Question 3 (27 Marks) Aussie Ltd gained control of Fiji Ltd by acquiring all its shares on I July 2010. The equity at that date was:

Question 3  (27 Marks)

Aussie Ltd gained control of Fiji Ltd by acquiring all its shares on I July 2010. The equity at that date was:

                                   Share capital               $100 000

                                   Retained earnings         35 000

At 1 July 2010, all the identifiable assets and liabilities of Fiji Ltd were recorded at fair value except for:

                                         Carrying amount           Fair value

Inventory                                18 000                       22 000

Land                                       120 000                      130 000

Plant (cost $120 000)              95 000                       98 000

The inventory was all sold by 30 June 2011. The plant had a further 5 – year life but was sold on 1 January 2013 for $50 000. The land was sold in March 2011 for $150 000.

Where revalued assets are sold or fully consumed, any associated amounts in the business combination valuation reserve are transferred to retained earnings. At 1 July 2010, Fiji Ltd had guaranteed a loan taken out by Swede Ltd. Fiji Ltd had not raised a liability in relation to the guarantee but, as Swede Ltd was not performing well, Aussie Ltd valued the contingent liability at $5000. in January 2013, Swede Ltd repaid the loan. Fiji Ltd had also invented a special tool and patented the process. No asset was raised by Fiji Ltd, but Aussie Ltd valued the patent at $6000, with an expected useful life of 6 years. The tax rate is 30%.

Financial information for these companies for the year ended 30 June 2013 is as follows:

                                                                                   Aussie Ltd                 Fiji Ltd

Profit before tax                                                         50 000                        15 000

Income tax expense                                                   (20 000)                      (6 000)

Profit for the year                                                      30 000                        9 000

Other recognized income and expense:

Gains on plant revaluation                                         6 000                          0

Available-for-sale financial assets                              (4 000)                        (10 000)

Total recognized income and expense for the year    32 000                        (1 000)

Profit                                                                          30 000                        9 000

Retained earnings (1 July 2012)                                37 000                        45 000

                                                                                   67 000                        54 000

Dividend paid                                                           20 000                       -

Transfer to general reserve                                        -                                 20 000

                                                                                   20 000                        20 000

Retained earnings (30 June 2013)                              47 000                        34 000

Share capital                                                               150 000                      100 000

General reserve                                                          12 000                        20 000

Asset revaluation reserve                                           20 000                        -

Retained earnings                                                      47 000                        34 000

Other components of equity                                      10 000                        4 000

           Total equity                                                    239 000                      158 000

Payables                                                                     19 000                        8 000

Loan                                                                           25 000                              -

           Total liabilities                                    44 000                        8 000

Total equity and liabilities                                          283 000                      166 000

Cash                                                                           5 000                          14 000

Available-for-sale financial assets                              10 000                        5 000

Inventory                                                                   30 000                        21 000

Plant and equipment                                                  140 000                      163 000

Accumulated depreciation                                         (62 000)                      (37 000)

Shares in Fiji Ltd                                                       160 000                                -

Total assets                                                                 283 000                      166 000

The transfer to general reserve during the year ended 30 June 2013 was from profits earned before 1 July 2010.

Required

Prepare the consolidated financial statements for Aussie Ltd as at 30 June 2013. Your answer should include all consolidation adjustment journal entries and a consolidation worksheet.