Professional Documents
Culture Documents
29.1
Intragroup transactions are transactions undertaken between the separate legal entities
(subsidiaries and the parent entity) comprising an economic entity (the group). We need to
know about them because there is a requirement that on consolidation the effects of all
intragroup transactions must be eliminated in full and this applies even if the subsidiary is
not 100 percent owned. Specifically, Paragraph 29 of AASB 127 stipulates that: Intragroup
balances, transactions, income and expenses shall be eliminated in full.
29.2
29.3
The only dividends that should be shown as paid, declared, payable or receivable in the
consolidated financial statements are dividends that are paid or payable to entities outside of
the group. Intragroup dividends are not to be included as part of dividends paid or payable.
29.4
They would be treated as a return of part of the investment in the subsidiary. Consequently,
the amount received out of pre-acquisition profits of the subsidiary would be credited to the
investment account.
29.5
There would be no effect on the amount of goodwill recognised. The payment out of preacquisition reserves will reduce the carrying value of the investment, and the pre-acquisition
capital and reserves by the same amount.
29.6
AASB 127 requires that, in preparing consolidated accounts, the effects of all transactions
between entities within the economic entity shall be eliminated in full. This is the case if a
subsidiary is 100 percent owned, or 80 percent owned.
29.7
(a)
The only revenue that should be shown in the consolidated financial statements of the
economic entity is the revenue that relates to sales external to the entity. In this case,
the sales revenue for the financial year from the economic entitys perspective would
be $180 000, as shown diagrammatically below.
291
(b)
Inventory must be valued at the lower of cost and net-realisable value. From the
economic entitys perspective, the inventory cost $100 000 to produce. As half of this
inventory is on hand at reporting date, the value of inventory for the purposes of the
consolidated financial statements is $50 000.
292
29.8
Income statement
Profit before tax
Tax
Profit after tax
Opening retained earnings
Less: dividends proposed
Balance sheet
Shareholders funds
Retained profits
Share capital
Liabilities
Accounts payable
Dividends payable
Assets
Cash
Accounts receivable
Dividends receivable
Inventory
Plant and equipment
Investment in Small
Company
Eliminations and
adjustments
Dr
Cr
Big
Company
Small
Company
Consolidated
Statement
500
125
375
1 000
1 375
175
250
100
150
750
900
125
1 200
1 250
775
1 250
2 500
175
5 125
250
125
2 400
250
125
250
375
2 125
175
325
400
1 500
1253
425
450
125
775
3 625
2 000
5 125
2 400
2 0001
2 250
5 400
1252
625
225
7501
1 000
1 400
175
1252
1 250
1 225
1 250
2 750
175
5 400
1253
2 250
Consolidation adjustments
1.
Dr
Dr
Cr
Share capital
Retained earnings
Investment in Small Company
1 250
750
2 000
Dr
Cr
125
125
Dr
Cr
Dividend payable
Dividend receivable
125
125
293
Dr
Dr
Cr
900 000
900 000
1 800 000
To reverse the profit that would have been recorded in Bernie Ltds accounts [$3 600 000
($4 500 000 $1 800 000)], and to reinstate accumulated depreciation so that the accounts
will reflect the balances that would have been in place if the inter-entity sale did not occur.
Dr
Cr
297 000
297 000
Bernie Ltd would have recorded a related tax expense of $900 000 33%. From the
economic entitys perspective, no gain has been made and hence the tax expense is reversed.
Dr
Cr
Accumulated depreciation
Depreciation expense
75 000
75 000
Computer Ltd would be depreciating the asset by $3 600 000/12 = $300 000. From the
economic entitys perspective, the depreciation should be $2 700 000/12 = $225 000.
Dr
Cr
24 750
24 750
Increase in tax expense due to the reduction in depreciation expense. Additional tax expense
= 75 000 33%). This entry represents a partial reversal of the deferred tax asset of
$297 000 recognised in the earlier entry. After 12 periods, the balance of the deferred tax
asset related to the sale of the non-current asset will be $nil.
2010 consolidation entries
Dr
Dr
Dr
Cr
Retained earnings
Deferred tax asset
Plant
Accumulated depreciation
603 000
297 000
900 000
1 800 000
The debit to retained earnings = the gain on sale (1 tax rate) = $900 000 0.67.
