Chanel Ltd

Statements of Financial Position at 30 June 20X3

$000
Assets
Current assets
Cash and cash equivalents 90
Trade and other receivables 30
Inventories 130
Total current asset 250
Non-current assets
Land 250
Building 780
Accumulated depreciation (390)
Plant & equipment 400
Accumulated depreciation (80)
Total non-current assets 960

Total assets 1210

Liabilities
Current liabilities
Trade and other payables 40
Total current liabilities 40

Non-current liabilities
Financial liabilities 500
Total non-current liabilities 500
Total liabilities 540
Net assets 670
Equity
Issued capital 450
Retained earnings 220
Total equity 670
1. On 30/06/20X3
Bridge Ltd purchased all of the issued shares of Channel Ltd for $ 850,000

2. On 30/06/20X3 Channel Ltd

Land Fair value $340,000

3. Impairment losses for goodwill arising on the acquisition during the year ended 30/06/20X7

$40,000

4. In Jan 20X4 Channel Ltd provided Bridge Ltd a loan $200,000

During the year ended 30/06/20X7, Bangalore Ltd paid interest on the loan $16,000

6. During the year ended 30/06/20X7 $000

Channel Ltd sold goods to Bridge Ltd for 630
Channel Lad's original cost of goods 525
% of goods remaining in Bridge Ltd 30%

7. On 30/06/20X7 Bridge Ltd owed Channel Ltd inventories purchase $30,000

8. During the year ended 30/06/20X6

Inventories of Bridge Ltd purchased from Channel Ltd
Channel Ltd sold goods to Bridge Ltd for 144
Channel Lad's original cost of goods 120

9. On 1/07/20X4 $000
Bridge Ltd sold plant & equipment to Channel Ltd for 350
Original price to Bridge Ltd 400
Estimated useful life was 10 years on 1/07/20X1

10. During the year ended 30/6/20X7 $000

Management services provided to Channel Ltd 20

11. Income tax rate 30%

Statements of Comprehensive Income for the year ended 31 December 20X6
Bridge Ltd Chanel Ltd
$000 $000
Sales 5,120 2,640
Opening Inventories 1.7.X6 (680) (630)
Purchases (4,100) (2,020)
Closing Inventories 30.06.X7 710 440
Gross profit 1,050 430
Depreciation expenses (150) (86)
Finance costs (91) (35)
Other expenses (304) (49)
Dividend revenue 120 0
Interest revenue 16
Management fees revenue 20
Profit before tax 645 276
Tax expense (201) (87)
Profit for the year 444 189
Other comprehensive income 0 0
Total comprehensive income for the year 444 189

Bridge Ltd
Statement of changes in equity for the year ended 30 June 20X7
Share Revaluation Retained Total
capital Surplus earnings
Balance at 1/7/20X6 800 210 770 1780
Profit for the year 444
Other comprehensive income 0
Total comprehensive income 444 444
Transactions with Bridge Ltd shareholders
Dividends paid (70) (70)
Dividends proposed (140) (140)
Balance at 30/6/20X7 800 210 1004 2014

Chanel Ltd
Statement of changes in equity for the year ended 30 June 20X7
Share Retained Total
capital earnings
Balance at 1/7/20X6 450 436 886
Profit for the year 189
Other comprehensive income 0
Total comprehensive income 189 189
Transactions with Chanel Ltd shareholders
Dividends paid (45) (45)
Dividends proposed (75) (75)
Balance at 30/6/20X7 450 505 955
Statements of Financial Position at 30 June 20X7
Bridge Ltd Chanel Ltd
$000 $000
Assets
Current assets
Cash 78 117
Accounts receivable 72 35
Dividend receivable 75 0
Inventories 710 440
Total current assets 935 592

Non-current assets
Land 720 250
Building 1500 780
Accumulate depreciation (320) (494)
Plant and equipment 850 450
Accumulate depreciation (235) (210)
Investment in Chennai Ltd 850 0
Loan to Bangalore Ltd 0 200
Total non-current assets 3365 976

Total assets 4300 1568

Liabilities
Current liabilities
Current taxes payable 111 87
Accounts payable 292 50
Dividend payable 140 75
Total current liabilities 543 212

Non-current liabilities
Loan from Chanel Ltd 200 0
Mortgage loan 1453 401
Deferred tax liabilities 90 0
Total non-current liabilities 1743 401

