ORE LTD “ PIRIN LTD Ore Ltd Pirin Ltd Adjustments Group Dr Cr Profit before tax 3 200 1 800 1 1 2 000 200 2 800 Income tax expense 1 300 240 600 60 1 1 880 Profit 1 900 1 560 1 920 Retained earnings (1/7/11) 1 500 2 100 1 2 200 1 400 60 1 2 060 3 400 3 600 3 980 Transfer from BCVR “ “ 2 1 400 1 400 1 “ Dividend paid 500 0 500 Retained earnings (30/6/12) 2 900 3 660 3 480 Share capital 25 000 10 000 2 10 000 25 000 General reserve 8 000 3 000 2 1 500 9 500 Business combination valuation reserve “ “ 2 700 700 1 “ 35 900 16 660 37 980 Other components 1 500 300 1 800 Increases/Decreases (500) 200 (300) 1 000 500 1 500 36 900 17 160 39 480 Liabilities 5 000 1 300 1 120 300 1 6 480 41 900 18 460 45 960 Inventory 3 000 4 000 7 000 Cash 300 360 660 Financial assets 3 000 2 000 5 000 Shares in Pirin Ltd 15 000 “ 15 000 2 “ Land 8 600 5 100 13 700 Plant 17 000 8 000 1 500 25 500 Accum depreciation (5 000) (1 000) 1 500 400 1 (5 900) 41 900 18 460 18 720 18 720 45 960 ORE LTD Consolidated Statement of Comprehensive Income for financial year ended 30 June 2012 Profit before income tax $2 800 Income tax expense 880 Profit for the period $1 920 Other components of equity: decrements (300) Comprehensive income for the period $1 620 ORE LTD Consolidated Statement of Changes in Equity for financial year ended 30 June 2012 Comprehensive income for the period $1 620 Retained earnings balance at 1 July 2011 $2 060 Profit for the period 1 920 Dividend paid (500) Retained earnings balance at 30 June 2012 $3 480 Share capital balance at 1 July 2011 $25 000 Share capital balance at 30 June 2012 $25 000 General reserve balance at 1 July 2011 $9 500 General reserve balance at 30 June 2012 $9 500 Other components of equity at 1 July 2011 $1 800 Decreases (300) Other components of equity at 30 June 2012 $900 Problem 22.3 (cont’d) ORE LTD Consolidated Statement of Financial Position as at 30 June 2012 Current Assets Inventories $7 000 Financial assets 5 000 Cash 660 Total Current Assets 12 660 Non-current Assets Property, plant and equipment: Land 13 700 Plant 25 500 Accumulated depreciation “ Plant (5 900) Total Non-current Assets 33 300 Total Assets $45 960 Equity Share capital $25 000 Reserves: General reserve 9 500 Other components of equity 1 500 Retained earnings 3 480 Total Equity 39 480 Liabilities 6 480 Total Equity and Liabilities $45 960 Problem 22.4 Cons. worksheet, unrecognised intangibles &liabilities LYNGEN LTD “ RILA LTD Lyngen Ltd Rila Ltd Adjustments Group Dr Cr Profit before tax 50 000 15 000 1 1 1 300 1 500 1 000 5 000 1 67 200 Tax expense 20 000 6 000 1 1 500 300 540 1 1 26 660 Profit 30 000 9 000 40 540 Retained earnings (1/7/12) 37 000 45 000 1 1 2 840 2 000 44 800 600 1 34 960 Transfer from BCVR “ “ 1 2 3 500 2 100 2 100 3 500 1 2 “ 67 000 54 000 75 500 Dividend paid 20 000 20 000 T’fer to gen reserve “ 20 000 20 000 2 “ 20 000 20 000 20 000 Ret earn. (30/6/13) 47 000 34 000 55 500 Share capital 150 000 100 000 2 100 000 150 000 General reserve 12 000 20 000 2 20 000 12 000 Business comb. valuation reserve “ “ 2 2 15 200 3 500 4 200 12 400 2 100 1 1 2 “ 209 000 154 000 217 500 ARR (1/7/12) 14 000 0 14 000 Increment 6 000 0 6 000 ARR (30/6/13) 20 000 0 20 000 Other components (1/7/12) 14 000 14 000 28 000 Losses (4 000) (10 000 (14 000) Other com (30/6/13) 10 000 4 000 14 000 239 000 158 000 251 500 Payables 19 000 8 000 27 