Dr
Cr
Cr
Accumulated depreciation
Retained earnings
Depreciation expense
150 000
75 000
75 000
Retained earnings
Income tax expense
Deferred tax asset
24 750
24 750
49 500
Tax effects of this periods and last periods depreciation adjustments. Each decrease of
$75 000 in depreciation leads to an increase in accounting income of $75 000 and an
associated increase in income tax expense of $24 750 ($75 000 33%) with the adoption of
tax-effect accounting.
29.10
Eliminations and
294
Income statement
Profit before tax
Tax
Profit after tax
Opening retained earnings
Less: dividends proposed
Balance sheet
Shareholders funds
Retained earnings
Share capital
Liabilities
Accounts payable
Dividends payable
Assets
Cash
Accounts receivable
Dividends receivable
Inventory
Plant and equipment
Investment in Smaller
Company
Goodwill
Bigger
Company
Smaller
Company
adjustments
Dr
Cr
Consolidated
Statement
500
500
125
375
4 000
4 375
175
200
300
1 500
1 800
250
4 200
1 250
1 550
2 500
2 500
175
8 125
500
250
4 800
250
125
250
375
2 125
350
650
800
3 000
2503
600
775
1 175
5 125
5 000
8 125
4 800
5 0001
504
5 550
950
8 625
2502
504
700
1 5001
2502
2 500
4 200
1 250
3 000
175
8 625
2503
1 0001
5 550
325
375
4 000
4 375
175
Consolidation adjustments
1.
Dr
Dr
Dr
Cr
Share capital
Retained earnings
Goodwill
Investment in Smaller Company
2 500
1 500
1 000
5 000
295
2.
Dr
Cr
250
250
Dr
Cr
Dividend payable
Dividend receivable
250
250
Dr
Cr
50
50
To recognise goodwill impairment expense. (NOTE: the question should say that the
impairment loss is $50 and not $5000.)
29.11
Current assets
Cash
Accounts receivable
Non-current assets
Plant
Investment in Midget Ltd
Goodwill
Current liabilities
Accounts payable
Non-current liabilities
Loans
Shareholders equity
Share capital
Retained earnings
Eliminations and
adjustments
Dr
Cr
Nat
Company
Midget
Company
Consolidated
statement
60
900
45
135
105
1 035
4 440
1 500
6 900
1 800
1 980
6 240
300
90
390
2 400
540
2 940
3 000
1 200
6 900
600
750
1 980
1500
150
600
750
1 500
150
7 530
______
1 500
3 000
1 200
7 530
Consolidation adjustments
In this question there has been a payment of a dividend by the subsidiary out of preacquisition earnings. The dividend has not been recognised in the accounts of Nat or Midget
as at 30 June 2009. The payment of a dividend out of pre-acquisition earnings will have no
impact on goodwill as there will be a corresponding decrease in the cost of the investment,
and the share of pre-acquisition capital and reserves of the subsidiary. For example, without
the dividend the investment would be recorded at $1.5 million and the pre-acquisition capital
and reserves would be $1.35m, giving goodwill of $150,000. After the dividend, the
investment will be reduced by the amount of the dividend from pre-acquisition reserves, and
the pre-acquisition reserves of Midget will be decreased. Goodwill will still be $150,000 and
will be the calculated as $900,000 less $$750,000 (which is the share capital of $600,000
plus the remaining retained earnings of $150,000).
Solutions Manual t/a Australian Financial Accounting 5/e by Craig Deegan
296
At this point in time there is no need to make an adjustment for the dividend paid after the
time the 30 June 2009 accounts were prepared.
