MPA105 Reconciliation of Opening and Closing Retained Earnings
On 1 July 2016, Sisters Ltd acquired all of the issued shares of Brothers Ltd for $950 000. At the acquisition date the equity of Brothers Ltd consisted of:
|
Share capital |
$600 000 |
|
Reserves |
120 000 |
|
Retained earnings |
150 000 |
At the date of acquisition this equity reflected the fair values of all the identifiable assets and liabilities of Brothers Ltd.
The following transaction occurred between the two entities during the financial year:
. On 1 July 2016 Brothers Ltd sold a motor vehicle to Sisters Ltd for $900 000. The motor vehicle had cost Brothers Ltd $1 500 000. It had been used for 5 years and had a carrying amount of $800 000 on Brothers Ltd.’s accounting book on the date of sale. The motor vehicle is recorded under the cost model and the straight-line depreciation method is used by both companies. The remaining useful life of the motor vehicle was estimated to be 5 years.
At 30 June 2017 the directors of Sisters Ltd estimated that purchased goodwill had been impaired by $10 000.
The corporate tax rate is 30%.
The financial statements of Sisters Ltd and Brothers Ltd at 30 June 2017 provided the following information:
|
|
Sisters Ltd ($000) |
Brothers Ltd ($000) |
| ||
|
Reconciliation of opening and closing retained earnings
|
|
|
| ||
|
Sales revenue |
30 000 |
2 200 |
| ||
|
less Cost of goods sold |
(14 000) |
( 550) |
| ||
|
Gross profit |
16 000 |
1 650 |
| ||
|
Other income |
|
|
| ||
|
Gain on sale of fixed asset
|
6 000 |
100 |
| ||
|
|
|
|
| ||
|
Expenses |
|
|
| ||
|
Depreciation |
(2 000) |
(400) |
| ||
|
Other expenses |
(3 800) |
(200) |
| ||
|
Profit before tax |
16 200 |
1 150 |
| ||
|
Tax expense (30 % Tax Rate) |
(4 860) |
(345) |
| ||
|
Profit after tax |
11 340 |
805 |
| ||
|
Retained earnings—1 July 2016 |
6 000 |
150 |
| ||
|
Retained earnings—30 June 2017
|
17 340 |
955 |
| ||
|
|
Sisters Ltd ($000) |
Brothers Ltd ($000) |
| ||
|
Statement of financial position
|
|
| |||
|
Shareholders’ equity |
|
| |||
|
Retained earnings - 30 June 2017 |
17 340 |
955 | |||
|
Share capital Reserves |
10 000 - |
600 120
| |||
|
Current liabilities
|
|
| |||
|
Tax payable
|
5 600 |
20 | |||
|
Non-current liabilities
|
|
| |||
|
Loans |
4 000 |
750 | |||
|
|
36 940 |
2 445 | |||
|
Current assets |
|
| |||
|
Cash Accounts receivable |
5 000 7 500 |
800 335 | |||
|
Inventory/stock
|
6 200 |
520 | |||
|
Non-current assets |
|
| |||
|
Land |
14 290 |
320 | |||
|
Vehicles, at cost |
3 450 |
500 | |||
|
Vehicle—accumulated depreciation |
(450) |
(30) | |||
|
Investment in Brothers Ltd |
950 |
– | |||
|
|
36 940 |
2 445 | |||
|
|
|
| |||
Required
Provide the consolidated worksheet of Sisters Ltd and its controlled entity (Brothers Ltd) for the year ended 30 June 2017.
Note: for each of the journal entry you are required to provide an explanation as to why the entry is necessary.
Answer:
For Preparation of Consolidated worksheet, the first step is to prepare the acquisition analysis.
