Question 4: Topic 3 and 4 (continued) and Topic 5 - Non-Controlling Interest (35 marks)

On 1 July 2017, Peach Ltd acquired 75% of the issued shares of Watermelon Ltd at a cost of

$35,000. At this date, the equity of Watermelon Ltd consisted of:

Share capital ($1 each fully paid) $30,000

Retained earnings 6,000

At 1 July 2017, Watermelon Ltd had not recorded any goodwill, and all the identifiable assets

and liabilities of Watermelon Ltd were recorded at fair value, except for:

Carrying

amount Fair value

Plant (cost = $15,000) 10,000 14,000

21/09/2021 S-ACC322_202160_A_D Company Accounting @CSU

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The plant was estimated to have a further 5-year life.

The trial balances of the two companies as at 30 June 2021 are as follows:

Peach Ltd Watermelon Ltd

Dr Cr Dr Cr

Share capital $40,000 $30,000

Retained earnings (1/7/20) 26,400 14,500

Other components of equity - 5,000

Current tax liability 8,500 2,900

Plant $30,000 $60,000

Accumulated depreciation plant 17,000 30,500

Shares in Watermelon Ltd 35,000

-

10% debentures in Watermelon Ltd 2,500

-

Inventory 12,000 15,500

Cash 14,050 500

Financial assets - 11,000

Deferred tax asset 2,000 5,000

Sales revenue 50,000 75,000

Cost of sales 34,000 58,500

Gain on sale of plant - 5,000

Selling expenses 4,000 6,000

Other expenses 1,500 1,500

Financial expenses 1,500 2,000

Income tax expense 5,000 5,500

Interest received from debentures 250

-

Dividend revenue 1,800

-

Dividend paid

-

2,400

10% debentures 2,400 5,000

143,950 143,950 167,900 167,900

21/09/2021 S-ACC322_202160_A_D Company Accounting @CSU

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Additional information

a. On 1 January 2021, Watermelon Ltd sold plant to Peach Ltd for $7,000. The plant had a

carrying amount of $2,000 in the records of Watermelon Ltd at time of sale. The asset

was classified as inventory by Peach Ltd. It remained unsold at 30 June 2021.

b. Unrealised profits on inventory held at 30 June 2020: Inventory held by Peach Ltd

purchased from Watermelon Ltd at a profit before tax of $800. This inventory was sold by

30 June 2021.