Question Detail:
The following financial statements of William Ltd and its subsidiary Adam Ltd have been extracted from their financial records at 30 June 2012.
William Ltd
|
Adam Ltd
|
$
|
$
|
$
|
$
|
Extract from Statements of Comprehensive Income and Changes in Equity
|
Sales Revenue
|
1,114,524
|
896,400
|
Cost of Sales
|
(770,240)
|
(395,080)
|
Gross Profit
|
344,284
|
501,320
|
Other Revenue
|
Dividends received from Adam
|
154,380
|
-
|
Management fee revenue
|
43,990
|
-
|
Gain on sale of equipment
|
66,400
|
58,100
|
Expenses
|
General expenses
|
(51,128)
|
(64,242)
|
Selling expenses
|
(167,826)
|
(119,520)
|
Depreciation
|
(48,970)
|
(94,288)
|
Management fee expense
|
-
|
(43,990)
|
Total expenses
|
(267,924)
|
(322,040)
|
Profit before tax
|
341,130
|
237,380
|
Income tax expense
|
(102,090)
|
(70,052)
|
Profit for the period
|
239,040
|
167,328
|
Retained earnings 30 June 2011
|
530,204
|
397,072
|
769,244
|
564,400
|
Dividends paid
|
(228,084)
|
(154,380)
|
Retained earnings 30 June 2012
|
541,160
|
410,020
|
Statements of Financial Position
|
Current assets
|
Cash
|
20,000
|
30,000
|
Accounts receivable
|
78,604
|
73,418
|
Inventory
|
152,720
|
48,140
|
Non-current assets
|
Investment in Adam Ltd
|
590,960
|
-
|
Land
|
371,840
|
541,160
|
Equipment (cost)
|
497,751
|
590,628
|
Accumulated depreciation
|
(142,345)
|
355,406
|
(230,408)
|
360,220
|
Total Assets
|
1,569,530
|
1,052,938
|
Current liabilities
|
Accounts payable
|
90,802
|
76,858
|
Short-term loan payable
|
68,558
|
41,500
|
Non-current liabilities
|
Long-term debt
|
288,010
|
192,560
|
Shareholders’ equity
|
Share capital
|
581,000
|
332,000
|
Retained earnings
|
541,160
|
410,020
|
Total Liabilities & Equity
|
1,569,530
|
1,052,938
|
Other information:
William Ltd acquired the 100 per cent interest in Adam Ltd on 1 July 2007, that is five (5) years earlier.At that time the capital and retained earnings of Adam Ltd were:
Share capital $332,000 Retained earnings$298,800 $630,800
At the date of acquisition all assets were valued at their fair value.
During the year William Ltd made total sales to Adam Ltd of $99,600, and Adam Ltd sold $83,000 of inventory to William Ltd.
The opening inventory in William Ltd as at 1 July 2011 included inventory acquired from Adam Ltd for $66,400 that had cost Adam Ltd $49,800.
The closing inventory of William Ltd includes inventory acquired from Adam Ltd at a cost of $54,780.This inventory had cost Adam $46,480.
The closing inventory of Adam Ltd includes inventory acquired from William Ltd at a cost of $19,920.This inventory had cost William Ltd $16,600.
On 1 July 2011 Adam Ltd sold an item of equipment to William Ltd for $192,560 when its carrying value in Adam Ltd’s books was $134,460 (cost $224,100, accumulated depreciation $89,640).This equipment is assessed as having a remaining useful life of six (6) years.
Adam Ltd paid $43,990 in management fees to William Ltd.
The tax rate is 30 per cent.
Prepare the journal entries necessary for the preparation of consolidated financial statements
2. Prepare a consolidated statement of financial position as at 30 June 2012 and a consolidated statement of comprehensive income and a consolidated statement of changes in equity for the period ended 30 June 2012 for William Ltd and its subsidiaries.
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