King Ltd owns all the shares of Smith Ltd. The shares were acquired on 1 July 2018
Question:
King Ltd owns all the shares of Smith Ltd. The shares were acquired on 1 July 2018 by King Ltd at a cost of $720,000. At the acquisition date, the capital of Smith Ltd consisted of 100,000 ordinary shares each fully paid at $3. There were retained earnings of $120,000. All the identifiable assets and liabilities of Smith Ltd were recorded at amounts equal to fair value except for the following:
Carrying Amount | Fair Value | |
Patent | $20,000 | $35,000 |
Land | $110,000 | $150,000 |
Machinery (cost $200,000) | $160,000 | $170,000 |
Patent and land had both been sold in 2019. Machinery has been depreciated at a rate of 10% a year.
Additional information:
- Intragroup sales of inventory for the year ended 30 June 2020 were $50,000. On 30 June 2020, inventory held by King was purchased from Smith at a profit of $5000. 50% of the stock is on hand.
- On 1 July 2019, inventory held by Smith Ltd, was purchased from King in the previous year at a profit of $6000. 0% of the stock is on hand on 30 June 2020.
- Intragroup machinery on hand on 30 June 2020:
- King Ltd: purchased from Smith Ltd on 1 July 2019 for $30,000 at a profit of $3,000. The depreciation rate is 20% per year.
- Smith Ltd had purchased from King Ltd an item of inventory. The carrying amount in King’s records at the time of sale (1 Jan 2019) was $10,000 and it was sold at a profit of $4,000. The inventory is still on hand as of 30 June 2020.
Required:
Prepare all journal entries required for consolidation of King Group Ltd for the year ended 30 June 2020. Show all calculations necessary. A consolidation worksheet is not required.