Dr
Dr
Dr
Cr
Share capital
Retained earnings
Goodwill
Investment in Midget Ltd
600
750
150
1,500
29.12
Income statement
Sales revenue
Less: cost of goods sold
Less: other expenses
Other revenue
Profit
Tax expense
Profit after tax
Retained earnings
30 June 2004
Dividends paid
Balance sheet
Shareholders equity
Retained earnings
30 June 2005
Share capital
Current liabilities
Accounts payable
Non-current liabilities
Loans
Eliminations and
adjustments
Dr
Cr
$000
$000
Consolidated
statement
Jacko
Company
$000
Jackson
Company
$000
4 200
(1 750)
(210)
245
2 485
700
1 785
1 400
(490)
(105)
87.5
892.5
350
542.5
7002
1403
356
1405
3 500
5 285
700
1 400
1 942.5
140
1 4001
4 585
14 000
1 802.5
1 750
350
297.5
647.5
2 100
21 035
875
4 725
2 975
22 481.2
875
525
2 100
87.5
612.5
1 050
962.5
1 137.5
3 010
5 040
8 645
3 500
350
21 035
1 400
1 400
175
4 725
700
46.24
1405
$000
4 900
(1 680)
(350)
192.5
3062.5
1003.8
2 058.7
3 500
5 558.7
700
4 858.7
14 000
1 7501
Current assets
Cash
Accounts receivable
Inventory
Non-current assets
Land
Plant
Investment in Jackson Ltd
Deferred tax asset
Goodwill
1403
3 5001
46.24
3501
4 561.2
356
4 561.2
6 440
10 045
571.2
315
22 481.2
297
Consolidation adjustments
1.
Dr
Dr
Dr
Cr
Share capital
Retained earnings
Goodwill
Investment in Jackson
1 750 000
1 400 000
350 000
3 500 000
Dr
Cr
Sales revenue
Cost of goods sold
700 000
700 000
Dr
Cr
140 000
140 000
Dr
Cr
46 200
46 200
Dr
Cr
Dividend revenue
Dividend paid
140 000
140 000
Dr
Cr
35 000
35 000
298
10.13 Please note, in the first print run of the 5th Edition of this text there was an error in the
question as the Dividends paid by the 100 percent owned subsidiary (Irons Ltd) does not
equal the Dividends received from Irons Ltd in the accounts of Andy Ltd (the parent entity).
Obviously these two amounts should be the same. Apologies for this. Before commencing
this question please make the following changes in the accounts of Andy Ltd. Please change
Dividends received from Irons Ltd to $116 250 (from $93 000), and please change Sales
revenue in the accounts of Andy Ltd to $839 250 (from $862,500). This mistake was fixed in
subsequent print runs of the 5th Edition of the text.
Elimination of the investment in Irons Ltd and the recognition of goodwill on consolidation
Irons Ltd
Share capital at acquisition date - 1 July 2002
Retained earnings at acquisition date - 1 July 2002
Investment in Irons Ltd
Goodwill on consolidation
$
250 000
200 000
450 000
500 000
50 000
As shown above, the net assets of Irons Ltd are $450 000 at acquisition date. As $500 000 is paid
for the investment, the goodwill amounts to $50 000.The consolidation entry to eliminate the
investment is:
(a)Dr
Dr
Dr
Cr
Share capital
Retained earnings
Goodwill
Investment in Irons Ltd
250 000
200 000
50 000
500 000
(b)Dr Sales
65 000
Cr Cost of goods sold
65 000
Under the periodic inventory system, the above credit entry would be to purchases, which would
ultimately lead to a reduction in cost of goods sold. (Cost of goods sold equals opening inventory
plus purchases less closing inventory, so any reduction in purchases leads to a reduction in cost of
goods sold.)
299
During the current financial period Andy Ltd sold inventory to Irons Ltd at a price of $81 250.
The unrealised profit component is $3000.
(e) Dr Sales
81 250
Cr Cost of goods sold
81 250
Elimination of unrealised profits in the closing inventory of Irons Ltd
Dr
Cr Income tax expense
($3 000 x 30 per cent)
3 000
3 000
Deferred tax asset
900
900
6 125
2 625
8 750
2910
On 1 July 2008 Andy Ltd sold an item of plant to Irons Ltd for $145 000 when its carrying value
in Irons Ltds accounts was $101 250 (cost of $168 750 and accumulated depreciation of $67
500). This item of plant was being depreciated over a further six years from acquisition date, with
no expected residual value.
