Financial Accouting

    Weight of overall mark: 25%

    Submission: Please email soft copy solutions to your lecturer. Please keep a copy for your own records.

    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.

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