Example 20.

2: intragroup transaction
Numbat Ltd owns all of the shares of Goanna Ltd.
Prepare consolidation worksheet adjusting entries for preparation of the
consolidated financial statement as at 30 Jun 2016
the tax rate is 30%

a. On 1 Jul 2015, Numbat ltd sold an item of plant costing $15,000 to Goanna
for $18,000. Numbat Ltd had not charged any depreciation on the plant before
the sale. Both entities depreciate asses at 10 % p.a on cost
the intragroup transaction is a current period transaction involving a non current asset transferred
Dr Proceeds on sale of plant $ 18,000
Cr Carrying amount of asset sold $ 15,000
Cr Asset $ 3,000

Or

Dr Gain on sale of plant $ 3,000 ($18,000 - $15,000)

CR Asset $ 3,000

Dr Deferred tax asset $ 900 (18,000 - $15,000) * 30%

Cr Income tax expense $ 900

DR Accummulated depreciation $ 300.0 ($3,000 * Depreciation rate)

Cr Depreciation 300 ($3,000 * 10%)

Dr Income tax expense $ 90.0 ($300 * 30%)

CR Deferred tax asset 90

b. On 1 Jan 2014, Goanna Ltd sold a new tractor to Numbat ltd for $30,000
This had cost Numbat $24,000 on that day
Depreciation is 10% p.a on cost by both entities
Reporting period 30 Jun 2016
Current period: 1 jul 2015 - 30 Jun 2016
Previous period: 1 Jan 2014 - 30 Jun 2014
1 jul 2014 - 30 jun 2015
Total: Previous period is 1.5 years
this intragroup transaction is a prior period transaction involving the
sale of a non current asset
Dr Retained earning (1/7/2015) $ 4,200 ($30,000 - $24,000)*70%
Cr Deferred Tax Asset $ 1,800 ($30,000 - $24,000)*30%
Cr Tractor $ 6,000 ($30,000 - $24,000)

Dr Accummulated Depreciation $ 1,500

Cr Depreciation Expense $ 600 Current depreciation ($6000 * 10%)
Cr Retained earning (1/7/2015) $ 900 Previous Depreciation ($6000*10%*1.5years)

Dr Income tax expense $ 180.0 $600 * 30%

Dr Retained earnings (1/7/2015) $ 270.0 $900 * 30%
Cr Deferred tax asset $ 450.0 $1500 * 30%

c. On 1 July 2015, Numbat ltd sold an item of machinery to Goanna Ltd for $9,000.
This item had cost Numbat Ltd $6,000. Numbat ltd regarded this item as
inventory whereas Goanna Lta intended to use it as a non current asset
Goanna Ltd charge depreciation at the rate of 10 % p.a on cost
this is a current period transaction involving a non current asset transferred
intragroup

Dr Sale $ 9,000
Cr Cost of sales $ 6,000
Cr Machinery $ 3,000

Dr Accummulated Depreciation $ 300 $3,000 * 10%

Cr Depreciation Expenses $ 300

Dr Deferred tax asset $ 900 ($3000 * 30%)

Cr income tax expense $ 900

Dr Income tax expense $ 90 ($300 * 30%)

Cr Deferred tax asset $ 90.0

d. In Feb 2015, Numbat Ltd sold inventory to Goanna Ltd for $9,000, at a mark up 20%
on cost. One quarterof this inventory was unsold by Goanna ltd at 30 Jun 2015
Current period: 1 jul 2015 - 30 Jun 2016
Previous period: from Feb 2015 - 30 Jun 2015
sale of inventories in previous period

inventories on hand at 30 Jun 2015 = 1/4

($9,000 * 1/4) = $2250
$2250 is equal to 25% $9,000 = 100%
$2250 = ???
Cost of inventory on hand (at a mark up 20%)
25% * $9000 / (1+20%) = $ 1,875

Adjustment = $2250 - $1875 - $375

Dr retained earning (1/7/16) $ 263

Dr Income tax expense $ 113
Cr Cost of sales $ 375

e. Goanna sold Land to Numbat Ltd in Dec 2015. The Land had original cost Goanna Ltd for $20,000
but was sold to Numbat ltd for only $16,000. To help Numbat pay for the land, Goanna gave Numbat
an interest free loan of $9,000 and balance was paid in cash.
Numbat has as yet made no repayments on the loan
sale of Land in current period

Dr Proceeds on sale of land $ 16,000

Dr Land $ 4,000
CR Carrying amount of land sold $ 20,000

Or

Dr Land 4000
Cr Loss on sale of land 4000

Dr Income tax expense 1200

Cr Deferred tax liabiity 1200

Dr Loan from Goanna Ltd 9000

Cr Loan to Numbet Ltd 9000

f. On 1 jul 2014, Goanna Ltd rented a spare warehouse to be used jointly by Numbat Ltd
and Galah ltd with each company paying half agreed rent to Goanna Ltd.
The rent paid to Goanna Ltd in the 2014 - 2015 year was $300 while the rent paid in the
2015 - 2016 year was $350