000 Loan 25 000 0 25 000 Defer. tax liability “ “ 1 900 1 800 1 900 283 000 166 000 304 400 Shares in Rila 160 000 0 2 10 000 160 000 2 0 Cash 5 000 14 000 19 000 Financial assets 10 000 5 000 15 000 Inventory 30 000 21 000 51 000 Plant & equipment 140 000 163 000 303 000 Accum depreciation (62 000) (37 000) (99 000) Goodwill “ “ 1 12 400 12 400 Patent “ “ 1 6 000 6 000 Accum amortisation “ “ 3 000 1 (3 000) 283 000 156 000 213 140 213 140 304 400 Problem 22.4 (cont’d) RILA LTD Consolidated Statement of Comprehensive Income for year ended 30 June 2013 Profit before income tax $67 200 Income tax expense 26 660 Profit for the period $40 540 Other components of equity: decrements in financial assets (14 000) Asset revaluation reserve: increments 6 000 Comprehensive income for the period $32 540 RILA LTD Consolidated Statement of Changes in Equity for year ended 30 June 2013 Comprehensive income for the period $32 540 Retained earnings balance at 1 July 2012 $34 960 Profit for the period 40 540 Dividend paid (20 000) Retained earnings balance at 30 June 2013 $55 500 Share capital balance at 1 July 2012 $150 000 Share capital balance at 30 June 2013 $150 000 General reserve balance at 1 July 2012 $42 000 General reserve balance at 30 June 2013 $42 000 Asset revaluation reserve at 1 July 2012 $14 000 Increments 6 000 Asset revaluation reserve at 30 June 2013 $20 000 Other components of equity at 1 July 2012 $28 000 Available-for-sale financial assets (14 000) Other components of equity at 30 June 2013 $14 000 Problem 22.4 (cont’d) RILA LTD Consolidated Statement of Financial Position as at 30 June 2013 Current Assets Cash $19 000 Available-for-sale financial assets 15 000 Inventories 51 000 Total Current Assets 85 000 Non-current Assets Property, plant, and equipment $303 000 Accumulated depreciation (99 000) 204 000 Goodwill 12 400 Intangibles: Patent 6 000 Accumulated amortisation 3 000 __3 000 Total Non-current Assets 219 400 Total Assets $304 400 Equity Share capital $150 000 Reserves: General reserve 12 000 Asset revaluation reserve 20 000 Other components of equity 14 000 Retained earnings 55 500 Total Equity 251 500 Current Liabilities Payables 27 000 Non-current Liabilities Interest-bearing liabilities: Loan 25 000 Deferred tax liability __900 Total Liabilities 52 900 Total Equity and Liabilities $304 400 On 1 July 2008, Olympus Ltd acquired all the shares of Delphi Ltd. On this date, the equity of Delphi Ltd comprised the following balances: Share Capital $180 000 General Reserve 20 000 Plant Maintenance Reserve 30 000 Retained Earnings 72 000 At acquisition date, all the identifiable assets and liabilities of Delphi Ltd were recorded at amounts equal to fair value except for: Carrying Fair Amount Value Land $50 000 $75 000 Buildings (cost $75 000) 55 000 57 000 Inventory 45 000 60 000 Plant (cost $260 000) 182 000 190 000 Delivery Truck (cost $90 000) 36 000 38 000 Office Furniture (cost $21 000) 16 500 16 500 At 1 July 2008, Delphi Ltd had recorded goodwill of $12 000 arising from a prior period business combination. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed or lost. Delphi Ltd registered a patent on 26 June 2008 but did not recognize it as an asset. Olympus Ltd believed the fair value of the patent was $45 000. The patent is legally enforceable for a period of 15 years. On 1 January 2012, Delphi Ltd sold the patent for $30 000. At 1 July 2008, Delphi Ltd was involved in a lawsuit brought against it by a customer for damages suffered as a result of poor quality goods supplied. Lawyers for Olympus Ltd advised that the court is likely to find in favour of the customer and likely damages may amount to $30 000. After a prolonged court case, damages of $28 000 were paid in full settlement on 3 May 2012. The plant had a further five year life at acquisition date and was expected to be used evenly over that time. Buildings have a further 10 years of useful life. The delivery truck which was expected to have a further four year useful life at acquisition date was sold on 1 April 2011 for 28 000. During the year ended 30 June 2009 all inventory, on hand at acquisition date, was sold. As a result of the annual impairment test Delphi Ltd wrote its Goodwill down by $5 000 on 30 June 2012. In the financial year ended 30 June 2011 Delphi Ltd transferred $10 000 from retained earnings on hand at acquisition date to the General Reserve. Additional information: (a) On 1 July 2011, Delphi Ltd had on hand inventory worth $36 000, transferred from Olympus Ltd in June 2011. The inventory cost Olympus Ltd $28 000. This entire inventory was sold to external parties in the year ended 30 June 2012. (b) On 1 April 2009, Olympus Ltd sold inventory which cost $27 000 to Delphi Ltd for $25 000. Delphi Ltd treated this item as plant with a five year useful life. (c) During the year ended 30 June 2012, Delphi Ltd sold inventory to Olympus Ltd for $54 000 this being at cost plus 20% markup. Of this inventory 80% had been sold to external customers by 30 June 2012. (d) During the year ended 30 June 2012, Olympus Ltd sold inventory costing $18 000 to Delphi Ltd for $27 000. Two thirds of this inventory was sold to external customers for $21 600. (e) In May 2010 Olympus Ltd lent $35 000 at an annual interest rate of 4% to Delphi Ltd. Delphi Ltd has as yet made no repayments on the loan. (f) Olympus Ltd rents surplus space in its warehouse to Delphi Ltd for an annual rental charge of $40 000. (g) On 1 October 2011 Delphi Ltd sold an item of plant to Olympus Ltd which regarded the item as inventory. The plant had a carrying amount of $11 000 and was sold for $14 000. The item was subsequently sold to an external party in May 2012. (h) On 1 January 2012 Olympus Ltd sold an item of office furniture to Delphi Ltd for $5 000. The furniture had a carrying amount at the date of sale of $4 500. Both companies depreciate office furniture at 20% per annum. (i) The gains on Available-for-Sale Financial Assets for the year ended 30 June 2012 were $6 700 (Olympus Ltd) and $1 900 (Delphi Ltd). There were no other movements during the year. (j) The tax rate is 30%. On 30 June 2012 the trial balances of Olympus Ltd and Delphi Ltd were as follows: Olympus Ltd Delphi Ltd Debit Balances Cash $90 620 $96 145 Receivables 36 000 83 800 Dividend Receivable 8 000 1 200 Inventory 72 000 97 800 Available-for-Sale Financial Assets 90 250 27 250 Loan Receivable “ Delphi Ltd 35 000 – Shares in Delphi Ltd 360 000 – Deferred tax assets 32 080 24 725 Land 125 000 50 000 Buildings 120 000 75 000 Plant 450 000 320 000 Delivery Truck 75 000 120 000 Office Furniture 15 000 26 000 Goodwill 28 000 12 000 Cost of Sales 1 440 100 1 196 500 Amortisation and Depreciation 60 000 54 100 Impairment