Hahndorf Ltd acquired 100% of the shares of Sarina Ltd on 1 July 2015 for $700,000, when the equity of Sarina Ltd consisted of:
Share Capital $500,000
General Reserve 80,000
Retained Earnings 30,000
All identifiable assets and liabilities of Sarina Ltd were fairly valued at acquisition except the machinery, which had a fair value of $140,000. The machinery had a further 7-year life with depreciation based on the straight-line method.
Selected financial information for both companies at 30 June 2018 is as follows:
Hahndorf Ltd Sarina Ltd
Sales revenue $1,000,000 $800,000
Cost of sales (600,000) (600,000)
Gross profit 400,000 200,000
Dividend received from Sarina Ltd 30,000 -
Management fee received 26,500 -
Gain on sale of plant 35,000 -
Admin expenses 55,800 28,700
Depreciation 29,500 56,800
Management fee paid - 26,500
Other expenses 306,200 8,000
Profit before tax 100,000 80,000
Tax expense (30,000) (24,000)
Profit for the period 70,000 56,000
Retained earnings at 1/7/17 230,000 120,000
300,000 176,000
Dividend paid (20,000) (10,000)
Dividend declared (40,000) (20,000)
Retained earnings at 30/6/18 240,000 146,000
Share capital 900,000 500,000
General reserve 60,000 80,000
Total equity 1,200,000 726,000
Dividend payable 40,000 20,000
Other liabilities (note 1) 120,000 30,000
Total equity and liabilities 1,360,000 776,000
Shares in Sarina Ltd 700,000 -
Dividends Receivable 20,000 -
Inventory 40,000 50,000
Other assets (note 2) 600,000 726,000
Total assets 1,360,000 776,000
Notes
1. Other liabilities include deferred tax liabilities
2. Other assets include Land, Machinery, Equipment, and Accumulated depreciation and Impairment losses, and Deferred Tax asset.
Other information:
During the 2017-18 period, Sarina Ltd sold some items of inventory to Hahndorf Ltd for $92,000, recording a profit before tax of $12,000. Hahndorf Ltd has since resold half of these items.
During the 2016-17 period, Hahndorf Ltd sold some items of inventory to Sarina Ltd. At 30 June 2017, Sarina Ltd still had inventory on hand on which Hahndorf Ltd had recorded a before-tax profit of $16,000. All this inventory has been sold during the 2017/18 financial year.
During the year, Hahndorf Ltd made total sales to Sarina Ltd of $60,000. Sarina Ltd sold all these goods to customers outside the group.
On 1 July 2017 Hahndorf Ltd sold an item of plant to Sarina Ltd for $116,000 when its carrying value in Hahndorf Ltd’s accounts was $81,000 (cost $135,000, accumulated depreciation $54,000). This plant is assessed as having a remaining useful life of five years. The Group has a policy of measuring its property, plant and equipment using the ‘cost model’.
Sarina Ltd paid $26,500 in management fees to Hahndorf Ltd.
The company income tax rate is 30%.
Required
(a) Prepare the consolidation journal entries for the above entities as at 30 June 2018, excluding those already done in Part B of this assessment task. Use reference numbers starting at (f) to number the journals
Journal Entries for Hahndorf Ltd.
| Date | Particulars | debit amount($) | credit amount($) |
|---|---|---|---|
| july 1,2015 |
Share capital account Sarina ltd. share capital (100% share acquired by Hahndorf Ltd) |
700000 |
700000 |
|
Equity Share Capital A/c Sarina ltd. equity share capital (acquired equity shares) |
500000 |
500000 | |
|
General reserve Account Sarina Ltd. general reserve (reserves received from Sarina ltd.) |
80000 |
80000 |
|
|
Retained Earning Account Sarina Ltd. retained earning (retained earning transferred ) |
30000 |
30000 |
|
| june30,2018 |
sales revenue account sales (Sales by Hahndorf Ltd ) |
1000000 |
1000000 |
|
Cost of Sales cash (Expense related with sales) |
600000 |
600000 |
|
|
Gross profit trade account (profit from trade ,sales) |
400000 |
400000 |
|
|
Profit and Loss A/c Sarina ltd. gross profit (transfer sarina ltd. gross profit) |
200000 |
200000 |
|
|
Dividends Account Sarina Share capital (Dividends received from Sarina) |
30000 |
30000 |
|
|
Profit and loss account dividends a/c (transfer dividends) |
30000 |
30000 |
|
|
management fee received fee a/c (management received fee) |
26500 |
26500 |
|
|
profit and loss a/c asset sales (earning from Sales of assets) |
35000 |
35000 | |
|
expense A/c cash (cash expenses) |
55800 |
55800 | |
|
Expense A/c sarina ltd. expenses (expenses at Sarina Ltd) |
28700 |
28700 | |
|
Depriciation a/c asset a/c (depricaition in assets) |
29500 |
29500 | |
|
Management Fee paid a/c cash account (fee paid to management) |
26500 |
26500 | |
|
Expense a/c cash (for expenses) |
306200 |
306200 | |
|
Expense A/c sarina ltd. Expenses (expenses at Sarina Ltd.) |
8000 |
8000 | |
|
Profit A/c sales revenue (profit earned by sales) |
100000 |
100000 | |
|
Profit and Loss Account Sarina, s income a/c (Profit from sarina ltd. earnings) |
80000 |
80000 | |
|
Taxes a/c Profit and Loss Account (payment of taxes) |
30000 |
30000 | |
|
taxes a/c Sarina ltd.'s Profit &loss (Payment of taxes of Sarina Ltd.) |
24000 |
24000 | |
|
Profit and loss A/c revenue (Profit for the period) |
70000 |
70000 | |
|
Profit and loss Sarina ltd. revenues (Profit of Sarina Ltd.) |
56000 |
56000 | |
| july 1, 2017 |
Retained Earnings Sarina,s earnings (retained earnings from Sarina ltd.) |
826000 |
826000 |
|
Dividend Paid Account Share Capital (dividends paid by Hahndorf Ltd ) |
30000 |
30000 | |
|
Dividend Dec. Dividends accounts (for declaration of dividends) |
60000 |
60000 | |
| june30,2018 |
Retained Earning revenue account (retained earnings) |
386000 |
386000 |
|
Share capital a/c pref. shares |
1400000 |
1400000 |
|
|
General reserve a/c profit and loss |
140000 |
140000 |
|
|
equity a/c share capital |
1200000 |
1200000 |
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