Dr Rent revenue 175

Cr Rent expense 175
10%*1.5years)
Question 20.7 : Consolidation worksheet (intragroup transaction)
on 1 Jul 2015, Fluffy Ltd acquired all the issue shares of Gliders Ltd
Fluffy paid $30,000 in cash and 20,000 shares in Fluffy ($3 per share)
the Equity of Glider : Share capital
Retained earning
except for:
Carrying amount Fair value Difference
Plant (cost $150,000) $ 120,000 $ 123,000 $ 3,000
Patents $ 90,000 $ 105,000 $ 15,000
Inventory $ 18,000 $ 22,500 $ 4,500
Plant was considered to have further 5 year life
The patent was sold for $120,000 to an external entity on 18 Aug 2015
The inventory was all sold by 30 Jun 2016

Required: Prepare a consolidation worksheet for the preparation of the consilidated financial
Statements of Fluffy Ltd at 30 Jun 2017
The 1 Step: is to determine the business combination valuation and pre-acquisition entries at 1 jul 2015
at 1 jul 2015
Net fair value of identifiable assets and liabikities of Glider ltd
= $66,000 + $6,000
+ $3000 * 70% BCVR - Plant
+ $15,000 * 70% BCVR - Patens
+ $4500 * 70% BCVR - Inventory
= $ 87,750

Consideration transferred = $30,000 + 20,000 * $3

= $ 90,000

Goodwill = $90,000 - $87,750

= $ 2,250

1. Business Combination valuation Reserve

Carrying amount Fair value Difference

Plant (cost $150,000) $ 120,000 $ 123,000 $ 3,000
on 1 jul 2015 $ 30,000 $ 27,000

Previous period 1 jul 2015 - 30 jun 2016

1 jul 2016 - 30 jun 2017
Dr Accummulated Depreciation - Plant $ 30,000
Cr Plant $ 27,000
Cr Deferred tax liability $ 900.0
Cr Business Combination valuation reserve $ 2,100.0

dr Depreciation expense $ 600

Dr Retained earning $ 600
($3000 for 5 year = 600 per year
CR Accummulated depreciation $ 1,200
Dr Deferred taxliability $ 360
Cr Income tax expense $ 180
Cr Retained earning $ 180

Goodwill $ 2,250
Dr Goodwill
CR Business Combination valuation reserve $ 2,250

2. Pre-acquisition entries
at 1 / jul / 2015

Dr Share capital $ 66,000

dr Retained earning $ 6,000
Dr Business Combination Valuation Reserve $ 18,000
Cr Share in Glider ltd $ 90,000

at 30 / jun / 2016 enter this journal

DR Share capital $ 66,000

DR Retained earning $ 19,650
DR Business Combination Valuation reserve $ 4,350
Cr Share capital $ 90,000

The 2 step is to prepare the adjustment entries for intragroup transaction

a. at 1 jul 2016, Glider Ltd held inventory sold to it by Fluffy Ltd in the previous year at a profit
of $600. During the 2016-2017 year, Fluffy sold inventory to Glider for $21,000.
None of this was on hand at 30 jun 2017
Carrying amount Fair value Difference
Inventory $ 18,000 $ 22,500 $ 4,500

Sale and Profit in closing inventories:

Dr Sales $ 21,000
Cr Cost of sale $ 21,000
(none of the inventory was on hand at 30 jun 2017)

Profit in opening inventory of Glider Ltd

Dr Retained earning $ 420

Dr Income tax expense $ 180
Cr Cost of sale $ 600
(previous year held inventory profit of $600)

b. Glider ltd also item of inventory to Fluffy ltd. During the 2016 -2017 year, Glider ltd
sold goods to Fluffy for $4500. At 30 jun2017, inventory which had been sold to Fluffy
at a profit of $300 was still on hand in Fluffy ' s inventory

DR Sale Revenue $ 4,500

Cr Cost of sale $ 4,200
Cr Inventory $ 300

Dr Deferred tax asset $ 90

Cr Income tax expense $ 90

c. On 1 jul 2016, Glider ltd sold an item of plant to fluffy for $15,000. This plant had a carrying
amount in the records of Glider ltd of $14,000 at time of sale. This type of plant is depreciated
at 10 % p.a on cost ($15,000 - $14,000=$1,000)

Sale of plant, current period

DR Preoceeds on sale of plant $ 15,000
Cr Carrying amount of plant sold $ 14,000
Cr Plant $ 1,000

Dr Deferred tax asset $ 300

Cr Income tax expense $ 300

Dr Accummulated depreciation $ 100

Cr Depreciation expense $ 100
(10% *$1000)

