \backslash$

$\backslash$hline Share capital of RMI each & $300,000$ & $100,000$ & $100,000\backslash \backslash$

$\backslash$hline OCE & $160,000$ & $40,000$ & $30,000\backslash \backslash$

$\backslash$hline Retained profits & $170,000$ & $90,000$ & $70,000\backslash \backslash$

$\backslash$hline Long$-$term loans & $100,000$ & $50,000$ & $30,000\backslash \backslash$

$\backslash$hline Current Liabilities & $170,000$ & $90,000$ & $40,000\backslash \backslash$

$\backslash$hline Loan from LB & $-$ & $50,000$ & $50,000\backslash \backslash$

$\backslash$hline & $900,000$ & $420,000$ & $320,000\backslash \backslash$

$\backslash$hline Property, plant $\backslash$& equipment, at CV & $390,000$ & $220,000$ & $220,000\backslash \backslash$

$\backslash$hline Investments, at a cost & & & $\backslash \backslash$

$\backslash$hline $80,000$ shares in RB$,$ at a cost & $200,000$ & & $\backslash \backslash$

$\backslash$hline $40,000$ shares in DB$,$ at a cost & $150,000$ & & $\backslash \backslash$

$\backslash$hline Current assets & $160,000$ & $200,000$ & $100,000\backslash \backslash$

$\backslash$hline & $900,000$ & $420,000$ & $320,000\backslash \backslash$

$\backslash$hline & $($RM$)$ & $($RM$)$ & $($RM$)\backslash \backslash$

$\backslash$hline & Lily Bhd & Roses Bhd & Daisy Bhd $\backslash \backslash$

$\backslash$hline Profit from operations & $200,000$ & $100,000$ & $100,000\backslash \backslash$

$\backslash$hline Finance costs & $\backslash ((10,000)\backslash )$ & $\backslash ((20,000)\backslash )$ & $\backslash ((20,000)\backslash )\backslash \backslash$

$\backslash$hline Dividends from RB & $8,000$ & $-$ & $-\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$

$1$ Dividends from DB

Profit before tax

Taxation

Profit after tax

Retained profits brought forward

Available for appropriation

Dividends paid

Retained profits carried forward

Additional information:

a$)$ Included in the property, plant $\backslash$& equipment of RB and DB were freehold land at costs of RM$50,000$ and RM$60,000$ respectively. At the date of acquisition of these two companies, the fair value of RB$\text{'}$s land was RM$100,000$ while that of DB was RM$100,000.$ No adjustments have been made in the accounts of these two companies for the fair values and there were no subsequent movements in the freehold land account.

b$)$ On $1$ Jan $2022,$ LB sold Plant $\backslash$& Equipment $($PE$)$ to RB at RM$80,000.$ The PPE's costs to LB were RM$120,000.$ RB classified the assets purchased as another PPE. Depreciation charges for the group are at $\backslash (20\backslash \%\backslash )$ per annum.

c$)$ On $31$ December $2022,$ LB held stocks purchased from DB amounting to RM$100,000($invoiced price$).$ The intercompany sales in the current year amounted to RM$200,000.$ These sales had a profit margin of $\backslash (10\backslash \%\backslash )$ from the invoice price.

d$)$ On $31$ December $2022,$ DB sold Plant $\backslash$& Equipment $($PE$)$ to LB at RM$80,000.$ The PPE's costs to LB were RM$30,000.$ LB classified the assets purchased as another PPE. Depreciation charges for the group are at $\backslash (20\backslash \%\backslash )$ per annum.

e$)$ The intercompany loans were interest$-$free loans.

f$)$ At the end of the year, LB$\text{'}$s RM$10,000$ closing inventories were damaged due to a flash flood. These inventories were unable to be sold. LB can only recover RM$5,000$ from the insurance company.

g$)$ The full goodwill method is to be used for the group. There was no impairment of Goodwill for the current year.

h$)$ Assume an income tax rate of $\backslash (26\backslash \%\backslash )($tax expenses are rounded to simplified calculation$).$ Ignore the tax$-$effect on intercompany transactions.

Required: Required:

a$)$ Prove the status of DB and RB to LB through calculations and supporting reasons. Discuss the financial reporting standards LB will use to record both companies in the group accounts.

$(6$ marks$)$

b$)$ Prepare the journal entries to consolidate LB$\text{'}$s group. Show all your workings.

c$)$ Prepare a worksheet to consolidate the Group.

d$)$ Discuss the impact of disclosing Related Party Transactions to LB$\text{'}$s financial statement.

$(5$ marks$)$