loss “ 5 000 CA of non-current assets sold 4 500 11 000 Damages expense “ 28 000 Other expenses 63 000 162 400 Income tax expense 68 100 79 860 Dividend paid 12 000 10 000 Dividend declared 6 000 8 000 Transfer to general reserve 10 000 – 3 200 650 2 488 780 Credit Balances Share capital 450 000 180 000 General Reserve 80 000 30 000 Plant Maintenance Reserve “ 10 000 Available-for-Sale Financial Assets Reserve 40 000 5 000 Retained earnings (1/7/11) 89 500 165 340 Dividend Payable 6 000 8 000 Accounts Payable 37 000 43 400 Loan Payable “ Olympus Ltd “ 35 000 Loan Payable (due 1/7/15) 100 000 50 000 Current Tax Liability 65 200 89 000 Deferred Tax Liability 19 250 26 040 Annual Leave Entitlements 50 000 25 000 Sales Revenue 1 830 000 1 517 000 Dividend Revenue 23 500 3 200 Proceeds on sale of non-current assets 5 000 44 000 Other Revenue 62 900 16 000 Transfer from plant maintenance reserve “ 20 000 Accumulated impairment “ Goodwill “ 5 000 Accumulated depreciation “ Buildings 56 000 40 000 Accumulated depreciation “ Plant 252 000 148 000 Accumulated depreciation “ Office Furniture 6 200 13 800 Accumulated depreciation “ Delivery Truck 28 100 15 000 $3 200 650 $2 488 780 Assignment Tasks 1. Acquisition analysis at 1 July 2008. 2. The BCVR & pre-acquisition worksheet journal entries ONLY at 30 June 2011 3. The consolidation worksheet journal entries at 30 June 2012 4. The consolidation worksheet for Olympus Ltd at 30 June 2012 Use the worksheet template attached to complete the consolidation worksheet. 5. The consolidated financial statements for Olympus Ltd at 30 June 2012 Account Name Olympus Ltd Delphi Ltd Adjustments Group Dr Cr Cash 90 620 96 145 Receivables 36 000 83 800 Dividend Receivable 8 000 1 200 Inventory 72 000 97 800 Available-for-Sale -Financial assets 90 250 27 250 Loan Receivable “ Delphi Ltd 35 000 – Shares in Delphi Ltd 360 000 – Deferred Tax Assets 32 080 24 725 Land 125 000 50 000 Buildings 120 000 75 000 Plant 450 000 320 000 Delivery Truck 75 000 120 000 Office Furniture 15 000 26 000 Goodwill 28 000 12 000 Cost of Sales 1 440 100 1 196 500 Amortisation & Depreciation 60 000 54 100 Impairment Loss “ 5 000 CA of NCA sold 4 500 11 000 Damages Expense “ 28 000 Other expenses 63 000 162 400 Income tax expense 68 100 79 860 Dividend paid 12 000 10 000 Dividend declared 6 000 8 000 Transfer to General Reserve 10 000 – Total debit balances 3 200 650 2 488 780 Olympus Ltd Delphi Ltd Adjustments Group Dr Cr Share Capital 450 000 180 000 General Reserve 80 000 30 000 Plant Maintenance Reserve “ 10 000 Available for Sale “ Financial Assets Res. 40 000 5 000 BCVR “ – Retained Earnings (1/7/11) 89 500 165 340 Dividend Payable 6 000 8 000 Accounts Payable 37 000 43 400 Loan Payable “ Olympus Ltd “ 35 000 Loan Payable (due 1/7/15) 100 000 50 000 Current Tax Liability 65 200 89 000 Deferred Tax Liability 19 250 26 040 Annual Leave Entitlements 50 000 25 000 Sales Revenue 1 830 000 1 517 000 Dividend Revenue 23 500 3 200 Proceeds on sale of NCA 5 0000 44 000 Other Revenue 62 900 16 000 Transfer from PMR “ 20 000 Transfer from BCVR Accum. Impairment “ Goodwill “ 5 000 Accum. Depreciation “Buildings 56 000 40 000 Accum. Depreciation “Plant 252 000 148 000 Accum Depreciation “Office Furniture 6 200 13 800 Accum. Depreciation “ Delivery Truck 28 100 15 000 Gain on Settlement “ – Total Credit Balances 3 200 650 2 488 780