Dr Income tax expense $ 30

Cr Deferred tax asset $ 30

d. On 1 Jan 2015, Fluffy sold an item of inventory to Glider ltd for $18,000. The inventory
had cost Fluffy $16,000. This item was classified by Glider as plant (depreciated at 20%p.a)
Sale of Plant in prior period
Current period1 jul 16 - 30 jun 17 1 year
Previous perio1 jul 15 - 30 jun 16 1 year
1 Jan 15 - 30 jun 15 6 months

Dr Retained earnings (1/7/16) $ 1,400

Dr Deferred tax asset $ 600
Cr Plant $ 2,000

Dr Accummulated Depreciation $ 1,000

Cr Depreciation Plant $ 400
Cr Retained earning (1/7/16) $ 600
(20%*$2000 * 1.5years)

Dr Income tax expense $ 120

Dr Retained Earnings $ 180
Cr Deferred tax asset $ 300

e. On 1 Mar 2017, Glider sold an item of plant to Fluffy ltd. Whereas Glider classified this as plant
Fluffy classified it as inventory. The Sale price was $9000 which include a profit to Glider of $1500
Fluffy sold this to another entiry on 31 Mar for $9900
The tax rate is 30 %
Sale of inventories classified as plant in current period
Sale price 9000
Cost 7500
Profit 1500

Dr Proceeds on sale of plant $ 9,000

Cr Carrying amount of plant sold $ 7,500
Cr Cost of sale $ 1,500
 at 30 jun 2017, the followinh financial information was provided by two companies:
Fluffy Glider

$ 66,000 Sales revenue $ 64,500 $ 78,000

$ 6,000
Cost os sale $ 30,900 $ 46,350

$ 10,500.0
$ 3,150.0 $ 33,600 $ 31,650
$ 19,650
Trading expense $ 4,800 $ 9,000
Office Expense $ 7,950 $ 4,050
Depreciation Expense $ 1,800 $ 3,900

$ 14,550 $ 16,950
entries at 1 jul 2015
Profit from trading $ 19,050 $ 14,700

Proceeds on sale of plant $ 9,000 $ 15,000

Carrying amount of plant sold $ 7,500 $ 14,000

Gain / loss on sale of plant $ 1,500 $ 1,000

Profit before tax $ 20,550 $ 15,700

Income tax expense $ 11,100 $ 7,300

Profit $ 9,450 $ 8,400

Retained earning (1/7/16) $ 48,000 $ 31,500

Retained earning (30/6/17) $ 57,450 $ 39,900

Share capital $ 96,000 $ 66,000
BCVR

Total Equity $ 153,450 $ 105,900

Current Liabilities $ 21,100 $ 10,500

Deferred tax liability $ 11,000 $ 15,000
Total Liabilities $ 32,100 $ 25,500
 total Equity & Liability $ 185,550 $ 131,400

Plant $ 57,000 $ 107,250

$ 4,350.0 Accummulated Depreciation -$ 18,300 -$ 33,450

Intangibles $ 12,000 $ 11,100

Shares in Glider ltd $ 90,000 $ -
Deferred tax asset $ 8,100 $ 9,450

Inventory $ 28,500 $ 24,600

Receivables $ 8,250 $ 12,450
Goodwill $ - $ -

Total assets $ 185,550 $ 131,400

d this as plant
der of $1500
y two companies:
Adjustment
Note Note Group
Dr Cr
$ 21,000 $ 117,000
$ 4,500
$ 21,000 $ 49,950 A + B - total credit
$ 4,200
$ 1,500
$ 600
$ 67,050

$ 13,800
$ 12,000
n1 $ 600 $ 400 $ 5,800
$ 100
$ 31,600

$ 35,450

$ 15,000 $ -
$ 9,000 $ -
$ 14,000 $ -
$ 7,500 $ -
$ -

$ 35,450
$ 180 $ 180 n1 $ 18,160
$ 120 $ 300
$ 30
$ 90
$ 17,290

n1 $ 600 $ 180 n 1 $ 58,030 A + B +Total credit - total d

n2 $ 600
$ 420
$ 1,400
$ 180
$ 19,650
$ 75,320 Retained earning beginnin
n2 $ 66,000 n2 $ 96,000
n2 $ 4,350 $ 2,100 $ -
$ 2,250 n1

$ 171,320

$ 31,600
n1 $ 360 $ 900 n1 $ 26,540
$ 58,140
 $ 229,460

n1 $ 27,000 $ 134,250
$ 2,000
$ 1,000
n1 $ 30,000 $ 1,200 n 1 $ 21,850
$ 1,000
$ 100
$ 23,100
$ 90,000 $ -
$ 90 $ 30 $ 18,210
$ 300 $ 300
$ 600

