Question 1
On 1 July 2011, Geraldton Ltd acquired 80% of the share capital of Pilbara Ltd for $132 400. On that date, the statement of financial position of Pilbara Ltd consisted of:
Share Capital
$125 000
General Reserve
5 000
Revaluation Reserve
7 500
Retained Earnings
5 000
Liabilities
90 000
$232 500
Cash
$ 30 000
Inventories
35 000
Land
32 500
Plant and equipment
150 000
Accumulated Depreciation
(65 000)
Patent
50 000
$232 500
All the identifiable assets and liabilities of Pilbara Ltd were recorded at fair value except for:
Carrying amount
Fair value
Inventories
$ 35 000
$ 40 000
Land
32 500
42 500
Plant and equipment (cost $100 000)
35 000
45 000
The plant and equipment had a further 5-year life and is depreciated on a straight line basis. The differences between carrying amounts and fair value on acquisition date are adjusted on consolidation. Geraldton Ltd uses the partial goodwill method.
During the year ended 30/6/2012, all inventories on hand at 1/7/2011 were sold. The income tax rate is assumed to be 30%. Also in the current year, Pilbara Ltd sold inventory to Geraldton Ltd for $4000 (cost $2500). One-third of this inventory was on hand at the end of the year.
There were no changes during the year in any element of Geraldtons or Pilbara Ltds equity except for retained earnings.
The following shows financial information for Geraldton Ltd and Pilbara Ltd for the year ended 30/6/2012.
Geraldton Ltd
Pilbara Ltd
Sales revenue
$100 000
$ 86 000
Other income
42 500
17 500
142 500
103 500
Cost of sales
81 000
64 000
Other expenses
26 500
15 500
107 500
79 500
Profit before tax
35 000
24 000
Income tax expense
10 000
9 000
Profit
25 000
15 000
Retained earnings 1/7/2011
15 000
5 000
40 000
20 000
Interim dividend paid
6 000
5 000
Final dividend paid
3 000
2 000
9 000
7 000
Retained earnings 30/6/2012
$31 000
$ 13 000
Required:
(1) Prepare the consolidation worksheet entries necessary for preparation of the consolidated financial statements for Geraldton Ltd and its subsidiary for the year ended 30/6/2012
(2) Prepare the consolidated statement of comprehensive income and statement of changes in equity for Geraldton Ltd and its subsidiary at 30/6/2012.