Consolidation On 1 July 2015, Fluffy Ltd acquired all the issued shares of Glider Ltd. Fluffy Ltd paid $30 000 in cash and 20 000 shares in Fluffy Ltd valued at $3 per share. At this date, the equity of Glider Ltd consisted of $40 000 share capital and $6000 retained earnings. At 1 July … Continue reading “acquired all the issued shares | My Assignment Tutor”
Consolidation On 1 July 2015, Fluffy Ltd acquired all the issued shares of Glider Ltd. Fluffy Ltd paid $30 000 in cash and 20 000 shares in Fluffy Ltd valued at $3 per share. At this date, the equity of Glider Ltd consisted of $40 000 share capital and $6000 retained earnings. At 1 July 2015, all the identifiable assets and liabilities of Glider Ltd were recorded at amounts equal to their fair values except for: Carrying amountFair valuePlant (cost $150 000)$120 000$123 000Patents90 000105 000Inventory18 00022 500 The plant was considered to have a further 5-year life. The patents were sold for $120 000 to an external entity on 18 August 2015. The inventory was all sold by 30 June 2016. Prepare a consolidation adjustments at 30 June 2017. At 1 July 2015: Net fair value of identifiable assets and liabilities of Glider Ltd = $40 000 + $6 000 (equity) + $4 500 (inventory) + $15 000(patents) + $3 000 (plant) = $68500 Consideration transferred = $90 000 Goodwill = $21500 1. Business combination valuation entries Accumulated depreciation Dr 30 000 Plant Cr 27 000 Business combination valuation reserve Cr 3000 Depreciation expense Dr 600 Retained earnings (1/7/16) Dr 600 Accumulated depreciation Cr 1 200 (1/5 x $3000 p.a. for 2 years) Goodwill Dr 21500 Business combination valuation reserve Cr 21500 2. Pre-acquisition entries At 1/7/15: Retained earnings (1/7/15) Dr 6 000 Share capital Dr 40 000 Business combination valuation reserve Dr 44 000 Shares in Glider Ltd Cr 90 000 At 30/6/17: Retained earnings (1/7/16)* Dr 25 500 Share capital Dr 40 000 Business combination valuation reserve Dr 24 500 Shares in Glider Ltd Cr 90 000 (* =6000+15000+4500) Part 2 Additional information (a) Fluffy Ltd sells certain raw materials to Glider Ltd to be used in its manufacturing process. At 1 July 2016, Glider Ltd held inventory sold to it by Fluffy Ltd in the previous year at a profit of $600. During the 2016–17 year, Fluffy Ltd sold inventory to Glider Ltd for $21 000. None of this was on hand at 30 June 2017. (b) Glider Ltd also sells items of inventory to Fluffy Ltd. During the 2016–17 year, Glider Ltd sold goods to Fluffy Ltd for $4500. At 30 June 2017, inventory which had been sold to Fluffy Ltd at a profit of $300 was still on hand in Fluffy Ltd’s inventory. (c) On 1 July 2016, Glider Ltd sold an item of plant to Fluffy Ltd for $15 000. This plant had a carrying amount in the records of Glider Ltd of $14 000 at time of sale. This type of plant is depreciated at 10% p.a. on cost. (d) On 1 January 2016, Fluffy Ltd sold an item of inventory to Glider Ltd for $18 000. The inventory had cost Fluffy Ltd $16 000. This item was classified by Glider Ltd as plant. Plant of this type is depreciated by Glider Ltd at 20% p.a. (e) On 1 March 2017, Glider Ltd sold an item of plant to Fluffy Ltd. Whereas Glider Ltd classified this as plant, Fluffy Ltd classified it as inventory. The sales price was $9000 which included a profit to Glider Ltd of $1500. Fluffy Ltd sold this to another entity on 31 March for $9900. Solutions: Sales and profit in closing inventory Sales revenue Dr 21 000 Cost of sales Cr 21 000 Sales revenue Dr 4 500 Cost of sales Cr 4 200 Inventory Cr 300 Profit in opening inventory of Glider Ltd Retained