Han Ltd acquired 100% of the shares of Sarina Ltd on 1 July 2015 for $700,000, when the equity of Sarina Ltd consisted of:

Han 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:

Han 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 Han Ltd for $92,000, recording a profit before tax of $12,000. Han Ltd has since resold half of these items.

·     During the 2016-17 period, Han Ltd sold some items of inventory to Sarina Ltd. At 30 June 2017, Sarina Ltd still had inventory on hand on which Han 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, Han 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 Han Ltd sold an item of plant to Sarina Ltd for $116,000 when its carrying value in Han 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 Han Ltd.

·     The company income tax rate is 30%.

Required

(a)     Prepare the consolidation journal entries for the above entities as at 30 June 2018.              

(b)     Prepare the consolidated worksheet for the year ended 30 June 2018. Post all consolidation journal entries to the consolidated worksheet. Use references when posting these journals to the consolidated worksheet.