QUESTION
Using the information below and on the next two pages, prepare the following as at 30th June 2014:
PART A: Adjustment/elimination journal entries for consolidation at that date; and
PART B:Detailed calculation of non controlling interest balance and consolidation worksheet; and
PART C:Consolidated financial statements and statements of changes in equity for the group and parent.
INFORMATION
For the year ended 30 June 2012:
1. On 1 July 2011 Harbour Ltd created a group entity when it purchased 80% of the issued capital of Bridge Ltd for $440,000 cash. On acquisition Bridge Ltd’s accounts showed: Share capital $300,000 and Retained earnings $125,000. All assets and liabilities appearing in Bridge Ltd’s financial statements were fairly valued, except:
· An item of Bridge Ltd’s plant, that had originally cost $157,000 and had a carrying value of $100,480, was undervalued by $30,000. The plant was still on hand at 30 June 2014.
· Bridge Ltd had an internally developed identifiable intangible asset, a patent, with a fair value of $35,000.
During the year Bridge Ltd made sales of inventory to Harbour Ltd of $70,200. Harbour Ltd’s closing inventories on 30 June 2012 included $33,600 bought from Bridge Ltd (which included the intragroup mark up on original cost price).
For the year ended 30 June 2013:
2. On 1 January 2013 it was decided that goodwill acquired in Bridge Ltd should be marked down at a rate of 10% per annum from this date forward (% based on the original value you calculated at acquisition).
3. Also on 1 January 2013 Harbour Ltd sold plant to Bridge Ltd for $35,000. This was financed by a short term interest free loan from Harbour Ltd. The plant had originally cost $82,000 when purchased on 1 January 2010.
Harbour Ltd declared and paid dividends of $50,000 for the year. Bridge Ltd did not declare or pay any dividends for the year.
For the year ended 30 June 2014:
4. During the year Bridge Ltd made sales of inventory to Harbour Ltd of $88,100.
5. Harbour Ltd’sinventories included the following amounts bought from Bridge Ltd (which included the intragroup mark up on original cost price): Closing inventory on 30 June 2014 was $13,300; and Opening inventory on 1 July 2013 was $9,100.
6. Harbour Ltd charged management fees to Bridge Ltd.
7. Dividends were declared/paid by both companies.
8. Non controlling interests to be recognized.
ADDITIONAL INFORMATION:
· The company tax rate is currently 30% and it has been this rate for many years.
· Harbour has the following accounting policies for the group:
(i) Revaluation adjustments on acquisition are to be made on consolidation only, not in the books ofany subsidiary;
(ii) Non controlling interests are measured at the proportionate share of a subsidiary’s identifiable net assets;
(iii) Intragroup sales of inventory to be at a markup of 40% on cost;
(iv) Plant is depreciated using the diminishing value method at a rate of 20% p.a. (also known as thedeclining balance or diminishing balance method); and
(v) All calculated amounts to be rounded to the nearest whole dollar.
|
AT 30 JUNE 2014 |
HARBOUR LTD |
BRIDGE LTD |
|
$ |
$ |
|
|
INCOME STATEMENTS |
||
|
Sales revenue |
1,413,500 |
978,300 |
|
Cost of goods sold |
798,000 |
508,300 |
|
Gross profit |
615,500 |
470,000 |
|
Other income |
|
|
|
Management fee revenue |
22,600 |
|
|
Dividend revenue |
69,800 |
|
|
Expenses |
|
|
|
Depreciation expense |
(126,200) |
(49,000) |
|
Management fee expense |
|
(22,600) |
|
Other expenses |
(326,100) |
(263,800) |
|
Profit before tax |
255,600 |
134,600 |
|
Income tax expense |
(76,680) |
(40,380) |
|
Profit for the year after tax |
178,920 |
94,220 |
|
Retained earnings at start of year |
59,120 |
134,320 |
|
Dividend paid/declared |
(150,000) |
(86,000) |
|
Retained earnings at year end |
88,040 |
142,540 |
|
|
|
|
|
BALANCE SHEETS |
|
|
|
Equity |
|
|
|
Share capital |
850,000 |
300,000 |
|
Retained earnings |
88,040 |
142,540 |
|
Current Liabilities |
|
|
|
Accounts payable |
191,960 |
115,860 |
|
Income tax payable |
95,900 |
66,700 |
|
Dividends payable |
75,000 |
50,000 |
|
Non Current Liabilities |
|
|
|
Loans |
950,000 |
565,100 |
|
Provision for employee benefits |
21,900 |
19,400 |
|
Deferred tax liability |
6,900 |
|
|
|
2,279,700 |
1,259,600 |
|
Current Assets |
|
|
|
Accounts receivable |
276,300 |
104,100 |
|
Allowance for doubtful debts |
(15,500) |
(7,000) |
|
Dividends receivable |
40,500 |
|
|
Inventory |
112,100 |
144,200 |
|
Non Current Assets |
|
|
|
Land and buildings |
800,000 |
610,800 |
|
Plant – at cost |
901,200 |
601,200 |
|
Accumulated depreciation – plant |
(294,900) |
(194,400) |
|
Deferred tax asset |
|
700 |
|
Shares in Opera House Ltd |
20,000 |
|
|
Investment in Bridge Ltd |
440,000 |
|
|
|
2,279,700 |
1,259,600 |
NOTE:
· You MUST number your journal entries as they relate to the point numbers for each “event” as given in the information. Where more than one journal is needed for an “event” to be completely accounted for add the letters a,b,c,…etc to them as necessary. [For example, if three separate journal entries are required to fully record the information detailed in point number 1, then the first journal will be 1a and the second is to be 1b and the third 1c.] Short narrations are expected for each journal entry. Marks will be lost if journals are not presented in a clear and professional manner (i.e. poor or unclear presentation can include showing the debit entry on one page but the credit entry on another, or not clearly distinguishing between debit and credit entries).
· The required statements for both the group and the parent company are: the statement of comprehensive income, statement of financial position, and statement of changes in equity. Follow the formats shown in Chapter 29 of the textbook. Notes to the statements are not required. Marks will be lost if statements are not presented in a clear and professional manner (i.e. poor or unclear presentation can include splitting the reports over two pages, so start each statement on a new page!).
· You may “cut and paste” the financial information on the next page into your excel file, but no other information is to be copied into your file from anywhere else.
· You are expected to use at least the basic formula functions in Excel when preparing worksheets and financial statements (i.e. use Excel formulas to add totals and sub totals etc, rather than calculating values manually and then just typingthem in to the spreadsheet!).