Consolidation worksheet entries

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Question 10.15
Consolidation worksheet entries ⋆⋆⋆ LO5
Ron Ltd operates a number of supermarkets with an emphasis on the supply of quality
produce. The operations of Sam Ltd are primarily in the fine fruit market. Believing
that the acquisition of Sam Ltd would enable Ron Ltd to expand its supply of quality
produce to its customers, Ron Ltd commenced actions to acquire the shares of Sam Ltd.
On 1 July 2019, Ron Ltd acquired all the issued shares (cum div.) of Sam Ltd for $247
000. At this date the equity of Sam Ltd consisted of:
Share capital
Reserves
$ 200000
10000
Retained earnings
20000
      On 1 July 2019, Sam Ltd had recorded a dividend payable of $12 000 and goodwill of
$10 000 (net of accumulated impairment losses of $14 000). The dividend was paid in
August 2019. In the previous year’s annual report Sam Ltd had reported the existence
of a contingent liability for damages based upon a lawsuit by a customer who had
slipped on some fallen fruit in one of the stores operated by Sam Ltd. Ron Ltd
calculated that this liability had a fair value of $20  000. Sam Ltd also had some
customer databases that were not recorded as assets but Ron Ltd placed a fair value of
$12 000 on these items. Sam Ltd believed that the databases had a future life of 4 years.
All of the identifiable assets and liabilities of Sam Ltd were recorded at amounts equal
to their fair values except for the following:
Carrying amount Fair value
Plant (cost $240000)
Land
$ 188000
160000
$ 192000
170000
Inventories
40000
48000
             The plant had an expected remaining useful life of 10 years. The land was sold by Sam
Ltd in February 2021. The inventories were all sold by 30 June 2020.
In February 2022, Sam Ltd transferred $6000 of the reserves on hand at 1 July 2019 to
retained earnings. The remaining $4000 was transferred in February 2023.
The court case involving the damages sought by the customer was settled in May 2023.
Sam Ltd was required to pay $15 000 to the customer.
Required
Prepare the consolidation worksheet entries for the preparation by Sam Ltd of its
consolidated financial statements at 30 June 2023.
At 1 July 2016:
Net fair value of identifiable assets
and liabilities of Sam Ltd = ($200 000 + $10 000 + 20 000) (equity)
+ $4 000 (1 – 30%) (plant)
+ $10 000 (1 – 30%) (land)
+ $8 000 (1 – 30%) (inventory)
+ $12 000 (1 – 30%) (data bases)
– $20 000 (1 -30%) (damages payable)
– $10 000 (goodwill)
= $229 800
Consideration transferred
= $247 000 – $12 000 (dividend receivable)
= $235 000
Goodwill
Recorded goodwill
Unrecorded goodwill
Worksheet entries at 30 June 2023:
Business combination valuation entries:
Accumulated depreciation
Plant
Deferred tax liability
= $5 200
52 000
48 000
1 200
= $10 000
= $(4 800)
Dr
Cr
Cr
Business combination valuation reserve
Cr
2 800
Depreciation expense
Retained earnings (1/7/22)
Accumulated depreciation
(1/10 x $4 000 p.a. for 4 years)
Deferred tax liability
Dr
Dr
Cr
400
1 200
1 600
Dr
480
Income tax expense
Retained earnings (1/7/22)
Cr
Cr
120
360
Amortisation expense – data bases
Income tax expense
Retained earnings (1/7/22)
Dr
Cr
Dr
3 000
900
6 300
Transfer from business combination
valuation reserve
Cr
8 400
Transfer from business combination valuation
reserve
Income tax expense
Damages expense
Dr
Dr
Cr
14 000
6 000
15 000
Gain
Cr
5 000
Accumulated impairment losses – goodwill
Business combination valuation reserve
Dr
Dr
14 000
4 800
Goodwill
Pre-acquisition entries:
At 1/7/19:
Retained earnings (1/7/19)
Share capital
Cr
18 800
Dr
Dr
20 000
200 000
Reserves
Dr
10 000
Business combination valuation reserve
Dr
5 000
Shares in Sam Ltd
Cr
235 000
Dividend payable
Dividend receivable
Dr
Cr
12 000
12 000
Note: at 30/6/23 the entry at acquisition date is affected by:
 sale of inventory in prior period
 payment of dividend: $12 000 in prior period
 sale of land in prior period
 transfer from reserves – $6 000 – in prior period
 transfer from reserve – $4 000 – in current period
 settlement of court case in current period
 de-recognition of data bases in current period.
