Question: 4

Statement of financial position

Clark Ltd ($) Smith Ltd($)

Shareholders equity

Retained earnings. 407500 308750

Share capital 437500 250,000

Current liabilities

Accounts payable 57875

Tax payable 100 000 31 250

Non-current liabilities Loans

236 000 145 000

Equity and liabilities 1 181 000 792 875

Current assets

Accounts receivable 74 250 77 875

Inventory 115 000 36 250

Non-current assets

Land and buildings 198 750 407 500

Plantat cost 400 000 444 750

Accumulated depreciation (107 000) (173 500)

Investment in Smith Ltd 500 000

Total assets 1 181 000 792 875

Other information

Clark Ltd acquired its 100 per cent interest in Smith Ltd on 1 July 2008that is seven years earlier. The cost of the investment was $500 000. At that date the capital and reserves of Smith Ltd were:

$

Share capital. 250 000

Retained earnings. 200 000

450 000

At the date of acquisition all assets were considered to be fairly valued.

During the year Clark Ltd made total sales to Smith Ltd of $81 250, while Smith Ltd sold $65 000 in inventory to Clark Ltd.

The opening inventory in Clark Ltd as at 1 July 2014 included inventory acquired from Smith Ltd for $52 500 that cost Smith Ltd $43 750 to produce.

The closing inventory in Clark Ltd includes inventory acquired from Smith Ltd at a cost of $42 000. This cost Smith Ltd $35 000 to produce.

The closing inventory of Smith Ltd includes inventory acquired from Clark Ltd at a cost of $15 000. This cost Clark Ltd $12 000 to produce.

The management of Clark Ltd believes that goodwill acquired was impaired by $3 750 in the current financial year. Previous impairments of goodwill amounted to $20 000.

On 1 July 2014 Clark Ltd sold an item of plant to Smith Ltd for $145 000 when its carrying value in Clark Ltds accounts was $101 250 (cost $168 750, accumulated depreciation $67 500). On this date, the plant was assessed as having a remaining useful life of six years.

Smith Ltd paid $33 125 in management fees to Clark Ltd.

The tax rate is 30 per cent. Quest.

Required:

(a) Prepare the consolidation entries for the elimination of Clark Ltds investment in Smith Ltd and the recognition of goodwill on consolidation for the year ending 30 June 2015.

(b) Prepare the consolidation journal entries for the elimination of intercompany sale of inventory on consolidation for the year ending 30 June 2015.

(c) Prepare the consolidation journal entries for the elimination of intercompany sale of plant on consolidation for the year ending 30 June 2015.

(d) Prepare the consolidation journal entry for the impairment of goodwill for the year ending 30 June 2015.

(e) Prepare the consolidation journal entry for the elimination of the intercompany management fees transaction, for the year ending 30 June 2015.

(f) Prepare the consolidation journal entry for the elimination of intercompany dividend payments for the year ending 30 June 2015.