earnings (1/7/16) Dr 600 Cost of sales Cr 600 Sale of Plant – current period Proceeds on sale of plant Dr 15 000 Carrying amount of plant sold Cr 14 000 Plant Cr 1 000 Gains on sale of Plant Dr 1 000 Plant Cr 1 000 Accumulated depreciation – plant Dr 100 Depreciation expense Cr 100 (10% x $1000) Sale of Inventory classified as Plant : prior period Retained earnings (1/7/16) Dr 2 000 Plant Cr 2 000 Accumulated depreciation Dr 600 Depreciation expense Cr 400 Retained earnings (1/7/16) Cr 200 (20% x $2000 p.a. for 1.5 years) Sale of Plant classified as Inventory: current period Proceeds on sale of plant Dr 9 000 Carrying amount of plant sold Cr 7 500 Cost of sales Cr 1 500 Gains on sale of Plant Dr 1 500 Cost of Sales Cr 1 500 PQ 23.1 Adjustments where investor prepares and does not prepare consolidated financial statements Piano Ltd has a 30% interest in a joint venture, Mandolin Ltd, in which it invested $50000 on 1 July 2014. The equity of Mandolin Ltd at the acquisition date was: Share capital Retained earnings$ 30000 120000 All the identifiable assets and liabilities of Mandolin Ltd were recorded at amounts equal to their fair values. Profits and dividends for the years ended 30 June 2015 to 2017 were as follows: Profit before taxIncome tax expenseDividends paid2015 2016 2017$80000 70000 60000$30000 25000 20000$80000 15000 10000* Required A. Prepare journal entries in the records of Piano Ltd for each of the years ended 30 June 2015 to 2017 in relation to its investment in the joint venture, Mandolin Ltd. (Assume Piano Ltd does not prepare consolidated financial statements.) B. Prepare the consolidation worksheet entries to account for Piano Ltd’s interest in the joint venture, Mandolin Ltd. (Assume Piano Ltd does prepare consolidated financial statements.) 30% Piano Ltd Mandolin Ltd 1. Journal entries in the accounts of Piano Ltd 1 July 2014Investment in Mandolin LtdDr50 000Cash/PayableCr50 000(Acquisition of shares in Mandolin Ltd)2014 – 2015CashDr24 000Investment in Mandolin LtdCr24 000(Dividend received from Mandolin Ltd: 30% x $80 000)30 June 2015Investment in Mandolin LtdDr15 000Share of profit or loss of associates and joint venturesCr15 000(Recognition of profit in Mandolin Ltd: 30% x $50 000)2015 – 2016CashDr4 500Investment in Mandolin LtdCr4 500(Dividend received: 30% x $15 000)30 June 2016Investment in Mandolin LtdDr13 500Share of profit or loss of associates and joint venturesCr13 500(Recognition of profit in Mandolin Ltd: 30% x $45 000)2016– 2017CashDr3 000Investment in Mandolin LtdCr3 000(Dividend from joint venture: 30% x $10 000)Investment in Mandolin Ltd *Dr12 000Share of profit or loss of associates and joint venturesCr12 000(Recognition of profit in Mandolin Ltd: 30% x $40 000) 2. Consolidation Worksheet Entries 30 June 2013: Investment in Mandolin Ltd Dr 15 000 Share of profit or loss of associates and joint ventures Cr 15 000 (30% x $50 000 Dividend revenue Dr 24 000 Investment in Mandolin Ltd Cr 24 000 (30% x $80 000 30 June 2014: Retained earnings (1/7/15) Dr 9 000 Investment in Mandolin Ltd Cr 9 000 (30% x $(30 000)) Investment in Mandolin Ltd Dr 13 500 Share of profits or losses of associates and joint ventures Cr 13 500 (30% x $45 000) Dividend revenue Dr 4 500 Investment in Mandolin Ltd Cr 4 500 (30% x $15 000) 30 June 2015: Investment in Mandolin Ltd Dr 0 Retained earnings (1/7/16) Cr 0 (30% [$30 000 + $(30 000)]) Investment in Mandolin Ltd Dr 12 000 Share of profit or loss of associates and joint ventures Cr 12 000 (30% x $40 000) Dividend revenue Dr 3 000 Investment in Mandolin Ltd Cr 3 000 (30% x $10 000)
