On 1 July 2016, Parrot Ltd acquired 80%
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On 1 July 2016, Parrot Ltd acquired 80% of the share capital of Squirrel Ltd for $264 800. On that date, the statement of financial position of Squirrel Ltd consisted of:
Share capital
$250 000
General reserve
10 000
Asset revaluation surplus
15 000
Retained earnings
10 000
Liabilities
180 000
$465 000
Cash
$ 35 000
Inventories
70 000
Land
65 000
Plant and equipment
300 000
Accumulated depreciation – plant and equipment
(130 000)
Trademark
100 000
Goodwill
25 000
$ 465 000
At 1 July 2016, all identifiable assets and liabilities of Squirrel Ltd were recorded at fair value except for:
Carrying amount
Fair value
Inventories
$ 70 000
$ 80 000
Land
65 000
85 000
Plant and equipment (cost $200 000)
70 000
90 000
Trademark
100 000
110 000
During the year ended 30 June 2017, all inventories on hand at the beginning of the year were sold, and the land was sold on 28 February 2017 to Outback Ltd for $80 000. The plant and equipment had a further 5-year life beyond 1 July 2016 and was expected to be used evenly over that time. The trademark was considered to have an indefinite life. Any adjustments for differences at acquisition date between carrying amounts and fair values are made in the consolidation worksheet. Parrot Ltd uses the partial goodwill method. The tax rate is assumed to be 30%.
Financial information for Parrot Ltd and Squirrel Ltd for the year ended 30 June 2017 is shown below.
Parrot Ltd
Squirrel Ltd
Sales revenue
$200 000
$172 000
Other income
75 000
30 000
275 000
202 000
Cost of sales
162 000
128 000
Other expenses
53 000
31 000
215 000
159 000
Profit from trading
60 000
43 000
Gains/(losses) on sale of non-current assets
10 000
5 000
Profit before tax
70 000
48 000
Income tax expense
20 000
18 000
Profit for the period
50 000
30 000
Retained earnings (1/7/16)
30 000
10 000
Transfer from general reserve
—
8 000
80 000
48 000
Interim dividend paid
12 000
10 000
Final dividend declared
6 000
4 000
18 000
14 000
Retained earnings (30/6/17)
$ 62 000
$ 34 000
Asset revaluation surplus (1/7/16)
$ 15 000
Gain on revaluation of specialised plant
5 000
Asset revaluation surplus (30/6/17)
$ 20 000
During the year ended 30 June 2017, Squirrel Ltd sold inventories to Parrot Ltd for $8000. The original cost of these items to Squirrel Ltd was $5000. One-third of these inventories were still on hand at the end of the year.
On 31 March 2017, Squirrel Ltd transferred an item of plant with a carrying amount of $10 000 to Parrot Ltd for $15 000. Parrot Ltd treated this item as inventories. The item was still on hand at the end of the year. Squirrel Ltd applied a 20% depreciation rate to this type of plant.
Required:
1. Prepare the acquisition analysis and all consolidation worksheet entries (narrations not required) necessary for preparation of the consolidated financial statements for Squirrel Ltd and its subsidiary for the year ended 30 June 2017.
2. Prepare the consolidated statement of profit or loss and other comprehensive income for Parrot Ltd and its subsidiary at 30 June 2017.
9 years ago
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