Retained earnings (1/7/22) *
Share capital
Reserves
Dr
Dr
Dr
38 600
200 000
4 000
Business combination valuation reserve Cr
7 600
Shares in Sam Ltd
Cr
235 000
* = $20 000 + $5 600 (BCVR – inventory) + $7 000 (BCVR – land) + $6 000 (reserve
transfer)
Transfer from reserves
4 000
Dr
Reserves
Cr
4 000
Business combination valuation reserve
Transfer from business combination
valuation reserve
(Court case settled)
Dr
14 000
14 000
Cr
Transfer from business combination valuation
reserve
Dr
8 400
Business combination valuation reserve Cr
(Data bases de-recognised)
8 400
QUESTION 11.4
Worksheet journal entries for intragroup transactions: inventories and PPE (LO2, 3, 4)
Sharon Ltd owns all the issued shares of Kelly Ltd. In relation to the following
intragroup transactions, prepare the consolidation adjustment entries for 30 June 2022.
Assume an income tax rate of 30%.
a) On 1 January 2021, Sharon Ltd sold inventories costing $6000 to Kelly Ltd at a
transfer price of $10 000. On 1 September 2021, Kelly Ltd sold half the
inventories back to Sharon Ltd for $5000. Sharon Ltd has none of the
inventories on hand at 30 June 2022. Kelly Ltd’s records show $2500 of the
inventories were sold to an external party at a loss of $500 during the current
year and $2500 of the inventories are still on hand at 30 June 2022.
d) During the period ended 30 June 2021, Sharon Ltd sold inventories to Kelly Ltd
for $18 000, recording a before-tax profit of $6800. Half these inventories were
unsold by Kelly Ltd at 30 June 2021 and one quarter were unsold at 30 June 2022.
(f) On 1 May 2022, Kelly Ltd sold inventories costing $3000 to Sharon Ltd for $3600.
The goods were sold to Sharon Ltd on credit terms of 60 days. At 30 June 2022,
Sharon Ltd has half of the goods still on hand and has only paid Kelly Ltd half of
the invoice amount.
CONSOLIDATION WORKSHEET ENTRIES 30 JUNE 2022
(a) Intragroup sale of inventories in prior period with unrealised profit in opening and
ending inventories and intragroup sale of inventories in current period
Retained Earnings (1/7/21) Dr 4 000
Cost of Sales Cr 4 000
Income Tax Expense Dr 1 200
Retained Earnings (1/7/21) Cr 1 200
Sales Dr 5 000
Cost of Sales Cr 5 000
Cost of Sales Dr 1 000
Inventories Cr 1 000
Deferred Tax Asset Dr 300
Income Tax Expense Cr 300
Calculations
Unrealised profit b/t in opening retained earnings $4000 [= $10 000 – $6000]
Tax effect $1800 [= 30% x $1200]
Current period sale $5000
Inventories still on hand at period end 25% [= $2500 ÷ $10 000]
Unrealised profit b/t in ending inventories $1000 [= $4000 x 25%]
Tax effect $300 [= 30% x $1000]
Combined journal entry
Sales
Retained Earnings (1/7/21)
Deferred Tax Asset
Dr
Dr
Dr
5 000
2 800
300
Income Tax Expense
Cost of Sales
Inventories
Dr
Cr
Cr
900
8 000
1 000
(d) Intragroup sale of inventories in prior period with unrealised profit in opening
and ending inventories
Retained Earnings (1/7/21) Dr 3 400
Cost of Sales Cr 3 400
Income Tax Expense Dr 1 020
Retained Earnings (1/7/21) Cr 1 020
Cost of Sales Dr 1 700
Inventories Cr 1 700
Deferred Tax Asset Dr 510
Income Tax Expense Cr 510
Calculations
Unrealised profit b/t in opening retained earnings $3400 [= $6800 x 50% on hand]
Tax effect $1020 [= 30% x $3400]
Unrealised profit b/t in inventories $1700 [= $6800 x 25% on hand]
Tax effect $510 [= 30% x $1700]
(f) Intragroup sale of inventories in current period with unrealised profit in ending
inventories and outstanding invoice amount
Sales Dr 3 600
Cost of Sales Cr 3 000
Inventories Cr 600
Deferred Tax Asset Dr 180
Income Tax Expense Cr 180
Accounts Payable Dr 1 800
Accounts Receivable Cr 1 800
Calculations
Unrealised profit b/t in ending inventories $600 [= $3600 – $3000]
Tax effect $180 [= 30% x $600]
Outstanding payable/receivable $1800 [=$3600 x 50%]
Question 11.9
Consolidation journal entries for intragroup transactions: inventories, PPE, services
(LO2, 3, 4, 5)
On 1 July 2018, Priscilla Ltd acquired all the issued shares of Lisa Marie Ltd. The
consideration for the acquisition was $30  000 in cash and 20  000 shares in Priscilla Ltd,
valued at $3 per share. At this date, the equity of Lisa Marie Ltd consisted of $66  000
share capital and $6000 retained earnings.
