Question

0. Part A

   The Wholesale Ltd acquired 80 per cent of the shares of House Construction Ltd on 30 June 2020 for a consideration of $800,000. The share capital and reserves of House Construction Ltd at the date of acquisition were:

Share capital Retained earnings Revaluation surplus

$550,000 $100,000 $150,000

All assets of House Construction Ltd were fairly valued at the date of acquisition, except for a major plant that had a fair value $26,000 greater than its carrying amount. The cost of the plant was $100,000 and it had accumulated depreciation of $85,000. There were no transactions between Wholesale Ltd and House Construction Ltd at the date of acquisition.

In addition, the Wholesale Ltd acquired 100 per cent of the shares of Queensland Retail Ltd on 1 July 2018-that is two years earlier. The cost of investment was $650,000. At that date the capital and reserves of Queensland Retail Ltd were:

Share capital $235,000 Retained earnings $115,000

At the date of acquisition all assets of Queensland Retail Ltd were considered to be fairly valued.

1

Wholesale Ltd incurred the following transactions with Queensland Retail Ltd during financial year 2018-2019:

• On 1 September 2018 Wholesale Ltd sold a machinery to Queensland Retail Ltd for $136,000 when its carrying value in Wholesale Ltd’s book was $100,000 (original cost $200,000 and original estimated life of 8 years).

• From January to June in 2019, Wholesale Ltd made sales of inventory $50,000 to Queensland Retail Ltd for on-sale to external parties. The inventory had originally cost Wholesale Ltd $40,000. At 30 June 2019, Queensland Retail Ltd still had 40 per cent of the inventory on hand. On-hand inventory was expected to be sold in the subsequent financial year.

  Wholesale Ltd incurred the following transactions with Queensland Retail Ltd during financial year 2019-2020:

• During the year Wholesale Ltd made total sales of inventory $70,000 to Queensland Retail

  Ltd for on-sale to external parties. The inventory had originally cost Wholesale Ltd 61,000. At 30 June 2020, half of the inventory was still on hand. On-hand inventory was expected to be sold in the subsequent financial year.

• Wholesale Ltd provided management consultation to Queensland Retail Ltd and this was the first time that Wholesale Ltd provided such service to Queensland Retail Ltd. At the end of 2020, Queensland Retail Ltd paid $3,000 for these services and has a balance of $2,000 payable at year end.

• Queensland Retail Ltd has several long-term loans, including a five-year loan for $55,000 from Wholesale Ltd. This loan was effective from 1 July 2019. Interest rate was 3.5% per annum. During the year ending 30 June 2020, Queensland Retail Ltd paid $1,000 interest on this loan.

  You were appointed as the financial accountant at Wholesale Ltd. As you may have noticed, Wholesale Ltd acquired 80% shares of House Construction Ltd to extend its operation in Australia and it also has an existing wholly owned subsidiary (Queensland Retail Ltd) operating in Queensland.

  You were requested to prepare the followings:

  1. acquisition analysis at 1 July 2018 and adjustment/elimination journal entries for consolidation as at 30 June 2019.

  2. acquisition analysis and adjustment/elimination journal entries for consolidation as at 30 June 2020.

2

After meeting with your supervisor you gathered the following information which you might need to complete your work:

• Wholesale Group Ltd has the following accounting policies for the economic entity:

  • ➢ Revaluation adjustments on acquisition are to be made on consolidation only, not in the books of any subsidiary;

  • ➢ Plant and machinery are depreciated using the straight-line method with no residual value. For part-years, depreciation is to be calculated on the number of months the asset is held in the relevant year.

  • ➢ All calculated amounts are to be rounded to the nearest whole dollar. Companies in the group do not show cents in any journals, worksheets, or financial statements.

  • ➢ Wholesale Ltd measures any non-controlling interests (NCI) at fair value.

• Management team of Wholesale Ltd believes that goodwill acquired from business

  combination was impaired by $10,000 in 2019 and $15,000 in 2020.

