Sky Ltd acquired all of the shares of Cloud Ltd

Sky Ltd acquired all of the shares of Cloud Ltd on 1 July 2018. At this date, the equity of Cloud Ltd consisted of:

Share capital

$100,000

Retained earnings

37,000

General reserve

10,000

   

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

Carrying amount

Fair value

Plant (Cost $88,000)

$60,000

$62,500

Land

50,000

55,000

Inventories

35,000

32,000

The plant was expected to have a further useful life of 5 years.

The land was sold to Rain Ltd on 1 January 2021 for $77,000.

All inventories were sold to Wet Ltd by 30 June 2019 at $5,800 profit.

Included in the assets of Cloud Ltd at the acquisition date is a goodwill of $500.

At 1 July 2018, Cloud Ltd had unrecorded trademark that had a fair value of $18,000. The trademark has an indefinite life.

Additional information

  • Cloud Ltd had inventory on hand at 1 July 2020 at cost of $8,000 that had been sold to it by Sky Ltd. This inventory had cost Sky Ltd $9,000. It was all sold by Cloud Ltd by 30 June 2021 at a profit of $1,500.
  • During the 2020–21 period, Cloud Ltd sold inventory to Sky Ltd for $48,000. The inventory was carried at cost in Cloud Ltd’s book at $45,000. At 30 June 2021, a quarter of this inventory is still on hand.
  • Notes payables issued by Sky Ltd are held by Cloud Ltd. Interests are paid on 1 July each year.
  • The tax rate is 30%.
  • Financial information provided by the two companies at 30 June 2021 is as shown below:

Sky Ltd

Cloud Ltd

Sales revenue

290,900

174,000

Gain on sale of PPE

5,800

Interest revenue

25,000

Dividends revenue

25,400

Total revenue

347,100

174,000

Cost of sales

135,600

85,400

Depreciation expense

23,000

15,000

Administrative expense

22,000

9,800

Interest expense

12,000

18,000

Total expense

192,600

128,200

Profit before tax

154,500

45,800

Income tax expense

42,550

14,800

Profit after tax

111,950

31,000

Retained earnings 30 June 2020

300,500

48,000

Dividend paid

21,000

8,000

Dividend declared

23,000

9,500

Retained earnings 30 June 2021

368,450

61,500

Share capital

500,000

100,000

General reserve

11,200

8% Notes payable

200,000

Deferred tax liabilities

8,600

2,000

Interest payable

17,000

20,000

Dividend payable

45,000

9,500

Total equity and liabilities

$939,050

$404,200

Investment in Cloud Ltd

165,000

Plant

180,000

88,000

Accumulated depreciation-plant

47,000

28,000

Notes receivable

200,000

Land

193,700

186,000

Deferred tax asset

5,000

1,000

Goodwill

500

Inventories

138,050

95,000

Dividend receivable

41,950

Interest receivable

22,000

Accounts receivable

13,350

22,200

Cash

27,000

39,500

Total assets

$939,050

$404,200

Required:

a) Prepare the consolidated worksheet entries for Sky Ltd at 30 June 2021.   50 mark

b) Prepare the consolidated worksheet for Sky Ltd at 30 June 2021. 30 mark

c) Prepare the Consolidated Statement of Financial Position for Sky Ltd at 30 June 2021 in accordance to IAS 1/AASB 101 Presentation of Financial Statements (hint: refer to Para 54).

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