Reversal of profit recognised on sale of asset and reinstatement of cost and accumulated depreciation
The result of the sale of the item of plant to Irons Ltd is that the profit of $43 750 - the difference
between the sales proceeds of $145 000 and the carrying amount of $101 250 - will be shown in
Andy Ltds financial statements. However, from the economic entitys perspective there has been
no sale and, therefore, no gain on sale given that there has been no transaction with a party
external to the group. The following entry is necessary for the accounts to reflect the balances that
would have applied had the intragroup sale not occurred.
(i) Dr Profit on sale of plant
Dr Plant
Cr Accumulated depreciation
43 750
23 750
67 500
The result of this entry is that the intragroup profit is removed and the asset and accumulated
depreciation accounts revert to reflecting no sales transaction. The profit of $43 750 will be
recognised progressively in the consolidated financial report of the economic entity by
adjustments to the amounts of depreciation charged by Irons Ltd in its accounts. As the service
potential or economic benefits embodied in the asset are consumed, the $43 750 profit will be
progressively recognised from the economic entitys perspective. This is shown in journal entry k.
Effect of tax on profit on sale of item of plant
From Andy Ltds individual perspective it would have made a profit of $43 750 on the sale of the
plant and this gain would have been taxable. At a tax rate of 30 percent, $13 125 would then be
payable by Andy Ltd. However, from the economic entitys perspective, no gain has been made,
which means that the related tax expense must be reversed and a related deferred tax benefit be
recognised. A deferred tax asset is recognised because, from the economic entitys perspective,
the amount paid to the Tax Office represents a prepayment of tax.
(j)Dr Deferred tax asset
Cr Income tax expense
13 125
13 125
Irons Ltd would be depreciating the asset on the basis of the cost it incurred to acquire the asset.
Its depreciation charge would be $145 000 6 = $24 167. From the economic entitys
perspective, the asset had a carrying value of $101 250, which was to be allocated over the next
six years, giving a depreciation charge of $101 250 6 = $ 16 875. An adjustment of $7 292 is
therefore required.
(k)
Dr
Cr Depreciation expense
Accumulated depreciation
7 292
7 292
The increase in the tax expense from the perspective of the economic entity is due to the reduction
in the depreciation expense. The additional tax expense is $2 188, which is $7 292 x 30 per cent.
This entry represents a partial reversal of the deferred tax asset of $13 125 recognised in an earlier
entry. After six years the balance of the deferred tax asset relating to the sale of the item of plant
will be $nil.
(l) Dr Income tax expense
2 188
2911
2 188
23 750
2912
Eliminations
and adjustments
Andy Ltd
($000)
Detailed reconciliation of opening
and closing retained earnings
Sales revenue
839.25
Cost of goods sold
Gross profit
Other revenue
Dividends received from
Irons Ltd
Management fee revenue
Profit on sale of plant
Expenses
Administrative expenses
Depreciation
Management fee expense
Other expenses
Irons Ltd
($000)
Dr
($000)
725
65(b)
81.25(e)
7(c)
3(f)
(580)
(297.5)
259.25
427.5
-
116.25
33.125
43.75
(38.5)
(30.625)
(126.375)
(48.375)
(71)
(33.125)
(96.25)
256.875
178.75
76.875
52.75
Cr
($000)
1418
65(b)
81.25(e)
8.75(h)
116.25(o)
33.125(n)
43.75(i)
3.75(m)
Consolidated
statements
($000)
732.5
685.5
-
7.292(k)
33.125(n)
(86.875)
(94.333)
(226.375)
277.917
2.625(h)
2.188 (l)
2.1(d)
118.313
0.9(g)
13.125(j)
180
126
299
579.25
(171.75)
425
(116.25)
407.5
308.75
Shareholders equity
Retained earnings
Share capital
407.5
437.5
308.75
250
Current liabilities
Accounts payable
Tax payable
100
57.875
31.25
Dividends paid
Retained earnings-30 June 2009
159.604
200(a)
6.125(h)
20(m)
472.125
116.25(o)
631.729
(171.75)
459.979
Balance sheet
Non-current liabilities
Loans
Current assets
Accounts receivable
Inventory
57.875
131.25
236
145
381
1 181
792 875
1467.604
74.25
115
77.875
36.250
