Question

Computer Patch Ltd acquired 100% shares in Microchips Ltd on the 1 July 2019 for a cost of $ 2 million. The following financial statements of Computer Patch Ltd and Microchips Ltd have been extracted at the time of acquisition:

	Computer Patch Ltd	Microchips Ltd
Reconciliation of opening and closing retained earnings	($000)	($000)
Sales revenue	671.4	540
less Cost of goods sold	(464)	(238)
Gross Profit	207.4	302
Dividends received from Microchips Ltd	93	-
Management fee revenue from Microchips Ltd	26.5	-
Gain on sale of plant	40	35
Expenses:
Administrative expenses	(30.8)	(38.7)
Depreciation	(29.5)	(56.8)
Management fee expense	-	(26.5)
Other expenses	(101.1)	(72)
Profit before tax	205.5	143
Tax expense	61.5	42.2
Profit for the year	144	100.8
Retained earnings – 30 June 2019	319.4	750.0
	463.4	850.8
Dividends paid	(137.4)	(93)
Retained earnings – 30 June 2020	326.00	757.80
Statement of financial position
Shareholders’ equity
Retained earnings	326	757.80
Share capital	1,350	1,500
Current liabilities
Accounts payable	95.7	46.3
Non-current liabilities
Loans	817.8	116
	2,589.50	2,420.10
Current assets
Accounts receivable	59.4	448.10
Inventory	92	829
Non-current assets
Land	224	926
Plant – at cost	299.85	355.8
Accumulated depreciation	(85.75)	(138.8)
Investment in Microchips Ltd	2,000	-
	2589.50	2,420.10

At the time of acquisition, the equity accounts of Microchips were:

Share capital 1,500,000

Retained earnings 750,000

All assets are fairly stated.

During the 2019/20 financial year Computer Patch Ltd sells inventory to Microchips Ltd for $250,000. The inventory cost Computer Patch $200,000 to produce. At year end, 25% of the inventory was still on hand with Microchips Ltd.

Required:

Provide the consolidation elimination journals at 30 June 2020.

Answer 1