Consolidated financial statements from worksheet with adjustment entries for inventories,

PPE, and dividends

On 1 July 2019, Dexin Ltd acquired all the issued shares of Rumer Ltd. At this date, the shareholders’

equity of Rumer Ltd was:

Share capital — 100  000 shares $ 450  000

General reserve 45 000

Asset revaluation surplus 45 000

Retained earnings 15 000

All the identifiable assets and liabilities at acquisition date were recorded at amounts equal to their fair values except for:

Carrying amount Fair value

Plant (cost $290 000) $ 220 000 $ 227 500

Inventories 160 000 175 000

The plant was considered to have a further 5-year life. It was sold on 1 January 2022 for $118 000. The inventories were all sold by 30 June 2020. At the acquisition date, Rumer Ltd also had a contingent liability relating to a lawsuit by a customer for faulty goods with a fair value of $18 000. The lawsuit was settled in May 2020 when Rumer Ltd was required to pay damages of $20 000.

Additional information

(a) On 1 July 2020, Dexin Ltd sold the plant to Rumer Ltd at a before-tax profit of $6000. Dexin Ltd

depreciated this asset at 20% p.a. on cost, while Rumer Ltd uses a rate of 10% p.a. on cost.

(b) In June 2021, Rumer Ltd sold $50  000 worth of inventories to Dexin Ltd at a before-tax profit of $5400.

At 30 June 2022, Dexin Ltd still had some of these inventories on hand. The profit that had been made by

Rumer Ltd on the remaining inventories was $750.

(c) In June 2022, Rumer Ltd declared a dividend of $6000 that will be paid in August 2022.

(d) Both Dexin Ltd and Rumer Ltd use the revaluation model to measure land. In June 2022, Dexin Ltd

recorded revaluation increases of $15  000, while Rumer Ltd recorded increases of $12  000.

(e) The tax rate is 30%.

ACC705

Financial information provided by the companies for 30 June 2022 was as follows:

Dexin Ltd Rumer Ltd

Plant $ 558 750 $ 318 000

Accumulated depreciation — plant (318 000) (165 000)

Land 531 300 397 500

Shares in Rumer Ltd 594 000 —

Inventories 270 000 240 000

Receivables 43 500 22 500

Cash    37 500 15 000

Total assets $ 1 717 050 $ 828 000

Dividend payable 15 000 6 000

Other current liabilities 52 050 60 000

Loans 150 000 60 000

Total liabilities $ 217  050 $ 126  000

Share capital $ 1  200  000 $ 450  000

General reserve — 45 000

Asset revaluation surplus 225  000 120  000

Retained earnings (1/7/21) 22 500 18 000

Revenues 162 000 210 000

Expenses (48 000) (80 000)

Gains on sale of non-current assets 6 000 5 000

Income tax expense (52 500) (60 000)

Dividend declared (15 000) (6 000)

Total equity $ 1 500  000 $ 702  000

Required

1. Calculate acquisition analysis as at 1 July 2019

2. Prepare the consolidation journal entries for 30 June 2022

3. Complete the consolidated worksheet for 30 June 2022

4. Prepare the consolidated financial statements at 30 June 2022

5. Write a report to explain the consolidation worksheet entries for the intragroup transactions as per

AASB10.

Answer rating: 100% (QA)

1 Acquisition analysis as at 1 July 2019 Consideration transferred Fair value of shares issued by Dexin Ltd 100000 shares x 450 per share 450000 Recognise identifiable assets and liabilities at fair v... View the full answer