• Wholesale Ltd declared and paid dividends $250,000 on 30 June 2019. Queensland Retail Ltd did not declare and distribute dividends to its shareholder for financial year 2018-2019.

• Wholesale Ltd declared dividends $200,000 and paid dividends $150,000 on 30 June 2020.

  Queensland Retail Ltd declared and paid dividends $50,000 on 30 June 2020.

• The company tax rate is 30% and this rate has not changed for several years.

• Reporting date is 30 June.

• Journal narrations are required.

• Number each year consolidation elimination/adjusting journal entries by 1, 2, 3, ..., etc.

  Where more than one journal entry is needed for an event to be completely accounted for add the letters a,b,c,...etc to them as necessary.

((ONLY JOURNAL ENTRIES ARE NEEDED)) ((PLEASE GIVE JOURNAL ENTRIES))

Answer 1

	In the books of Wholesale limited
Year 2018-19
	Particulars	Debit	Credit
a	Assets	350000
	Goodwill	300000
	To cash		650000
	(being investent in queensland )
b	Cash	136000
	To Machinery		100000
	To profit on sale of machinery		36000
	(being machinary sold above carrying value)
c	Accounts receivable	50000
	To sales		50000
	(being sales made to queensland retail)
	Cost of goods sold	40000
	To inventory		40000
	(being inventory sold)
	Cost of goods sold	4000
d	To inventory		4000
	(being gross profit and inventory overstated on inter-company sale is eliminated)
e	Impairment of Goodwill	10000
	To Goodwill		10000
	(being goodwill impaied)
f	Dividend Declared and paid	250000
	To cash		250000
	(being dividends declared and paid)
g	Profit on sale of machinery	36000
	To machinery		360000
	(being gains on intercompany asset sale eliminated)
In Year 19-20
a	Accounts receivable	70000
	To sales		70000
	(being sales made to queensland retail)
	Cost of goods sold	61000
	To inventory		61000
	(being inventory sold)
b	Cost of goods sold	4500
	To inventory		4500
	(being gross profit and inventory overstated on inter-company sale is eliminated)
c	Cash	3000
	Fees Receivable	2000
	To Professional receipts		5000
	(being receipts for management services provided)
d	Cash	1000
	To Interest on loan		1000
	(being interest on loan received)
e	Assets	826000
	Goodwill	139200
	To Cash		800000
	To non-controlling interest		165200
	(Being 80% acquisition of House construction)
	(Assumed fair value of non-controlling interest is proportionated to value of Net assets)
f	Impairment of Goodwill	15000
	To Goodwill		15000
	(being goodwill impaied)
g	Dividend declared	200000
	To dividends payable		200000
	(being dividends declared)
h	Dividends payable	150000
	To cash		150000
	(being dividends paid)

Acquisition Table
Net Assets
Share capital	550000
Retained earnings	100000
Revaluation reserve	150000
Add: Increase in value of asset	26000
Net Assets	826000
Less: Minority interest
=20% of net asset value	165200
Net asset less minortiy interest	660800
Purchase price	800000
Goodwill	139200

In the books of Queenland limited

In year 18-19

Machinery	136000
To cash		136000
(being machinery Purchased)
Inventory	50000
To accounts Payable		50000
(being purchases made from Wholesale Ltd)
Accounts receivable
TO sales
(being 60% inventory sold)
Cost of goods sold	30000
To Inventory		30000
(being cost of goods sold deducted from inventory)
Depreciation	18750
To Machinery		18750
(being depreciation accounted for 9 months from septembet)

In year 19-20

Dividend declared and paid	50000
To cash		50000
(being dividends declared and paid)
Depreciation	25000
To Machinery		25000
(being depreciation accounted)
Professional fees	5000
To cash		3000
To Fees payable		2000
(being fees payable)
Interest on loan	1000
To cash		1000
(being interest on loan paid)