At 1 July 2018, all the identifiable assets and liabilities of Lisa Marie Ltd were recorded
at amounts equal to their fair values except for:
Carrying amount Fair value
Plant (cost $150000)
Patents
$ 120000
90000
$ 123000
105000
Inventories
18000
22500
              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 2018. The inventories were all sold by 30 June 2019.
Additional information
(a) Priscilla Ltd sells certain raw materials to Lisa Marie Ltd to be used in its
manufacturing process. At 1 July 2021, Lisa Marie Ltd held inventories sold to it
by Priscilla Ltd in the previous year at a profit of $600. During the 2021–22 year,
Priscilla Ltd sold inventories to Lisa Marie Ltd for $21  000. None of the
inventories are on hand at 30 June 2022.
(b)
Lisa Marie Ltd also sells items of inventories to Priscilla Ltd. During the 2021–22
year, Lisa Marie Ltd sold goods to Priscilla Ltd for $4500. At 30 June 2022,
inventories which had been sold to Priscilla Ltd at a profit of $300 are still on hand
in Priscilla Ltd’s inventories.
(d)
On 1 January 2021, Priscilla Ltd sold inventories to Lisa Marie Ltd for $18000.
The inventories had cost Priscilla Ltd $16000. This item was classified by Lisa
    Marie Ltd as plant and depreciated at 20% p.a.
CONSOLIDATION FOR 30 JUNE 2022
ACQUISITION ANALYSIS
At 1 July 2018:
=
=
=
$66 000 + $6 000
$72 000
+ $3 000 (1 – 30%) (plant)
+ $15 000 (1 – 30%) (patents)
+ $4 500 (1 – 30%) (inventories)
+ $15 750
$87 750
$90 000
$2 250
=
=
=
=
Net fair value of identifiable assets
WORKSHEET ENTRIES FOR 30 JUNE 2022
Business combination valuation entries:
1. Recognition of fair value adjustment for plant of $3000
Accumulated Depreciation
Dr
30 000
Plant
Cr
27 000
Deferred Tax Liability
Cr
900
Business Combination Valuation Reserve
Cr
2 100
Explanations
Accumulated Depreciation
Dr
30 000
Plant
Cr
30 000
Plant
Dr
3000
Deferred Tax Liability
Cr
900
Business Combination Valuation Reserve
Cr
2 100
2. Depreciation adjustment for plant of $600 p.a. [= $3000 x 20%] for 4 years from 1/7/18
Depreciation Expense Dr 600
Retained Earnings (1/7/21) Dr 1 800
Accumulated Depreciation Cr 2 400
Deferred Tax Liability Dr 720
Income Tax Expense Cr 180
Retained Earnings (1/7/21) Cr 540
Explanations
Current year adjustment to depreciation expense $600 [= $600 x 1 year]
Prior year adjustment to retained earnings (1/7/21) $1800 [= $600 x 3 years]
3. Recognition of purchased goodwill of $2250
Goodwill
Dr
2 250
Business Combination Valuation Reserve
Cr
Pre-acquisition entries:
4. Elimination of investment asset against pre-acquisition equities
Share Capital Dr 66 000
Retained Earnings (1/7/21) Dr 19 650
Business Combination Valuation Reserve Dr 4 350
Shares in Mamie Ltd Cr 90 000
Explanations
Retained earnings $19 650 [= $6000 + ($3150 + $10 500) fair value adjustments after tax for
patents and inventories sold in prior year]
BCVR $4 350 [= $2250 goodwill + $2100 fair value adjustment after tax for plant still on hand]
Check: Fair value adjustments $15 750 [= Retained earn (op.) $13 650 + BCVR (op.) $2100]
Intragroup transactions:
5. Sales in current period of $21 000 with no unrealised profit in ending inventories
Sales Revenue Dr 21 000
Cost of Sales Cr 21 000
6. Sales in current period of $4500 with unrealised profit of $300 in ending inventories
Sales Revenue
Dr
4 500
Cost of Sales
Cr
4 200
Inventories
Cr
300
Deferred Tax Asset
Dr
90
Income Tax Expense
Cr
90
7. Sales in prior period with unrealised profit of $600 in opening inventories
Retained Earnings (1/7/21) Dr 420
Income Tax Expense Dr 180
Cost of Sales Cr 600
Explanations
Retained Earnings (1/7/21) Dr 600
Cost of Sales Cr 600
Income Tax Expense Dr 180
Retained Earnings (1/7/21) Cr 180
10. Sale of inventory in prior period at a profit before tax of $2000 reclassified as plant
Retained Earnings (1/7/21)
Deferred Tax Asset
Dr
Dr
1 400
600
Plant
Cr
2 000
Explanations
Retained Earnings (1/7/21)
Plant
Dr
Cr
2 000
2 000
Deferred Tax Asset
Retained Earnings (1/7/21)
Dr
Cr
600
600

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