On 1 July 2020, Jupiter Ltd acquired all the issued shares (cum div.) of EON Ltd...

  

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On 1 July 2020, Jupiter Ltd acquired all the issued shares (cum div.) of EON Ltd for $588,000. At this date the equity of EON Ltd consisted of: Share capital Retained earnings On 1 July 2020, EON Ltd had recorded a dividend payable of $18,000, which was subsequently paid in July 2020. All of the identifiable assets and liabilities of EON Ltd were recorded at amounts equal to their fair values except for the following: Inventory Plant (accumulated depreciation of $200,000) $260,000 195,000 Carrying amount $300,000 800,000 Fair value $340,000 850,000 of the inventory on hand at 1 July 2020, only 20% remained unsold by 30 June 2021. The plant on hand at the date of acquisition was expected to have a further useful life of 5 years. The companies in the group use the straight line method of depreciation. 3 During the 2020-21 year, the following transactions occurred: (i) Jupiter Ltd sold inventory to EON Ltd for $50,000 at a profit before tax of $10,000. This inventory had originally cost Jupiter Ltd $40,000. This inventory was still on hand in the books of EON Ltd at 30 June 2021. (i) Jupiter Ltd charged EON Ltd management fees of $24,000. This amount was paid by 30 June 2021. On 1 January 2021, Jupiter Ltd sold fumiture to EON Ltd for $40,000, with a gain on sale of $6,000. The furniture was considered to have a further 5-year life. (iv) At 30 June 2021, an impairment test was conducted on EON Ltd and this resulted in the recognition of an impairment loss on the goodwill on acquisition of $12,000 (this has no tax effect). At 30 June 2021, the directors of EON Ltd declared a dividend of $13,000. This dividend remained unpaid at the end of the year. (vi) The tax rate is 30%. The following financial information was provided by the companies at 30 June 2021: Jupiter Ltd $162 500 Sales revenue Dividend revenue Other income Gains on sale of non-current assets Total income Cost of sales Other expenses Total expenses Profit before income tax Income tax expense Profit for the year Retained earnings (1/7/20) Interim dividend paid Dividend declared Retained earnings (30/6/21) 19 000 62 500 12 500 256 500 (92 500) (10 500) (103 000) 153 500 (45 000) 108 500 205 000 313 500 (10 000) $303 500 Required: a) Prepare the acquisition analysis as at 1 July 2020. EON Ltd $59 000 5 000 5 000 69 000 (45000) (2 500) (47 500) 21 500 (6 500) 15 000 195 000 210 000 (6 000) (13 000) $191 000 (5 marks) b) Prepare the journal entries necessary to prepare consolidated financial statements as at the date of acquisition on 1 July 2020 (8 marks) c) Prepare the journal entries necessary to prepare consolidated financial statements as at 30 June 2021. (22 marks) (Show all workings and narrations) On 1 July 2020, Jupiter Ltd acquired all the issued shares (cum div.) of EON Ltd for $588,000. At this date the equity of EON Ltd consisted of: Share capital Retained earnings On 1 July 2020, EON Ltd had recorded a dividend payable of $18,000, which was subsequently paid in July 2020. All of the identifiable assets and liabilities of EON Ltd were recorded at amounts equal to their fair values except for the following: Inventory Plant (accumulated depreciation of $200,000) $260,000 195,000 Carrying amount $300,000 800,000 Fair value $340,000 850,000 of the inventory on hand at 1 July 2020, only 20% remained unsold by 30 June 2021. The plant on hand at the date of acquisition was expected to have a further useful life of 5 years. The companies in the group use the straight line method of depreciation. 3 During the 2020-21 year, the following transactions occurred: (i) Jupiter Ltd sold inventory to EON Ltd for $50,000 at a profit before tax of $10,000. This inventory had originally cost Jupiter Ltd $40,000. This inventory was still on hand in the books of EON Ltd at 30 June 2021. (i) Jupiter Ltd charged EON Ltd management fees of $24,000. This amount was paid by 30 June 2021. On 1 January 2021, Jupiter Ltd sold fumiture to EON Ltd for $40,000, with a gain on sale of $6,000. The furniture was considered to have a further 5-year life. (iv) At 30 June 2021, an impairment test was conducted on EON Ltd and this resulted in the recognition of an impairment loss on the goodwill on acquisition of $12,000 (this has no tax effect). At 30 June 2021, the directors of EON Ltd declared a dividend of $13,000. This dividend remained unpaid at the end of the year. (vi) The tax rate is 30%. The following financial information was provided by the companies at 30 June 2021: Jupiter Ltd $162 500 Sales revenue Dividend revenue Other income Gains on sale of non-current assets Total income Cost of sales Other expenses Total expenses Profit before income tax Income tax expense Profit for the year Retained earnings (1/7/20) Interim dividend paid Dividend declared Retained earnings (30/6/21) 19 000 62 500 12 500 256 500 (92 500) (10 500) (103 000) 153 500 (45 000) 108 500 205 000 313 500 (10 000) $303 500 Required: a) Prepare the acquisition analysis as at 1 July 2020. EON Ltd $59 000 5 000 5 000 69 000 (45000) (2 500) (47 500) 21 500 (6 500) 15 000 195 000 210 000 (6 000) (13 000) $191 000 (5 marks) b) Prepare the journal entries necessary to prepare consolidated financial statements as at the date of acquisition on 1 July 2020 (8 marks) c) Prepare the journal entries necessary to prepare consolidated financial statements as at 30 June 2021. (22 marks) (Show all workings and narrations)

Answer rating: 100% (QA)

To calculate the consolidated figures for Jupiter Ltd and EON Ltd we need to adjust for the acquisition and the subsequent transactions Lets calculate the consolidated figures step by step 1 Adjust EO... View the full answer