consolidation questions
Oxi 1 July 2010 RATTE Ltd (-RATTE-) acquired control over BAGGE Ltd (-BAGGE-) by acquiring 90 per cent of the issued share capital of BAGGE Ltd for SI0.000,000 cash. The shareholders equity and asset section of BAGGEs Balance Sheet at 1 July 2010 was:
Shareholders ’ Equity Share Capital Retamed Earnings General Reserve
Assets
Land
Buildings
S
7,500,000
2,800.000
500.000
2,600.000
3,200,000
• On 1 July 2010, all assets and liabilities in BAGGEs Balance Sheet were stated at
their fair values
• Goodwill is assessed for impairment on 30 June 2015 - $40,000.
• The present rate of company income tax is 30 per cent.
The following transactions occurred:
a) During tlie year ended 30 June 2015. BAGGE Ltd sold inventory’ ofPollywaffles to RATTE Ltd on credit at a price of S600,000. BAGGE had recorded this inventory at cost of $460,000 immediately prior to sale. Thirty five percent (35%) of this inventory’ was sold to external parties during the year ended 30 June 2015 and the remainder was still in stock at 30 June 2015. RATTE had not paid BAGGE for this stock at 30 June 2015.
b) During tlie year ended 30 June 2015. BAGGE Ltd sold inventory of MarBars to RATTE Ltd for cash at a price of $200,000. BAGGE had recorded this inventory at cost of $260,000 immediately prior to sale. Fifty’ percent (50%) of this inventory was sold to external parties during tlie year ended 30 June 2015 and tlie remainder was still in stock at 30 June 2015.
c) During tlie year ended 30 June 2014. BAGGE Ltd sold inventory’ to RATTE Ltd for cash at a price of $300,000. BAGGE had recorded this inventory at cost of $350,000 immediately prior to sale. Half of this inventory was sold to external parties during the year ended 30 June 2014 and the other half was sold to external parties during the year ended 30 June 2015.
d) RATTE Ltd provided a loan of $500,000 to BAGGE Ltd on 1 May 2009. The loan terms require a principal repayment of $300,000 on 1 September 2012. During the year ended 30 June 2015 no cash was paid by BAGGE to RATTE to cover interest. The annual interest rate on the loan was seven percent (7%). Both entities had recorded interest accruals.
e) Ail item of equipment owned by BAGGE Ltd (original cost $600,000. accumulated depreciation $250,000 as at 1 July 2012) was sold to RATTE Ltd for $380,000 on 1 July 2012. RATTE will depreciate the equipment on a straight-line basis over the next 5 years.
Income Statements and Balance Sheets for the 30 June 2015 year are given below.
Income Statements RATTE Ltd (S ’000) BAGGE Ltd (S ’000)
Sales 18.000 10.000
less COGS (12,800) (6,000)
Gross Profit 5,200 4,000
Profits on sale of NCAs 3,000 1.000
Dividends Revenue 810
Interest revenue 610
Interest expense (800) (900)
Depreciation expense (1.850) (1,150)
Impairment loss - goodwill - -
Operating Profit before tax 6,970 2,950
Income tax expense (2,000) (900)
Net Profit (after tax) 4,970 2,050
Retained Earnings 1 July 2014 2,200 2.300
Interim dividend paid (300)
Final Dividend Declared (1.100) (600)
Retained Earnings (30/6/2015) 6,070 3.450
Balance Sheets RATTE Ltd ($ ’000) BAGGE Ltd (S ’000)
Retamed Earnings (30/6/2015) (from above) 6.070 3,450
Share capital 10.000 8,000
General Reserve 3,160 1,900
Total Equity 19,230 13,350
Current liabilities
Income tax payable 1.800 800
Creditors & Accruals 4.640 1,700
Dividends Payable 1.100 600
Non-Current liabilities
Loans payable 3.100 1,050
Long-term (external) debt 4,000 6,300
Deferred tax liability 250 100
Total Liabilities 14,890 10,550
Total Equit}- & Liabilities 34,120 23,900
Current assets
Cash 1.000 1,000
Inventor} (30/6/2015) 3,000 3,500
Debtors. Accruals. Prepayments 1.640 2,320
Dividends Receivable 540
Non-current assets
Loans receivable 2,100
Deferred tax asset 100 100
Vehicles (various) 6,000 5,850
Accumulated Depreciation (2,100) (1,500)
Plant and Equipment 4.800 6,000
Accumulated Depreciation (1,300) (1,300)
Investment in BAGGE Ltd 10.000 -
Land 6.100 3,250
Buildings 2,440 4.980
Accumulated Depreciation (200) (300)
Goodwill - -
Total Assets 34,120 23,900
Required:
(a) Prepare all necessary consolidation journal entries for the year ended 30 June 2015.