$ 300 $ 52,800
$ 20,700
n1 $ 2,250 $ 2,250

$ 177,730 $ 177,730 $ 229,460

A + B - total credit

A + B +Total credit - total debit

Retained earning beginning + profit

Gross Profit
Question 20.13:
On 1 Jul 2015, Ghost Ltd acquired all the share of Bat Ltd for $330,000 on an ex div basis
The equity and liabilities of Bat include:

Share capital $ 200,000

General reserve $ 25,000
Retained earning $ 45,000
Dividend payable $ 10,000
Provisions $ 169,500

At acquisition date, all the identifiable assets and Liabilities of Bat Ltd were recorded at amounts equal
to fair value except for:
Carrying amount Fair value Difference
Plant $ Equipment ( cost $300,000) $ 186,000 $ 190,000 $ 4,000
Trademark $ 100,000 $ 110,000 $ 10,000
Inventory $ 70,000 $ 80,000 $ 10,000
Land $ 50,000 $ 70,000 $ 20,000
Goodwill $ 25,000 $ 55,000
Machinery ( cost $18,000) $ 15,000 $ 16,000 $ 1,000

Prepare the consolidation worksheet for Ghost Ltd for the preparation of consolidated financial
statement at 30 Jun 2017

The 1 Step: is to determine the business combination valuation and pre-acquisition entries at 1 jul 2015
at 1 jul 2015
Net fair value of identifiable assets and liabikities of Glider ltd
= $200,000 + $25,000+ $45,0000
+ $4000 * 70% BCVR - P&E
+ $10,000 * 70% BCVR - Trademark
+ $10,000 * 70% BCVR - Inventory
+ $20,000 * 70% BCVR - Land
+ $1000 * 70% BCVR - Machinery
- $25,000
= $ 276,500.0

Consideration transferred = $330,000

Goodwill = $330,000 - $276,500
= $ 53,500.0
Recorded goodwill = $ 25,000
Unrecorded goowill = $ 28,500

1. Business Combination valuation Reserve

acquisition date at 1 jul 2015, plant had 5 year life Previous period 1 jul 2015 - 30 jun 2016
Plant & Equipment (have further 5 year useful life 1 jul 2016 - 30 jun 2017

Carrying amount Fair value

Plant $ Equipment ( cost $300,000) $ 186,000 $ 190,000 $ 4,000 800
$ 114,000 $ 110,000
Dr Accummulated Depreciation - Plan $ 114,000
Cr Plant $ 110,000
Cr Deferred tax liability $ 1,200.0
Cr Business Combination valuation reserve $ 2,800.0

dr Depreciation expense $ 800

Dr Retained earning $ 800
($4000 for 5 year = 800 per year
CR Accummulated depreciation $ 1,600

Dr Deferred taxliability $ 480

Cr Income tax expense $ 240
Cr Retained earning $ 240

Trademark (have indefinite life)

Dr Trademark $ 10,000
Cr Deferred tax liability $ 3,000.0
Cr Business combination Valuation Reserve $ 7,000.0

Machinery ( have further 4 year useful life at acquisition date, was sold on 1 jan 2017
Carrying amount Fv Difference
Machinery ( cost $18,000) $ 15,000 $ 16,000 $ 1,000 $ 250
$18,000 / 4 years = 4500 / year 3000 2000 $ 125
The current period depraciation (half year depreciation): $1000 / 4year = 250 / year
half year depreciation = $250 / 2 = $125
the previous period since acquisition date
1 jul 2015 - 30 jun 2016

Dr Depreciation expense $ 125 (250/2)

Dr Carrying amount of machinery sold / gain on sale $ 625 Total 4 year, minus 1/2 yea
cr Income tax expense $ 225 3.5 year left = $250 +$250
225 = (125+625)*.3
Dr Retained earning (1/7/16) $ 175
Cr Transfer from business combination valuation reserve $ 700 1000*0.7

Land (was sold on 1 jun 2017)

Carrying amount FV Difference
Land $ 50,000 $ 70,000 $ 20,000

Dr Gain on sale on land $ 20,000

Cr Income tax expense $ 6,000
Cr Business Combination Valuation reserve $ 14,000

Dr Business Combination Valuation reserve $ 14,000

Cr Transfer from business combination valuation reserve $ 14,000
2. Pre-acquisition entries

at 30 jun 2015
Dr Share capital $ 200,000
Dr General reserve $ 25,000
Dr Retained earning $ 45,000
DR Goodwill $ 28,500
Dr Business Combination Valuation Re $ 31,500
Cr Share in Bat 330000

at 30 jun 2017
1 jul 2015 - 30 jun 2016
1 jul 2016 - 30 jun 2017
Total 4 year, minus 1/2 year ($125 for the current period depreciation
3.5 year left = $250 +$250 + $125 (another half year)
225 = (125+625)*.3