Prepare the consolidated financial statements for Lead

Consolidated financial statements, rationale for adjustments

Lead beaters Ltd acquired all the issued shares (cum div.) of Possum Ltd on 1 July 2014. At this date the shareholders' equity of Possum Ltd was:

Share capital - 100 000 shares

General reserve

Asset revaluation surplus

Retained earnings

$

450 000

45 000

45 000

15 000

At 1 July 2014, the accounting records of Possum Ltd contained a dividend payable of $15 000.

This dividend was paid in August 2014. All the identifiable assets and liabilities at acquisition date were recorded at amounts equal to their fair values except for:

 

Carrying amount

        Fair value

Plant (cost $290 000)

$220 000

$227 500

Inventory

160 000

175 000

The plant was considered to have a further 4-year life. It was sold on 1 January 2017 for $118 000. The inventory was all sold by 30 June 2015. Possum Ltd did not record a contingent liability relating to a lawsuit by a customer for faulty goods. Possum Ltd considered this liability had a fair value of $18 000. The lawsuit was settled in May 2015 when Possum Ltd was required to pay damages of $20 000.

Additional information

(a) On 1 July 2015, Lead beaters Ltd sold plant to Possum Ltd at a before-tax profit of $6000.

This class of non-current asset is depreciated at 25% p.a. on cost by Lead beaters Ltd while Possum Ltd uses a rate of 10% p.a. on cost.

(b) In June 2016 Possum Ltd sold $50 000 worth of inventory to Lead beaters Ltd at a before-tax profit of $5400. At 30 June 2017, inventory on which Possum Ltd had made a profit of $750 on sale to Lead beaters Ltd was still on hand.

(c) On 10 February 2017, Possum Ltd used the whole of the general reserve existing at 1 July 2014 to pay a bonus dividend of three shares for every ten held.

(d) Both Lead beaters Ltd and Possum Ltd use the valuation method to measure land. In June 2017, Leadbeaters Ltd recorded revaluation increases of $15 000 while Possum Ltd recorded increases of $12 000.

(e) The tax rate is 30%.

Financial information provided by the companies at 30 June 2017 was as follows:

 

Lead beaters Ltd

Possum Ltd

Plant

$  558 750

$  318 000

Accumulated depreciation - plant

(318 000)

(165 000)

Land

531 300

397 500

Shares in Possum Ltd

580 000

-

Inventory

280 000

240 000

Receivables

43 500

22 500

Cash

37 500

15 000

    Total assets

$1 713 050

$  828 000

 

 

 

Dividend payable

15 000

6 000

Other current liabilities

52 050

60 000

Loans

150 000

60 000

    Total liabilities

$  217 050

$  126 000

 

 

 

Share capital

$1 200 000

$495 000

Asset revaluation surplus

225 000

120 000

Retained earnings (1/7/16)

22 500

18 000

Revenues

162 000

210 000

Expenses

(48 000)

(80 000)

Gains/(losses) on sale of non-current assets

6 000

5 000

Tax expense

(52 500)

(60 000)

Dividend declared

(15 000)

(6 000)

    Total equity

$1 500 000

$  702 000

Required

Prepare the consolidated financial statements for Lead Beaters Ltd at 30 June 2017.

Show the following
- acquisition analysis
- consolidation journals
- worksheet entries
- Explain the rationale of intragroup transactions for (a) and (b) above.
- Presentation and referencing


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