Solution Practice 5 Consolidations 2 - Consolidation worksheet, consolidated financial statements PDF

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Prepare the consolidated financial statements for Griffin. Griffin Ltd is a major Australian company operating in the manufacture of women’s clothing.
One of its major competitors was Frank Ltd whose business was established by a French family
over 30 years ago. It had won numerous award...

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SOLUTION PRACTICE 5: CONSOLIDATIONS 2 Question 19.13

Consolidation worksheet, consolidated financial statements

Griffin Ltd is a major Australian company operating in the manufacture of women’s clothing. One of its major competitors was Frank Ltd whose business was established by a French family over 30 years ago. It had won numerous awards for its designs and has established a number of brands that have been successful, especially with the teenage market. In order to expand its business as well as to reduce the number of players in the market, on 1 July 2013 Griffin Ltd acquired all the issued shares (cum div.) of Frank Ltd for $330 000. At this date the equity of Frank Ltd was as follows: Share capital General reserve Retained earnings

$200 000 20 000 50 000

All the identifiable assets and liabilities of Frank Ltd were recorded at amounts equal to their fair values except for the following:

Plant (cost $220 000) Land Inventory

Carrying amount $180 000 190 000 20 000

Fair value $186 000 210 000 28 000

The plant’s expected remaining useful life was 5 years with benefits being expected evenly over that period. The plant was sold on 1 January 2016 for $87 000. The land was sold in February 2015 for $250 000. Of the inventory, 90% was sold by 30 June 2014 and the rest by 30 June 2015. At 1 July 2013, Frank Ltd had recorded a dividend payable of $10 000 that was paid in September 2013. Frank Ltd also had some unrecorded assets, in particular the brands relating to the successful clothing sold in the teenage market. Griffin Ltd valued these brands at $12 000 and assessed them to have an indefinite life. In its financial statements at 30 June 2013, Frank Ltd raised a contingent liability relating to a guarantee it had made to one of its related companies. Griffin Ltd assessed the fair value of the guarantee payable at $10 000. In August 2015, Frank Ltd was required to pay $2500 in relation to the guarantee. All transfers to the general reserve made by Frank Ltd have been from retained earnings earned prior to 1 July 2013. The tax rate is 30%. The financial information provided by the two companies at 30 June 2016 is as follows:

Required Prepare the consolidated financial statements of Griffin Ltd at 30 June 2016.

At 1 July 2013: Net fair value of identifiable assets and liabilities of Frank Ltd

Consideration transferred Goodwill

=

= = = =

$200 000 + $20 000 + $50 000 (equity) + $8 000 (1 – 30%) (inventory) + $20 000 (1 – 30%) (land) + $6 000 (1 – 30%) (plant) - $10 000 (1 – 30%) (guarantee liability) + $12 000 (1 – 30%) (brands) $295 200 $330 000 - $10 000 (divs. receivable) $320 000 $24 800

1. Business combination valuation entries at 30 June 2016 Depreciation expense Gain on sale of plant Income tax expense Retained earnings (1/7/15) Transfer from business combination valuation reserve (Final adjustment for Plant & Depn to date of sale)

Dr Dr Cr Dr

600 3 000

Brands Deferred tax liability Business combination valuation reserve

Dr Cr Cr

12 000

Transfer from business combination valuation reserve Income tax expense Gain on guarantee Guarantee expense

Dr Dr Cr Cr

7 000 3 000

Goodwill Business combination valuation reserve

Dr Cr

24 800

1 080 1 680

Cr

4 200

3 600 8 400

7 500 2 500

24 800

QUESTION 19.13 (cont’d) 2. Pre-acquisition entries At 1/7/2013: Retained earnings (1/7/13) Share capital General reserve Business combination valuation reserve Shares in Frank Ltd

Dr Dr Dr Dr Cr

50 000 200 000 20 000 50 000 320 000

At 30 June 2016: This entries are affected by: - sale of land in February 2015 – prior period - sale of inventory by 30 June 2015 – prior period - sale of plant in January in current period - settlement of guaranteed loan in current period - transfer to general reserve of $15 000 in current period. - transfer to general reserve of $13 000 in prior period Retained earnings (1/7/15) * Share capital General reserve Business combination valuation reserve Shares in Perseus Ltd

