BAO5525 Financial And Corporate Accounting : Solution Essays

CONSOLIDATION ASSIGNMENT

The following financial statements of Dandy Ltd and its subsidiary Candy Ltd have been extracted from their financial records at 30 June 2017.

			Dandy Ltd	Candy Ltd
		$		$
Reconciliation of opening and
Closing retained earnings
Sales revenue		1 000 000		750 000
Cost of goods sold		(600 000)		(300 000)
*Gross profit*		400 000		450 000
Dividends received from Candy Ltd		100 000		–
Management fee revenue		50 000		–
Profit on sale of plant		50 000		–
*Expenses*
Administrative expenses		(30 000)		(40 000)
Depreciation		(30 000)		(80 000)
Management fee expense		–		(50 000)
Other expenses		(150 000)		(80 000)
Profit before tax			390 000		200 000
Income Tax expense		(87 000)		(75 000)
*Profit for the year*			303 000		125 000
Retained earnings- 30 June 2016		400 000		325 000
			703 000		450 000
Dividends paid		(153 000)		(100 000)
Retained earnings – 30 June 2017			550 000		350 000
*Balance Sheet*
*Shareholders’*	*Equity*
Retained earnings		550 000		350 000
Share capital		500 000		300 000
*Current liabilities*
Accounts payable		–		210 000
Tax payable		140 000		40 000
*Non-current liabilities*
Loans			310 000		420 000
*Current assets*			1 500 000	1 320 000
*Current assets*
Accounts receivable		50 000		70 000
Inventory		150 000		450 000
*Non-current assets*
Land and buildings		300 000		500 000
Plant-at cost		450 000		500 000
Accumulated depreciation		(100 000)		(200 000)
Investment in Candy Ltd		650 000		–

			1 500 000		1 320 000

Other information

Dandy Ltd acquired its 100 per cent interest in Candy Ltd on 1 July 2009. The cost of the

investment was $650 000. At that date the capital and reserves of Candy Ltd were:

	$
Share capital	300 000
Retained earnings	200 000
	500 000

At the date of acquisition all assets were considered to be fairly valued except for the following assets:

	Carrying	Fair
	amount	Value
Plant (cost $130,000)	$100,000	$110,000
Land	120,000	140,000

The plant had a further ten-year life, with benefits expected to be received evenly over that period.

During the year Dandy Ltd made total sales to Candy Ltd of $100 000, while Candy Ltd sold $90 000 in inventory to Dandy Ltd.

The opening inventory in Dandy Ltd as at 1 July 2011 included inventory acquired from Candy Ltd for $50 000 that cost Candy Ltd $40 000 to produce.

The closing inventory in Dandy Ltd includes inventory acquired from Candy Ltd at a cost of $50 000. This cost Candy Ltd $35 000 to produce. The closing inventory of Candy Ltd includes inventory acquired from Dandy Ltd at a cost of $20 000. This cost Dandy Ltd $15 000.

The management of Dandy Ltd believe that goodwill acquired was impaired by $6 000 in the current financial year. Previous impairments of goodwill amounted to $20 000.

On July 1, 2011 Dandy Ltd sold an item of plant to Candy Ltd for $200 000 when its carrying value in Dandy Ltd’s accounts was $150 000 (cost $250 000, accumulated depreciation $100 000). This plant is assessed as having a remaining useful life of 4 years.

Candy Ltd paid $50 000 in management fees to Dandy Ltd. The tax rate is 30 per cent.

Using Microsoft Excel you are required to,

Prepare the acquisition analysis on 1 July 2009.
Prepare consolidation journal entries for the period ended at 30 June 2017.
Prepare the consolidation worksheet for the period ended 30 June 2017.
Prepare the Consolidated Financial Statements for the year ended 30 June 2017.

CONSOLIDATION WORKSHEET

	Dandy Ltd	Candy Ltd	Eliminations			Consol.
	( $000)	( $000 )		( $000)		( $000 )
			Dr		Cr	( $000 )
Sales Revenue	1 000	750
	1 000	750
Cost of Goods Sold	600	300
	600	300
Gross Profit	400	450
	400	450
*Other Revenue*
Dividends from Candy	100
	100
Management Fee Rev.	50
	50
Profit – sale of Plant	50
	50
*Expenses*
Administrative Exp	30	40
	30	40
Depreciation	30	80
	30	80
Management Fee Exp		50
		50
Other Exp	150	80
	150	80
Profit before tax	390	200
	390	200
Tax Expense
	87	75
*Profit for Year*	303	125
	303	125
Retained Earn 30/6/16	400	325
	400	325
	703	450
Dividends Paid	153	100
	153	100
Retained Earn 30/6/17	550	350
	550	350

CONSOLIDATION WORKSHEET

	Dandy Ltd	Candy Ltd	Eliminations			Consol.
	($000)	($000)		($000)		($000)
			Dr		Cr
*BALANCE SHEET*
*Shareholders Equity*
Retained Earnings	550	350
Share Capital	500	300
*Current Liabilities*
Accounts Payable		210
Tax Payable	140	40
*Non Current Liabilities*
Loans	310	420
*Total Equities*	1500	1320
*Current Assets*
Accounts Receivable	50	70
Inventory	150	450
*Non Current Assets*
Deferred Tax Asset
Land & Buildings	300	500
Plant at cost	450	500
Accum Deprecation	(100)	(200)
Investment in Candy Ltd	650
Goodwill
Accum Impair Losses
*Total Assets*	1500	1320