Parent Ltd acquired 100% interest in Subsidiary Ltd on 1 January 2019. At that date, Subsidiary Ltd.s
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Parent Ltd acquired 100% interest in Subsidiary Ltd on 1 January 2019. At that date, Subsidiary Ltd.’s net assets were represented by its shareholders’ equity consisting of the share capital of $100,000 and retained earnings of $70,000.
On the date of the acquisition, Parent Ltd and Subsidiary Ltd agreed the following;
- Subsidiary’s Land had a fair value of $180,000 (carrying amount $100,000).
- Subsidiary had a patent with a fair value of $100,000 (was not previously recognized in Subsidiary’s book). The patent is to amortize over 10 years on straight line basis.
- Subsidiary had inventories that were $30,000 lower than fair value. These inventories were sold by 30 June 2019.
The following intra-company transactions occurred during the year ending 30 June 2020.
- On 1 May 2020, Subsidiary Ltd purchased goods for $150,000 from Parent Ltd on credit at cost plus 50% mark up. As at 30 June 2020, 40% of the inventory was still on hand and 25% of the amount owing for the sales remain unpaid.
- On 1 June 2019, Parent Ltd sold inventory to Subsidiary Ltd for $85,000, recording a before-tax profit of $30,000. By 30 June 2019, Subsidiary Ltd has sold one-third of these to other entities making profits of $54,000, and the remaining inventory was sold by 30 June 2020 for $132,000 to external parties.
- On 1 December 2019, Parent Ltd sold an item of machinery for $104,000 to Subsidiary Ltd. At the date of sale, Parent Ltd had recorded the asset at a carrying amount of $80,000 (accumulated depreciation: $20,000. depreciation rate: 10% p.a. straight-line method).
- Parent Ltd provided a warehouse to Subsidiary Ltd on 1 March 2019. The rent is $12,000 per annum and payable in arrears 6 monthly on 31 August and 28 February each year. Both companies record accruals.
Prepare the following
- Acquisition analysis at 1 January 2019
- A consolidation worksheet for the year ending 30 June 2020 (use the template provided, add more lines if necessary: show all workings. You do not need to submit the journal entries as these entries will not be marked)
- A consolidated Statement of Changes in Equity for the year ending 30 June 2020.
Related Book For
Financial Accounting and Reporting
ISBN: 978-0273744443
14th Edition
Authors: Barry Elliott, Jamie Elliott
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