Dr Dr Dr Dr Cr

56 600 200 000 33 000 30 400 320 000

* $50 000 + $14 000 (BCVR land) + $5 600 (BCVR inventory) - $13 000 gen reserve Business combination valuation reserve Transfer from business combination valuation reserve (Settlement of loan)

Dr

7 000

Cr

7 000

Transfer from business combination valuation reserve Business combination valuation reserve (Sale of plant)

Dr Cr

4 200

General reserve Transfer to general reserve

Dr Cr

15 000

4 200

15 000

QUESTION 19.13 (cont’d) Griffin Ltd Revenues 190 000 Expenses 80 000 110 000 Gains on sale of non5 000 current assets Profit before tax 115 000 Tax expense 40 000 Profit 75 000 Retained earnings 80 000 (1/7/15) Transfer from BCVR 0

Dividend paid T’fer to gen reserve Ret earn. (30/6/16) Share capital General reserve Business comb. valuation reserve

Asset reval surplus (1/7/15) Increment Asset reval surplus (30/6/16) Provisions Payables Defer. tax liability Shares in Frank Ltd Cash Accounts receivable Inventory Plant Accum depreciation Goodwill Brands

Frank Ltd 110 000 76 000 34 000 4 000 38 000 6 000 32 000 88 000 0

1

Adjustments Dr Cr 7 500 600 2 500

Group

1

3 000

1

3 000

1 080

1

1 2 1 2

1 680 56 600 7 000 4 200

4 200 7 000

1 2

1 1

307 500 154 100 153 400 6 000 159 400 47 920 111 480 109 720 0

155 000 34 000 0 34 000 121 000 280 000 20 000

120 000 0 15 000 15 000 105 000 200 000 48 000

0

0

421 000 12 000

353 000 0

487 200 12 000

12 000 24 000

0 0

12 000 24 000

445 000 15 000 40 000 0 500 000

353 000 12 000 8 000 0 373 000

511 200 27 000 48 000 3 600 589 800

320 000 12 000 28 000 30 000 230 000 (120 000) 0 0 500 000

0 30 000 12 000 51 000 320 000 (40 000) 0 0 373 000

2 2 2 2 2

1 1

200 000 33 000 15 000 30 400 7 000

24 800 12 000 398 280

15 000

2

8 400 24 800 4 200

1 1 2

3 600

1

320 000

2

398 280

221 200 34 000 0 34 000 187 200 280 000 20 000 0

0 42 000 40 000 81 000 550 000 (160 000) 24 800 12 000 589 800

QUESTION 19.13 (cont’d) GRIFFIN LTD Consolidated Statement of Profit or Loss and Other Comprehensive Income for year ended 30 June 2016 Revenues Expenses

$307 500 154 100 153 400 6 000 159 400 47 920 111 480

Gains on sale of non-current assets Profit before income tax Income tax expense Profit for the period Other comprehensive income: Gains on revaluation of assets Comprehensive income for the period

12 000 $123 480

GRIFFIN LTD Consolidated Statement of Changes in Equity for year ended 30 June 2016 Comprehensive income for the period

$123 480

Retained earnings balance at 1 July 2015 Profit for the period Dividend paid Retained earnings balance at 30 June 2016

$109 720 111 480 (34 000) $187 200

Share capital balance at 1 July 2015 Share capital balance at 30 June 2016

$280 000 $280 000

General reserve balance at 1 July 2015 General reserve balance at 30 June 2016

$20 000 $20 000

Asset revaluation surplus at 1 July 2015 Gains Asset revaluation surplus at 30 June 2016

$12 000 12 000 $24 000

QUESTION 19.13 (cont’d)

GRIFFIN LTD Consolidated Statement of Financial Position as at 30 June 2016 Current Assets Cash Accounts receivable Inventory Total Current Assets Non-current Assets Property, plant, and equipment Accumulated depreciation Goodwill Intangibles: Brands Total Non-current Assets Total Assets Equity Share capital Reserves: General reserve Asset revaluation surplus Retained earnings Total Equity Current Liabilities Payables Provisions Total Current Liabilities Non-current Liabilities Deferred tax liability Total Liabilities Total Equity and Liabilities

$42 000 40 000 81 000 163 000

$550 000 (160 000)

390 000 24 800 12 000 426 800 $589 800

$280 000 20 000 24 000 187 200 511 200 48 000 27 000 75 000 __3 600 78 600 $589 800...