STEP-1
Acquisition Analysis as on 1 July, 2016
Net fair value of assets and liabilities acquired
|
Share capital |
600,000 |
|
Reserves |
120,000 |
|
Retained ear nings |
150,000 |
|
Total fair value of assets and liabilities acquired |
870,000 |
|
Consideration paid to acquire Brothers Ltd |
950,000 |
|
Goodwill on acquisition (950,000-870,000) |
80,000 |
STEP-2
Next step is to prepare the pre-acquisition entry for elimination of transaction from the parents books, this is so because the parents book i.e. Sisters Ltd contains the account of Investment in Brothers Ltd which needs to be eliminated.
Hence, the pre-acquisition entry as on the date of purchase i.e. 1 July, 2016 is as below:
Reference No. - a
Share capital Dr. $600,000
Reserves Dr. $120,000
Retained earnings Dr. $150,000
Goodwill Dr. $80,000
To Investment in Brothers Ltd Cr. 950,000
STEP-3
The next step is to prepare the elimination and other consolidation journal entries as on the date of consolidation, i.e. 30 June, 2017.
The first entry is to eliminate the gain on within the group sale of assets and its related tax effects. This entry is required because gain on within the group transaction is the notional gain and hence requires to be eliminated.
Reference No. – b
Gain on sale of vehicle * Dr. $100,000
Vehicle Dr. $600,000
To Accumulated Depreciation Cr. $700,000
* (900000-800000)
Deferred tax asset * Dr. $ 30,000
To Income tax expense Cr. $30,000
*(100,000*30%)
The next entry is to eliminate the excess depreciation charged due to involvement of gain on sale of asset. Hence, this excess depreciation needs to be eliminated so that the income statement reflects true and fair view.
Reference No. – c
Accumulated depreciation Dr. $20,000
To Depreciation expense* Cr. $20,000
* (100,000/5)
Income tax expense * Dr. $6,000
To Deferred tax asset Cr. $6,000
*(20000*30%)
The last entry is to record the impairment loss on goodwill, this is required so that the goodwill is recorded at fair value in the books.
Reference No. – d
Impairment loss Dr. $10,000
To Accumulated impairment loss Cr. $10,000
|
SISTERS LTD. | ||||||||
|
Consolidated worksheet | ||||||||
|
For the year ended 30 June 2017 | ||||||||
|
Particulars |
Sisters Ltd |
Brothers Ltd |
Total |
Adjustments |
For Group | |||
|
Ref. No. |
Dr. |
Ref. No. |
Cr. | |||||
|
Reconciliation of opening and closing retained earnings | ||||||||
|
|
|
|
|
|
|
| ||
|
Sales revenue |
$ 30,000,000 |
$ 2,200,000 |
$ 32,200,000 |
$ 32,200,000 | ||||
|
less Cost of goods sold |
$ (14,000,000) |
$ (550,000) |
$(14,550,000) |
$(14,550,000) | ||||
|
Gross profit |
$ 16,000,000 |
$ 1,650,000 |
$ 17,650,000 |
$ 17,650,000 | ||||
|
Other income | ||||||||
|
Gain on sale of fixed asset |
$ 6,000,000 |
$ 100,000 |
$ 6,100,000 |
b |
$100,000 |
$ 6,000,000 | ||
|
Expenses |
$ - |
$ - | ||||||
|
Depreciation |
$ (2,000,000) |
$ (400,000) |
$ (2,400,000) |
c |
$ 20,000 |
$ (2,380,000) | ||
|
Other expenses |
$ (3,800,000) |
$ (200,000) |
$ (4,000,000) |
d |
$ 10,000 |
$ (4,010,000) | ||
|
Profit before tax |
$ 16,200,000 |
$ 1,150,000 |
$ 17,350,000 |
$ 17,260,000 | ||||
|
Tax expense (30 % Tax Rate) |
$ (4,860,000) |
$ (345,000) |
$ (5,205,000) |
