Hahndorf Ltd acquired 100% of the shares of Sarina Ltd on 1 July 2015 for $700,0

ID: 2532450 • Letter: H

Question

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

Explanation / Answer

Journal Entries for Hahndorf Ltd.

Share capital account

Sarina ltd. share capital

(100% share acquired by Hahndorf Ltd)

700000

Equity Share Capital A/c

Sarina ltd. equity share capital

(acquired equity shares)

500000

General reserve Account

Sarina Ltd. general reserve

(reserves received from Sarina ltd.)

80000

Retained Earning Account

Sarina Ltd. retained earning

(retained earning transferred )

30000

sales revenue account

sales

(Sales by Hahndorf Ltd )

1000000

Cost of Sales

cash

(Expense related with sales)

600000

Gross profit

trade account

(profit from trade ,sales)

400000

Profit and Loss A/c

Sarina ltd. gross profit

(transfer sarina ltd. gross profit)

200000

Dividends Account

Sarina Share capital

(Dividends received from Sarina)

30000

Profit and loss account

dividends a/c

(transfer dividends)

30000

management fee received

fee a/c

(management received fee)

26500

profit and loss a/c

asset sales

(earning from Sales of assets)

35000

expense A/c

cash

(cash expenses)

55800

Expense A/c

sarina ltd. expenses

(expenses at Sarina Ltd)

28700

Depriciation a/c

asset a/c

(depricaition in assets)

29500

Management Fee paid a/c

cash account

(fee paid to management)

26500

Expense a/c

cash

(for expenses)

306200

Expense A/c

sarina ltd. Expenses

(expenses at Sarina Ltd.)

8000

Profit A/c

sales revenue

(profit earned by sales)

100000

Profit and Loss Account

Sarina, s income a/c

(Profit from sarina ltd. earnings)

80000

Taxes a/c

Profit and Loss Account

(payment of taxes)

30000

taxes a/c

Sarina ltd.'s Profit &loss

(Payment of taxes of Sarina Ltd.)

24000

Profit and loss A/c

revenue

(Profit for the period)

70000

Profit and loss

Sarina ltd. revenues

(Profit of Sarina Ltd.)

56000

Retained Earnings

Sarina,s earnings

(retained earnings from Sarina ltd.)

826000

Dividend Paid Account

Share Capital

(dividends paid by Hahndorf Ltd )

30000

Dividend Dec.

Dividends accounts

(for declaration of dividends)

60000

Retained Earning

revenue account

(retained earnings)

386000

Share capital a/c

pref. shares

1400000

General reserve a/c

profit and loss

140000

equity a/c

share capital

1200000

Date Particulars debit amount($) credit amount($) july 1,2015

Share capital account

Sarina ltd. share capital

(100% share acquired by Hahndorf Ltd)

700000

Equity Share Capital A/c

Sarina ltd. equity share capital

(acquired equity shares)

500000

General reserve Account

Sarina Ltd. general reserve

(reserves received from Sarina ltd.)

80000

Retained Earning Account

Sarina Ltd. retained earning

(retained earning transferred )

30000

june30,2018

sales revenue account

sales

(Sales by Hahndorf Ltd )

1000000

Cost of Sales

cash

(Expense related with sales)

600000

Gross profit

trade account

(profit from trade ,sales)

400000

Profit and Loss A/c

Sarina ltd. gross profit

(transfer sarina ltd. gross profit)

200000

Dividends Account

Sarina Share capital

(Dividends received from Sarina)

30000

Profit and loss account

dividends a/c

(transfer dividends)

30000

management fee received

fee a/c

(management received fee)

26500

profit and loss a/c

asset sales

(earning from Sales of assets)

35000

expense A/c

cash

(cash expenses)

55800

Expense A/c

sarina ltd. expenses

(expenses at Sarina Ltd)

28700

Depriciation a/c

asset a/c

(depricaition in assets)

29500

Management Fee paid a/c

cash account

(fee paid to management)

26500

Expense a/c

cash

(for expenses)

306200

Expense A/c

sarina ltd. Expenses

(expenses at Sarina Ltd.)

8000

Profit A/c

sales revenue

(profit earned by sales)

100000

Profit and Loss Account

Sarina, s income a/c

(Profit from sarina ltd. earnings)

80000

Taxes a/c

Profit and Loss Account

(payment of taxes)

30000

taxes a/c

Sarina ltd.'s Profit &loss

(Payment of taxes of Sarina Ltd.)

24000

Profit and loss A/c

revenue

(Profit for the period)

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

Dividend Paid Account

Share Capital

(dividends paid by Hahndorf Ltd )

30000

Dividend Dec.

Dividends accounts

(for declaration of dividends)

60000

60000 june30,2018

Retained Earning

revenue account

(retained earnings)

386000

Share capital a/c

pref. shares

1400000

General reserve a/c

profit and loss

140000

equity a/c

share capital

1200000

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Hahndorf Ltd acquired 100% of the shares of Sarina Ltd on 1 July 2015 for $700,0

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Hahndorf Ltd acquired 100% of the shares of Sarina Ltd on 1 July 2015 for $700,0

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