Total liabilities 2286 613

Net assets 2014 955

Equity
Share capital 800 450
Revaluation surplus 210 0
Retained earnings 1004 505
Total equity 2014 955
Acquisition analysis for Bridge Ltd's investment in Chanel Ltd on 30 June 20X3

$'000 $'000
Consideration transferred $850
Purchase consideration 850

Identifiable assets and liabilities assumed

as recorded represented by:
Share capital 450
Retained earnings 220 670
Fair value adjustments
Revaluation of land 90
Deferred tax liability 27 63
Identifiable assets and liabilities assumed at fair value 733
(100% acquired)
Goodwill on acquisition 117
(a)

(b)

(c)

(d)
(e)

(f)

(g)

(h)

(i)
(j)

(k)

(l)
Consolidation adjustment to recognise the fair value increment on the land of Chanel Ltd $90,000 (Deferr

Land
Fair value adjustment (equity)
Deferred tax liability

Consolidation adjustment to eliminate the intragroup investment and pre acquisition equity:

Share Capital
Fair value adjustment (equity)
Retained earnings July 1 20X6
Goodwill
Investment in Chanel Ltd

Consolidation adjustment to recognise impairment of goodwill of $40,000:

Goodwill impairment loss

Accumulated impairment losses -goodwill
Note the impairment loss is posted to the other expenses line in this answer. A separate line item could be

Elimination of management fee revenue and expense

Management fees revenue

Other expenses
Consolidation adjustment to eliminate intragroup loan of $200,000 and intragroup interest revenue/expen

Loan from Chanel Ltd

Loan to Bridge Ltd
Interest revenue
Finance costs

Consolidation adjustment to eliminate intragroup sales of $630,000:

Sales revenue
Purchases

Consolidation adjustment to eliminate the unrealised profit in closing inventories of 30% of $(630,000 52

Closing inventories
Inventories
Deferred tax asset
Tax expense

Consolidation adjustment to eliminate intra-group payables and receivables of $30,000:

Accounts payable
Accounts receivable

Consolidation adjustment to realise the profit that was unrealised at 30 June 20X6 of $24,000 ($144,000-$1
Retained earnings July 1 20X6
Tax expense
Opening inventories

Consolidation adjustment to eliminate the intragroup dividends paid/declared of $120,000:

Dividend revenue
Dividend paid
Dividend declared

Consolidation adjustment to eliminate intra-group dividends payable and receivable:

Dividend payable
Dividend receivable

Analysis of the sale of plant

Analysis of the sale of plant assuming that the original useful life still applies - the accumulated depr
$400,000) and the carrying amount was $280,000; thus the gain on sale was $70,000 (tax $21,000). After the
per annum over the remaining 7 years useful life, compared with $40,000 that was being charged by Bridge
reduced by $10,000 per annum.

Consolidation adjustment to recognise the effects of t

Retained earnings July 1 20X6

Plant
Accumulated depreciation - Plant
Reverse gain on sale

Deferred tax asset

Tax expense
Tax effect for gain on sale

Accumulated depreciation - Plant

Depreciation expense
Retained earnings July 1 2006
Depreciation adjustment

Income tax expense

Retained earnings July 1 20X6
Deferred tax asset
Tax effect for depreciation adjustment
hanel Ltd $90,000 (Deferred tax liability $27,000)

Dr Cr
$000 $000
90
63
27

sition equity:

Dr Cr
$000 $000
450
63
220
117
850

Dr Cr
$000 $000
40
40
eparate line item could be used for accumulated impairment of goodwill.

Dr Cr

$000 $000

20
20
up interest revenue/expense of $16,000:

Dr Cr
$000 $000
200
200
16
16

Dr Cr
$000 $000
630
630

es of 30% of $(630,000 525,000) = $31,500 (tax $9,450):

Dr Cr
$000 $000
31.5
31.5
9.45
9.45

$30,000:

Dr Cr
$000 $000
30
30

X6 of $24,000 ($144,000-$120,000, tax at 30% = $7,200):

Dr Cr
$000 $000
 16.8
7.2
24

f $120,000:

Dr Cr
$000 $000
120
45
75

vable:

Dr Cr
$000 $000
75
75

es - the accumulated depreciation to July 1 20X4 was $120,000 (i.e., 30% of

00 (tax $21,000). After the transfer, Chanel Ltd charges depreciation of $50,000
as being charged by Bridge Ltd. Chanel on consolidation, depreciation must be

he effects of the sale of plant:

