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Sky Ltd acquired 80% of the share capital of River Ltd on 1 July 2012. The following equity balances appeared in the records of River Ltd at the date...


Sky Ltd acquired 80% of the share capital of River Ltd on 1 July 2012. The following equity balances appeared in the records of River Ltd at the date of acquisition:


Share capital (210,000 shares)

$210,000

General reserve

6,100

Retained earnings

75,000

Financial information at 30 June 2017 of Sky Ltd and its subsidiary company, River Ltd, is shown below.


Sky Ltd

River Ltd

$

$

Sales revenue

708,000

492,000

Cost of sales

(273,000)

(178,500)

Gross Profit

435,000

313,500

Other revenue:

Debenture interest

10,500

Management fees

10,500

Dividend from River Ltd

16,800

462,300

324,000

Administrative expenses

(31,500)

(16,800)

Distribution expenses

(189,000)

(126,000)

Depreciation on machinery

(31,500)

(31,500)

Finance expenses

(27,600)

(12,000)

Other expenses

(29,400)

(25,200)

Total operating expenses

(309,000)

(211,500)

Profit before tax

153,300

112,500

Income tax expense

(52,500)

(34,500)

Profit after tax

100,800

78,000

Retained earnings (1/7/2016)

105,000

94,500

205,800

172,500

Transfer to general reserve

(6,300)

Interim dividend paid

(31,500)

(21,000)

Final dividend declared

(37,800)

(42,000)

(75,600)

(63,000)

Retained earnings (30/6/2017)

130,200

109,500

General reserve

105,000

36,000

Other components of equity (1/7/2016)

27,300

21,000

Share capital

630,000

210,000

Liabilities:

2


Debentures

255,000

60,000

Deferred tax liability

14,700

Current tax liability

52,500

35,700

Dividend payable

37,800

42,000

Other current liabilities

189,000

25,200

1,426,800

554,100

Cash and cash equivalents

107,100

6,000

Trade receivables

68,250

40,200

Inventory

189,000

58,500

Debentures in Sky Ltd

105,000

Shares in River Ltd

270,000

Machinery (cost)

252,000

214,200

Accumulated depreciation - machinery

(136,500)

(115,500)

Other depreciable assets

159,600

115,500

Accumulated depreciation

(84,000)

(52,500)

Deferred tax asset

179,250

63,000

Land

422,100

119,700

1,426,800

554,100

Additional information


i.   At 1 July 2012, all the identifiable assets and liabilities of River Ltd were recorded at fair value except for the following assets:


Carrying amount

Fair value

Land

$61,500

$79,500

Machinery (cost 135,000)

105,000

120,000

Receivable

40,000

34,000

The machinery has an expected life of 10 years, with benefits being received evenly over that period. Differences between carrying amounts and fair values are adjusted on consolidation. The land on hand at 1 July 2012 was sold on 1 March 2014 for $84,000. Any valuation reserve in relation to the land is transferred on consolidation to retained earnings. By 30 June 2013, receivables had all been collected.


ii.        Sky Ltd uses the full goodwill method. The fair value of the non-controlling interest at 1 July 2012 was $66,000.


iii.   Opening inventory of River Ltd includes unrealised profit of $5,000 on inventory sold by Sky Ltd. It was all sold by River Ltd during the year.


iv.   During the year, intragroup sales by River Ltd to Sky Ltd were $80,000. The mark-up on cost of all sales was 25%. At 30 June 2017, Sky Ltd's inventory included $35,000 of items acquired from River Ltd.


v.   On 1 January 2017, River Ltd sold an item of inventory to Sky Ltd for $18,000 at a profit before tax of $3000. Sky Ltd had treated this item as an addition to its machinery and depreciated at 10% p.a. straight-line.


3


vi.   On 1 April 2017, Sky Ltd sold $15,000 worth of inventory to River Ltd. The cost of this inventory was $9000. By 30 June 2017, River Ltd had sold 60% of the inventory to outside entities.


vii.   Some of the items manufactured by River Ltd are used as machinery by Sky Ltd. One of the machinery items held by Sky Ltd at 30 June 2017 was purchased from River Ltd on 1 January 2016. It had cost River Ltd $17,500 to manufacture this item and was sold to Sky Ltd for $25,000. Sky Ltd depreciates such items at 10% p.a. on cost.


viii.   Management fees derived by Sky Ltd were all from River Ltd and represented charges made for administration.


ix.   The tax rate is 30%.


a)     Calculate NCI share of equity at following dates and prepare the journal entries:


-      1 July 2012; (3 marks)

-      1 July 2012 - 30 June 2016; (4 marks)

-      1 July 2016 - 30 June 2017. (3 marks)


b)     Prepare the consolidation worksheet as at 30 June 2017. (8 marks)

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