question archive The following three entities make up an economic group as follows: Apple Ltd purchased 60% of the shares totalling $65,000 in Banana Ltd and Banana Ltd wholly owns Cherry Ltd which was purchased for $52,000
The following three entities make up an economic group as follows: Apple Ltd purchased 60% of the shares totalling $65,000 in Banana Ltd and Banana Ltd wholly owns Cherry Ltd which was purchased for $52,000
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The following three entities make up an economic group as follows:
Apple Ltd purchased 60% of the shares totalling $65,000 in Banana Ltd and Banana Ltd wholly owns Cherry Ltd which was purchased for $52,000. Both investments were acquired on 1 July 2018. On this date, shareholders’ equity was valued at:
|
Banana Ltd |
Cherry Ltd |
|
|
Share capital |
75,000 |
20,000 |
|
General reserve |
10,000 |
1,000 |
|
Retained earnings |
16,000 |
4,500 |
The financial statements of the entities within the group at 30 June 2020 are as follows:
Apple Ltd:
|
Total assets |
295,000 |
|
Total liabilities |
126,000 |
|
Share capital |
100,000 |
|
General reserve |
30,000 |
|
Retained earnings |
39,000 |
Banana Ltd:
|
Debentures in Cherry Ltd |
20,000 |
|
Total assets |
147,000 |
|
Total liabilities |
17,750 |
|
Share capital |
75,000 |
|
General reserve |
16,250 |
|
Retained earnings |
38,000 |
Cherry Ltd:
|
Total assets |
66,500 |
|
Debentures |
25,000 |
|
Total liabilities |
30,250 |
|
Share capital |
20,000 |
|
General reserve |
2,250 |
|
Retained earnings |
14,000 |
The tax rate is 30%. All non-controlling interest are valued at the proportionate share of the acquiree’s identifiable net assets. Inventory on hand at 30 June 2020 included goods obtained from within the group as follows:
-Apple Ltd purchased from Banana Ltd, sale price was $10,000 and cost $7,500.
-Apple Ltd purchased from Cherry Ltd, sale price was $20,000 and cost $18,500.
-Banana Ltd purchased from Cherry Ltd, sale price was $15,000 and cost $13,800.
The directors had applied the impairment test for goodwill annually and determined that a write-down of $3,090 is required for consolidation purposes at 30 June 2020 (write-down of goodwill in Banana Ltd is $440 and write-down of goodwill in Cherry Ltd is $2,650) with the same amounts deemed to be attributable for the prior period. All debentures (including the debenture from Cherry Ltd to Banana Ltd) is due 30 June 2030.
Required:
In the space provided - show goodwill entries, intragroup transactions and calculate direct and indirect non-controlling interest.
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