Non-current assets
Deferred tax asset
Land and buildings
Plant at cost
Accumulated depreciation
Investment in Irons Ltd
Goodwill
Accumulated amortisation
459.979
437.5
250(a)
198.75
400
(107)
500
407.5
444.75
(173.5)
1 181
792.875
7(c)
3(f)
2.1(d)
0.9(g)
13.125(j)
23.75(i)
7.292(k)
50(a)
931.23
152.125
141.25
2.188(l)
13.937
67.5(i)
500(a)
23.75(m)
606.25
868.5
(340.708)
50
(23.75)
931.23
1467.604
The next step would be to present the consolidated financial statements. A suggested format for the
consolidated accounts would be as follows (prior year comparatives for the accounts of the parent
entity, both of which would be required in practice, have not been provided):
2913
732 500
685 500
(86 875)
(94 333)
(226 375)
277 917
118 313
159 604
Consolidated balance sheet of Andy Ltd and its subsidiaries
as at 30 June 2009
$
Current assets
Accounts receivable
Inventory
152 125
141 250
293 375
Non-current assets
Land and buildings
Plant
less Accumulated depreciation
Goodwill
less Accumulated impairment loss
Deferred tax asset
Total assets
606 250
868 500
(340 708)
50 000
(23 750)
13 937
1 174 229
1 467 604
Current liabilities
Accounts payable
Tax payable
57 875
131 250
189 125
Non-current liabilities
Loan
Total liabilities
381 000
570 125
Shareholders equity
Share capital
Retained profits - 30 June 2009 (x)
Total shareholders equity
Total equities
437 500
459 979
897 479
1 467 604
472 125
159 604
(171 750)
459 979
2914
10.14 Please note, in the first print run of the 5th Edition of this text there was an error in the
question as the Dividends paid by the 100 percent owned subsidiary (Parko Ltd) does not
equal the Dividends received from Parko Ltd in the accounts of Joel Ltd (the parent entity).
Obviously these two amounts should be the same. Apologies for this. Before commencing
this question please make the following changes in the accounts of Andy Ltd. Please change
Dividends received from Parko Ltd to $93 000 (from $74 400), and please change Sales
revenue in the accounts of Joel Ltd to $671 400 (from $690 000). This mistake was fixed in
subsequent print runs of the 5th Edition of the text.
Elimination of the investment in Parko Ltd and the recognition of goodwill on consolidation
Parko Ltd
Share capital at acquisition date - 1 July 2004
Retained earnings at acquisition date - 1 July 2004
Investment in Parko Ltd
Surplus on consolidation
$
200 000
180 000
380 000
356 000
24 000
As shown above, the net assets of Parko Ltd are $380 000 at acquisition date. As $356 000 is paid
for the investment, there has been a discount, or excess, on acquisition. Where an entity is acquired
at a discount, paragraph 56 of AASB 3 requires that:
If the acquirers interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities recognised exceeds the cost of the business combination, the
acquirer shall:
(a) reassess the identification and measurement of the acquirees identifiable assets,
liabilities and contingent liabilities and the measurement of the cost of the
combination; and
(b) recognise immediately in profit or loss any excess remaining after that
reassessment.
The above requirement to reassess the value of assets acquired in the business combination is
consistent with an assumption that an excess on acquisition - which in the past has been referred to
as a discount - usually results from measurement errors and seldom constitutes a real gain to the
acquirer. The acquirer should therefore, in the presence of an excess, reassess the fair values of the
identifiable assets, liabilities and contingent liabilities. However, if the excess remains after
reassessing the fair values of both the amount paid for the subsidiary and the net assets acquired, it is
to be recognised immediately as a gain.
(a)Dr Share capital
200 000
Dr Retained earnings
180 000
Dr Gain on acquisition of subsidiary
24 000
Cr Investment in Parko Ltd
356 000
Elimination of intercompany sales
We need to eliminate the intragroup sales because, from the perspective of the economic entity, no sales have in
fact occurred. This will ensure that we do not overstate the turnover of the economic entity.
