On 1 July 2021 Garden Ltd acquires 70 per cent of the equity capital of Richards Ltd
Question:
On 1 July 2021 Garden Ltd acquires 70 per cent of the equity capital of Richards Ltd at a cost of $4 million. At the date of acquisition all assets of Richards Ltd are fairly stated, and the total shareholders’ funds of Richards Ltd are $4.4 million, consisting of:
| Share capital | $3 000 000 |
| Retained earnings | $1 400 000 |
| $4 400 000 |
As at 30 June 2023 (two years after the date of acquisition) the financial statements of the two companies are as follows:
| Garden Ltd ($000 | Richards Ltd ($000 | |
| Detailed reconciliation of opening and closing retained earnings | ||
Sales revenue | 800 | 200 |
Cost of goods sold | (200) | (80) |
Other expenses | (120) | (60) |
Other revenue | 310 | 85 |
Profit | 790 | 145 |
Tax | (170) | (35) |
Profit after tax | 620 | 110 |
Retained earnings—1 July 2022 | 2 000 | 1 600 |
| 2 620 | 1 710 | |
Dividends paid | (400) | (80) |
Retained earnings—30 June 2023 | 2 220 | 1 630 |
Statement of financial position | ||
Shareholders’ equity | ||
Retained earnings | 2 220 | 1 630 |
Share capital | 8 000 | 3 000 |
Current liabilities | ||
Accounts payable | 120 | 80 |
Non-current liabilities | ||
Loans | 1200 | 500 |
| 11 540 | 5 210 | |
Current assets | ||
Cash | 300 | 50 |
Accounts receivable | 500 | 350 |
Inventory | 1 000 | 600 |
Non-current assets | ||
Land | 2 800 | 2 210 |
Plant | 2 940 | 2 000 |
Investment in Richards Ltd | 4 000 | _ |
| 11 540 | 5 210 |
Additional information
A. The management of Garden Ltd measures any non-controlling interest in Richards Ltd at fair value.
B. During the 2023 financial year, Richards Ltd sells $45 000 of inventory to Garden Ltd. At year end, Garden Ltd has sold all of this inventory.
The tax rate is 35 per cent.
REQUIRED
1. Calculate Goodwill on acquisition date.
2. Prepare necessary consolidation journal entries for Garden Ltd as at 30 June 2023.
3. Post the journal entries to the consolidation worksheet of Garden Ltd as at 30 June 2023.
4. Prepare the consolidated statement of financial position of Garden Ltd as at 30 June 2023.
5. Prepare consolidated statement of profit or loss and other comprehensive income of Garden Ltd for financial year ended 30 June 2023.
6. Prepare consolidated statement of changes in equity of Peterson Ltd as at 30 June 2023.
Expert Answer:
Answer Wroking Note1 Calculation of Goodwill Particulars Fairvalue Consideration paid for Acquisistion 4000000 Less Fair value of Net Assets 70 440000... View the full answer
