On 1 July 2016, Parrot Ltd acquired 80% of the share capital of Squirrel Ltd for $264

800. On that date, the statement of financial position of Squirrel Ltd consisted of:

 Share capital $250 000

 General reserve 10 000

Asset revaluation surplus 15 000

Retained earnings 10 000

Liabilities 180 000

$465 000

Cash $ 35 000

Inventories 70 000

Land 65 000

Plant and equipment 300 000

Accumulated depreciation – plant and equipment (130 000)

Trademark 100 000

Goodwill 25 000

$ 465 000

 

At 1 July 2016, all identifiable assets and liabilities of Squirrel Ltd were recorded at fair

value except for:

Carrying amount Fair value

Inventories $ 70 000 $ 80 000

Land 65 000 85 000

Plant and equipment (cost

$200 000)

70 000 90 000

Trademark 100 000 110 000

During the year ended 30 June 2017, all inventories on hand at the beginning of the year

were sold, and the land was sold on 28 February 2017 to Outback Ltd for $80 000. The

plant and equipment had a further 5-year life beyond 1 July 2016 and was expected to

be used evenly over that time. The trademark was considered to have an indefinite life.

Any adjustments for differences at acquisition date between carrying amounts and fair

values are made in the consolidation worksheet. Parrot Ltd uses the partial goodwill

method. The tax rate is assumed to be 30%.

Financial information for Parrot Ltd and Squirrel Ltd for the year ended 30 June 2017

is shown below.

Parrot Ltd Squirrel Ltd

 Sales revenue $200 000 $172 000

2

Other income 75 000 30 000

275 000 202 000

Cost of sales 162 000 128 000

Other expenses 53 000 31 000

215 000 159 000

Profit from trading 60 000 43 000

Gains/(losses) on sale of non-current

assets

10 000 5 000

Profit before tax 70 000 48 000

Income tax expense 20 000 18 000

Profit for the period 50 000 30 000

Retained earnings (1/7/16) 30 000 10 000

Transfer from general reserve — 8 000

80 000 48 000

Interim dividend paid 12 000 10 000

Final dividend declared 6 000 4 000

18 000 14 000

Retained earnings (30/6/17) $ 62 000 $ 34 000

Asset revaluation surplus (1/7/16) $ 15 000

Gain on revaluation of specialised

plant

 5 000

Asset revaluation surplus (30/6/17) $ 20 000

During the year ended 30 June 2017, Squirrel Ltd sold inventories to Parrot Ltd for

$8000. The original cost of these items to Squirrel Ltd was $5000. One-third of these

inventories were still on hand at the end of the year.

On 31 March 2017, Squirrel Ltd transferred an item of plant with a carrying amount of

$10 000 to Parrot Ltd for $15 000. Parrot Ltd treated this item as inventories. The item

was still on hand at the end of the year. Squirrel Ltd applied a 20% depreciation rate to

this type of plant.

Required:

1. Prepare the acquisition analysis and all consolidation worksheet entries

(narrations not required) necessary for preparation of the consolidated financial

statements for Squirrel Ltd and its subsidiary for the year ended 30 June 2017.

2. Prepare the consolidated statement of profit or loss and other comprehensive

income for Parrot Ltd and its subsidiary at 30 June 2017

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