For Preparation of Consolidated worksheet, the first step is to prepare the acquisition analysis.
STEP-1
Acquisition Analysis as on 1 July, 2016
Net fair value of assets and liabilities acquired
|
Share capital |
600,000 |
|
Reserves |
120,000 |
|
Retained earnings |
150,000 |
|
Total fair value of assets and liabilities acquired |
870,000 |
|
Consideration paid to acquire Brothers Ltd |
950,000 |
|
Goodwill on acquisition (950,000-870,000) |
80,000 |
STEP-2
Next step is to prepare the pre-acquisition entry for elimination of transaction from the parents books, this is so because the parents book i.e. Sisters Ltd contains the account of Investment in Brothers Ltd which needs to be eliminated.
Hence, the pre-acquisition entry as on the date of purchase i.e. 1 July, 2016 is as below:
Reference No. – a
Share capital Dr. $600,000
Reserves Dr. $120,000
Retained earnings Dr. $150,000
Goodwill Dr. $80,000
To Investment in Brothers Ltd Cr. 950,000
STEP-3
The next step is to prepare the elimination and other consolidation journal entries as on the date of consolidation, i.e. 30 June, 2017.
The first entry is to eliminate the gain on within the group sale of assets and its related tax effects. This entry is required because gain on within the group transaction is the notional gain and hence requires to be eliminated.
Reference No. – b
Gain on sale of vehicle * Dr. $100,000
Vehicle Dr. $600,000
To Accumulated Depreciation Cr. $700,000
* (900000-800000)
Deferred tax asset * Dr. $ 30,000
To Income tax expense Cr. $30,000
*(100,000*30%)
The next entry is to eliminate the excess depreciation charged due to involvement of gain on sale of asset. Hence, this excess depreciation needs to be eliminated so that the income statement reflects true and fair view.
Reference No. – c
Accumulated depreciation Dr. $20,000
To Depreciation expense* Cr. $20,000
* (100,000/5)
Income tax expense * Dr. $6,000
To Deferred tax asset Cr. $6,000
*(20000*30%)
The last entry is to record the impairment loss on goodwill, this is required so that the goodwill is recorded at fair value in the books.
Reference No. – d
Impairment loss Dr. $10,000
To Accumulated impairment loss Cr. $10,000
|
SISTERS LTD. |
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|
Consolidated worksheet |
||||||||
|
For the year ended 30 June 2017 |
||||||||
|
Particulars |
Sisters Ltd |
Brothers Ltd |
Total |
Adjustments |
For Group |
|||
|
Ref. No. |
Dr. |
Ref. No. |
Cr. |
|||||
|
Reconciliation of opening and closing retained earnings |
||||||||
|
Sales revenue |
$ 30,000,000 |
$ 2,200,000 |
$ 32,200,000 |
$ 32,200,000 |
||||
|
less Cost of goods sold |
$ (14,000,000) |
$ (550,000) |
$(14,550,000) |
$(14,550,000) |
||||
|
Gross profit |
$ 16,000,000 |
$ 1,650,000 |
$ 17,650,000 |
$ 17,650,000 |
||||
|
Other income |
||||||||
|
Gain on sale of fixed asset |
$ 6,000,000 |
$ 100,000 |
$ 6,100,000 |
b |
$100,000 |
$ 6,000,000 |
||
|
Expenses |
$ – |
$ – |
||||||
|
Depreciation |
$ (2,000,000) |
$ (400,000) |
$ (2,400,000) |
c |
$ 20,000 |
$ (2,380,000) |
||
|
Other expenses |
$ (3,800,000) |
$ (200,000) |
$ (4,000,000) |
d |
$ 10,000 |
$ (4,010,000) |
||
|
Profit before tax |
$ 16,200,000 |
$ 1,150,000 |
$ 17,350,000 |
$ 17,260,000 |
||||
|
Tax expense (30 % Tax Rate) |
$ (4,860,000) |
$ (345,000) |
$ (5,205,000) |
c |
$ 6,000 |
b |
$ 30,000 |
$ (5,181,000) |
|
Profit after tax |
$ 11,340,000 |
$ 805,000 |
$ 12,145,000 |
$ 12,079,000 |
||||
|
Retained earnings-1 July 2016 |
$ 6,000,000 |
$ 150,000 |
$ 6,150,000 |
a |
$150,000 |
$ 6,000,000 |
||
|
Retained earnings-30 June 2017 |
$ 17,340,000 |
$ 955,000 |
$ 18,295,000 |
$ 18,079,000 |
||||
|
Statement of financial position |
||||||||
|
Shareholders’ equity |
||||||||
|
Retained earnings – 30 June 2017 |
$ 17,340,000 |
$ 955,000 |
$ 18,295,000 |
$ 18,079,000 |
||||
|
Share capital |
$ 10,000,000 |
$ 600,000 |
$ 10,600,000 |
a |
$600,000 |
$ 10,000,000 |
||
|
Reserves |
$ – |
$ 120,000 |
$ 120,000 |
a |
$120,000 |
$ – |
||
|
Current liabilities |
$ – |
$ – |
$ – |
|||||
|
Tax payable |
$ 5,600,000 |
$ 20,000 |
$ 5,620,000 |
$ 5,620,000 |
||||
|
Non-current liabilities |
$ – |
|||||||
|
Loans |
$ 4,000,000 |
$ 750,000 |
$ 4,750,000 |
$ 4,750,000 |
||||
|
Total Liabilities |
$ 36,940,000 |
$ 2,445,000 |
$ 39,385,000 |
$ 38,449,000 |
||||
|
Current assets |
||||||||
|
Cash |
$ 5,000,000 |
$ 800,000 |
$ 5,800,000 |
$ 5,800,000 |
||||
|
Accounts receivable |
$ 7,500,000 |
$ 335,000 |
$ 7,835,000 |
$ 7,835,000 |
||||
|
Inventory/stock |
$ 6,200,000 |
$ 520,000 |
$ 6,720,000 |
$ 6,720,000 |
||||
|
Non-current assets |
$ – |
$ – |
||||||
|
Land |
$ 14,290,000 |
$ 320,000 |
$ 14,610,000 |
$ 14,610,000 |
||||
|
Vehicles, at cost |
$ 3,450,000 |
$ 500,000 |
$ 3,950,000 |
b |
$600,000 |
$ 4,550,000 |
||
|
Vehicle-accumulated depreciation |
$ (450,000) |
$ (30,000) |
$ (480,000) |
c |
$ 20,000 |
b |
700,000 |
$ (1160,000) |
|
Investment in Brothers Ltd |
$ 950,000 |
$ – |
$ 950,000 |
a |
$950,000 |
$ – |
||
|
Deferred tax asset |
$ – |
$ – |
b |
$ 30,000 |
c |
$ 6,000 |
$ 24,000 |
|
|
Goodwill |
$ – |
$ – |
a |
$ 80,000 |
$ 80,000 |
|||
|
Accumulated impairment loss – Goodwill |
d |
$ 10,000 |
$ (10,000) |
|||||
|
Total Assets |
$ 36,940,000 |
$ 2,445,000 |
$ 39,385,000 |
$ 38,449,000 |
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