Dr Cr
$000 $000
70
50
120
21
21

30 2015+20162017

10 350-280710

20 2015+2016

3
6
9
0710
Consolidation worksheet 30 June 20X7

Bridge Chanel Adjustments Consolidated

Ltd Ltd Debit Ref Credit Entity
$000 $000 $000 $000 $000
Sales revenue 5120 2640 630 f 7130
Less cost of goods sold
Opening inventories 680 630 i 24 1286
Add purchases 4100 2020 f 630 5490
Less closing inventories 710 440 31.50 g 1118.5
Cost of goods sold 4070 2210 5657.5
Gross profit 1050 430 1472.5
Dividend revenue 120 0 120 j 0
Management fee revenue 20 0 20 0
Interest revenue 0 16 16 e 0
Depreciation expense 150 86 l 10 226
Finance costs 91 35 e 16 110
Other expenses 304 49 40 c/d 20 373
Profit before tax 645 276 763.5
Tax expense 201 87 7.2 i/g 9.45
3 l 21 267.75
Profit for the year 444 189 495.75
Retained earnings July 1 20X6 770 436 220 b/1 20
6 l
16.8 i
70 l 913.2
Dividends paid (70) (45) j 45 (70)
Dividends proposed (140) (75) j 75 (140)
Retained earnings June 30 20X7 1004 505 1198.95
Share capital 800 450 450 b 800
Revaluation surplus 210 0 63 b/a 63 210
Shareholders equity 2014 955 2208.95

Assets
Cash 78 117 195
Accounts receivable 72 35 h 30 77
Dividends receivable 75 0 k 75 0
Inventories 710 440 g 31.5 1118.5
Investment in Chanel Ltd 850 0 b 850 0
Loan to Bridge Ltd 0 200 e 200 0
Land 720 250 90 a 1060
Buildings 1500 780 2280
Accumulated depreciation 320 494 814
Plant and equipment 850 450 50 l 1350
Accumulated depreciation 235 210 30 l 120 535
Goodwill 117 b/c 40 77
Deferred tax asset 9.45 g 9.00
____ ____ 21 l 21
Total assets 4300 1568 4829.95
Less liabilities
Current taxes payable 111 87 198
Accounts payable 292 50 30 h 312
Dividend payable 140 75 75 k 140
Loan from Chanel Ltd 200 0 200 e 0
Mortgage Loan 1453 401 1854
Deferred tax liabilities 90 0 a 27 117
Net assets 2014 955 2315.95 2315.95 2208.95
Bridge Ltd Group
Consolidated statement of comprehensive income for the year ended 30 June 20X7
$000
Sales revenue 7130

Less cost of goods sold

Opening inventories 1,286
Add purchases 5,490
Less closing inventories 1,119
Cost of goods sold 5,658

Gross profit 1,473

Less expenses
Depreciation 226
Finance costs 110
Other expenses 373
Profit before tax 763
Tax expense 268
Profit for the year 496
Other comprehensive income 0
Total comprehensive income for the year 496

Bridge Ltd Group

Consolidated statement of changes in equity for the year ended 30
June 20X7
Retained Revaluation Share Total

Earnings Surplus Capital

$000 $000 $000 $000
Balance at 1/7/20X6 913 210 800 1,923
Profit for the year 496
Other comprehensive income 0
Total comprehensive income 496 496
Transactions with Bridge Ltd shareholders
Dividends paid -70 -70
Dividends declared -140 ___ ___ -140
Balance at 30/6/20X7 1,199 210 800 2,209

Bridge Ltd Group

Consolidated statement of financial position as at ended 30 June 20X7
$000 $000
Assets
Current assets
Cash 195
Accounts receivable 77
Inventories 1,119
Total current assets 1,391
Non-current assets
Land 1,060
Buildings (net) 1,466
Plant and equipment (net) 815
Deferred tax asset 21
Goodwill 77
Total non-current assets 3,439
Total assets 4,830

Liabilities
Current liabilities
Current taxes payable 198
Accounts payable 312
Dividends payable 140
Total current liabilities 650
Non-current liabilities
Borrowings 1,854
Deferred tax liabilities 117
Total non-current liabilities 1,971
Total liabilities 2,621
Net assets 2,209

Shareholders equity
Share capital 800
Revaluation surplus 210
Retained earnings 1,199
Total shareholders equity 2,209 0