(b)Dr Sales
50 000
Cr Cost of goods sold
50 000
Under the periodic inventory system, the above credit entry would be to purchases, which would
ultimately lead to a reduction in cost of goods sold. (Cost of goods sold equals opening inventory
Solutions Manual t/a Australian Financial Accounting 5/e by Craig Deegan
2915
plus purchases less closing inventory, so any reduction in purchases leads to a reduction in cost of
goods sold.)
Elimination of the unrealised profit in the closing inventory of Joel Ltd
In this case, the unrealised profit in closing amounts to $5 000. In accordance with AASB 102
Inventories, we must value the inventory at the lower of cost and net realisable value. Therefore
on consolidation we must reduce the value of recorded inventory as the amount shown in the
accounts of Joel Ltd exceeds what the inventory cost the economic entity.
(c)Dr Cost of goods sold
5 000
Cr Inventory
5 000
Under the periodic inventory system, the above debit entry would be to closing inventory - profit
and loss. We increase cost of goods sold by the unrealised profit in closing inventory because
reducing closing inventory effectively increases cost of goods sold. (Remember, cost of goods
sold equals opening inventory plus purchases less closing inventory.) The effect of the above
entries is to adjust the value of inventory so that it reflects the cost of the inventory to the group.
Consideration of the tax paid or payable on the sale of inventory that is still held within the
group
From the groups perspective, $5000 has not been earned. However, from Parko Ltds individual
perspective (as a separate legal entity), the full amount of the sale has been earned. This will
attract a tax liability in Parko Ltds accounts of $1500 (30 per cent of $5000). However, from the
groups perspective some of this will represent a prepayment of tax as the full amount has not
been earned by the group even if Parko Ltd is obliged to pay the tax.
(d)
Dr
Deferred tax asset
1 500
Cr Income tax expense
1500
($5000 x 30 per cent)
Sale of inventory from Joel Ltd to Parko Ltd
During the current financial period Joel Ltd sold inventory to Parko Ltd at a price of $60 000. The
unrealised profit component is $2000.
(e) Dr Sales
60 000
Cr Cost of goods sold
60 000
Elimination of unrealised profits in the closing inventory of Parko Ltd
Dr
Cr Income tax expense
($2000 x 30 per cent)
2 000
2 000
Deferred tax asset
600
600
7 000
3 000
10 000
2916
On 1 July 2008 Parko Ltd sold an item of plant to Joel Ltd for $116 000 when its carrying value
in Parko Ltds accounts was $81 000 (cost of $135 000 and accumulated depreciation of $54
000). This item of plant was being depreciated over a further six years from acquisition date, with
no expected residual value.
Reversal of profit recognised on sale of asset and reinstatement of cost and accumulated depreciation
The result of the sale of the item of plant to Joel Ltd is that the profit of $35 000 - the difference
between the sales proceeds of $116 000 and the carrying amount of $81 000 - will be shown in
Parko Ltds financial statements. However, from the economic entitys perspective there has been
no sale and, therefore, no gain on sale given that there has been no transaction with a party
external to the group. The following entry is necessary for the accounts to reflect the balances that
would have applied had the intragroup sale not occurred.
(i) Dr Profit on sale of plant
Dr Plant
Cr Accumulated depreciation
35 000
19 000
54 000
The result of this entry is that the intragroup profit is removed and the asset and accumulated
depreciation accounts revert to reflecting no sales transaction. The profit of $35 000 will be
recognised progressively in the consolidated financial report of the economic entity by
adjustments to the amounts of depreciation charged by Joel Ltd in its accounts. As the service
potential or economic benefits embodied in the asset are consumed, the $35 000 profit will be
progressively recognised from the economic entitys perspective. This is shown in journal entry k.
Effect of tax on profit on sale of item of plant
From Parko Ltds individual perspective it would have made a profit of $35 000 on the sale of the
plant and this gain would have been taxable. At a tax rate of 30 per cent, $10 500 would then be
payable by Parko Ltd. However, from the economic entitys perspective, no gain has been made,
which means that the related tax expense must be reversed and a related deferred tax benefit be
recognised. A deferred tax asset is recognised because, from the economic entitys perspective,
the amount paid to the Tax Office represents a prepayment of tax.