c |
$ 6,000 |
b |
$ 30,000 |
$ (5,181,000) |
|
Profit after tax |
$ 11,340,000 |
$ 805,000 |
$ 12,145,000 |
$ 12,079,000 | ||||
|
Retained earnings-1 July 2016 |
$ 6,000,000 |
$ 150,000 |
$ 6,150,000 |
a |
$150,000 |
$ 6,000,000 | ||
|
Retained earnings-30 June 2017 |
$ 17,340,000 |
$ 955,000 |
$ 18,295,000 |
$ 18,079,000 | ||||
|
Statement of financial position | ||||||||
|
Shareholders' equity |
|
|
|
|
|
| ||
|
Retained earnings - 30 June 2017 |
$ 17,340,000 |
$ 955,000 |
$ 18,295,000 |
$ 18,079,000 | ||||
|
Share capital |
$ 10,000,000 |
$ 600,000 |
$ 10,600,000 |
a |
$600,000 |
$ 10,000,000 | ||
|
Reserves |
$ - |
$ 120,000 |
$ 120,000 |
a |
$120,000 |
$ - | ||
|
Current liabilities |
$ - |
$ - |
$ - | |||||
|
Tax payable |
$ 5,600,000 |
$ 20,000 |
$ 5,620,000 |
$ 5,620,000 | ||||
|
Non-current liabilities |
$ - | |||||||
|
Loans |
$ 4,000,000 |
$ 750,000 |
$ 4,750,000 |
$ 4,750,000 | ||||
|
Total Liabilities |
$ 36,940,000 |
$ 2,445,000 |
$ 39,385,000 |
$ 38,449,000 | ||||
|
Current assets | ||||||||
|
Cash |
$ 5,000,000 |
$ 800,000 |
$ 5,800,000 |
$ 5,800,000 | ||||
|
Accounts receivable |
$ 7,500,000 |
$ 335,000 |
$ 7,835,000 |
$ 7,835,000 | ||||
|
Inventory/stock |
$ 6,200,000 |
$ 520,000 |
$ 6,720,000 |
$ 6,720,000 | ||||
|
Non-current assets |
$ - |
$ - | ||||||
|
Land |
$ 14,290,000 |
$ 320,000 |
$ 14,610,000 |
$ 14,610,000 | ||||
|
Vehicles, at cost |
$ 3,450,000 |
$ 500,000 |
$ 3,950,000 |
b |
$600,000 |
|
|
$ 4,550,000 |
|
Vehicle-accumulated depreciation |
$ (450,000) |
$ (30,000) |
$ (480,000) |
c |
$ 20,000 |
b |
700,000 |
$ (1160,000) |
|
Investment in Brothers Ltd |
$ 950,000 |
$ - |
$ 950,000 |
a |
$950,000 |
$ - | ||
|
Deferred tax asset |
$ - |
$ - |
b |
$ 30,000 |
c |
$ 6,000 |
$ 24,000 | |
|
Goodwill |
$ - |
$ - |
a |
$ 80,000 |
$ 80,000 | |||
|
Accumulated impairment loss - Goodwill |
d |
$ 10,000 |
$ (10,000) | |||||
|
Total Assets |
$ 36,940,000 |
$ 2,445,000 |
$ 39,385,000 |
$ 38,449,000 | ||||
Buy MPA105 Reconciliation of Opening and Closing Retained Earnings Answers Online
Talk to our expert to get the help with MPA105 Reconciliation of Opening and Closing Retained Earnings Answers to complete your assessment on time and boost your grades now
The main aim/motive of the management assignment help services is to get connect with a greater number of students, and effectively help, and support them in getting completing their assignments the students also get find this a wonderful opportunity where they could effectively learn more about their topics, as the experts also have the best team members with them in which all the members effectively support each other to get complete their diploma assignments. They complete the assessments of the students in an appropriate manner and deliver them back to the students before the due date of the assignment so that the students could timely submit this, and can score higher marks. The experts of the assignment help services at urgenthomework.com are so much skilled, capable, talented, and experienced in their field of programming homework help writing assignments, so, for this, they can effectively write the best economics assignment help services.