(j) Dr Deferred tax asset
Cr Income tax expense
10 500
10 500
Joel Ltd would be depreciating the asset on the basis of the cost it incurred to acquire the asset. Its
depreciation charge would be $116 000 6 = $19 333. From the economic entitys perspective,
the asset had a carrying value of $81 000, which was to be allocated over the next six years,
giving a depreciation charge of $81 000 6 = $ 13 500. An adjustment of $5 833 is therefore
required.
(k)
Dr
Cr Depreciation expense
Accumulated depreciation
5 833
5 833
The increase in the tax expense from the perspective of the economic entity is due to the reduction
in the depreciation expense. The additional tax expense is $1750, which is $5 833 x 30 per cent.
This entry represents a partial reversal of the deferred tax asset of $10 500 recognised in an earlier
entry. After six years the balance of the deferred tax asset relating to the sale of the item of plant
will be $nil.
Solutions Manual t/a Australian Financial Accounting 5/e by Craig Deegan
2917
1 750
1 750
2918
Eliminations
and adjustments
Joel Ltd
($000)
Detailed reconciliation of opening
and closing retained earnings
Sales revenue
671.4
Cost of goods sold
Parko Ltd
($000)
Dr
($000)
540
50(b)
60(e)
5(c)
2(f)
(464)
(238)
Gross profit
226
Other revenue
Dividends received from
Parko Ltd
93
Management fee revenue
26.5
Profit on sale of plant
40
Gain on acquisition of subsidiary
Expenses
Administrative expenses
(30.8)
Depreciation
(29.5)
Management fee expense
Other expenses
(101.1)
302
-
35
93(n)
26.5(m)
35(i)
(38.7)
(56.8)
(26.5)
(72)
205.5
143
61.5
42.2
Cr
($000)
Consolidated
statements
($000)
1101.4
50(b)
60(e)
10(h)
24(a)
5.833(k)
26.5(m)
589
512.4
40
24
(69.5)
(80.467)
(173.1)
253.333
3(h)
1.5(d)
1.75 (l)
0.6(g)
95.85
10.5(j)
Profit for the year
144
100.8
319.4
239.2
463.4
(137.4)
340
(93)
326
247
326
350
247
200
Current liabilities
Accounts payable
Tax payable
54.7
41.3
46.3
25
101
66.3
Non-current liabilities
Loans
173.5
116
289.5
945.5
634.3
1198.483
59.4
92
62.3
29
Dividends paid
Retained earnings- 30 June 2009
157.483
180(a)
7(h)
371.6
93(n)
529.083
(137.4)
391.683
Balance sheet
Shareholders equity
Retained earnings
Share capital
Current assets
Accounts receivable
Inventory
Non-current assets
Deferred tax asset
Land and buildings
Plant at cost
Accumulated depreciation
Investment in Parko Ltd
391.683
350
200(a)
5(c)
2(f)
1.5(d)
0.6(g)
10.5(j)
224
299.85
(85.75)
356
326
355.8
(138.8)
19(i)
5.833(k)
945.5
634.3
700.683
121.7
114
1.75(l)
10.85
54(i)
356(a)
550
674.65
(272.717)
-
700.683
1198.483
The next step would be to present the consolidated financial statements. A suggested format
for the consolidated accounts would be as follows (prior year comparatives for the accounts
of the parent entity, both of which would be required in practice, have not been provided):
2919
589 000
512 400
40 000
24 000
(69 500)
(80 467)
(173 100)
253 333
95 850
157 483
Consolidated balance sheet of Joel Ltd and its subsidiaries
as at 30 June 2009
$
Current assets
Accounts receivable
Inventory
121 700
114 000
235 700
Non-current assets
Land and buildings
Plant and equipment
less Accumulated depreciation
Deferred tax asset
Total assets
550 000
674 650
(272 717)
10 850
962 783
1 198 483
Current liabilities
Accounts payable
Tax payable
101 000
66 300
167 300
Non-current liabilities
Loans
Total liabilities
289 500
456 800
Shareholders equity
Share capital
Retained earnings - 30 June 2009 (x)
Total shareholders equity
Total equities
350 000
391 683
741 683
1 198 483
371 600
157 483
(137 400)
391 683
2920