Tim Ltd acquired all the issued capital of Tam Ltd on 1 July 2012 for $3,020,000
ID: 2411297 • Letter: T
Question
Tim Ltd acquired all the issued capital of Tam Ltd on 1 July 2012 for $3,020,000. At that date the shareholders’ equity of Tam Ltd was:
$
Share Capital
2,200,000
Retained Earnings
640,000
Additional information for the year ended 30 June 2014:
(1) Intercompany sales:
(a) Tim Ltd to Tam Ltd $42,000
(b) Tam Ltd to Tim Ltd $36,000
(2) Unrealised profits in closing inventory as at 30 June 2014 is $2,400 for goods sold by Tam Ltd to Tim Ltd and $4,800 for goods sold by Tim Ltd to Tam Ltd.
(3) Unrealised profit in opening inventory for goods sold by Tim Ltd to Tam Ltd as at 1 July 2013 is $2,800 and for goods sold by Tam Ltd to Tim Ltd is $4,200.
(4) Tim Ltd employees provide administration support to Tam Ltd. For these services, Tam Ltd pays an annual fee of $20,000 per annum.
(5) The final dividend of $33,000 declared as at 30 June 2013, was paid by Tam
Ltd in October 2013. An interim dividend was paid in January $28,000. A
final dividend was declared at 30 June, 2014 $40,000.
(6) On 30 June 2014, Tim Ltd purchased a motor vehicle from Tam Ltd for
$30,000. Tam Ltd made profit on this sale of $7,000.
(7) Tam Ltd raised funds from Tim Ltd by issuing $200,000, 8% Debentures on
1 July 2013. The annual interest charge was paid by Tam Ltd 30 June 2014.
(8) The directors review the balance of goodwill each year. They agree that:
(a) For the year ended 30 June 2013, goodwill was impaired by $10,000.
(b) For the year ended 30 June 2014, goodwill is to be impaired by
$40,000. Trial balance of Tim Ltd and Tam Ltd is attached for your information
Required:
Prepare the appropriate consolidated journal entries for 30 June 2014 to record the following transactions in the worksheet provided:
Trial Balance for Tim Ltd & Tam Ltd: 30 June 2014
Tim Ltd
Tam Ltd
Eliminations
Consolidation
Sales
2,970,000
1,650,000
Less: Cost of Sales
Inventory 01/07/2013
240,000
104,000
Purchases
1,250,000
626,000
1,490,000
730,000
Inventory 30/06/2014
230,000
98,000
Cost of Goods Sold
1,260,000
632,000
Gross Profit
1,710,000
1,018,000
Administration support fees
20,000
0
Gain on Sale of Plant
0
7,000
Dividends Received
61,000
0
Interest Received on Debentures
16,000
0
1,807,000
1,025,000
Less: Expenses - Selling Exp.
160,000
71,000
- Admin Exp.
- Financial Exp.
583,000
104,000
847,000
628,000
16,000
715,000
Operating Profit before Tax
960,000
310,000
Less: Tax expense
288,000
93,000
Profit after Tax
672,000
217,000
Retained Earnings 01/07/2013
1,176,000
843,000
Available for Appropriation
1,848,000
1,060,000
Appropriations
Interim dividend paid
160,000
28,000
Final dividend declared
280,000
40,000
Total Appropriations
440,000
68,000
Retained Earnings 30/06/2014
1,408,000
992,000
Share Capital
4,000,000
2,200,000
8% Debentures
0
200,000
Accounts Payable
144,000
72,000
Final Dividends Payable
280,000
40,000
Taxation Payable
188,000
50,000
6,020,000
3,554,000
Property, Plant & Equip (net)
1,464,000
1,800,000
Shares in Tam Ltd
3,020,000
0
8% Debentures
200,000
0
Other Non-Current Assets
650,000
1,300,000
Inventory
230,000
98,000
Other Current Assets
456,000
356,000
Goodwill on Consolidation
6,020,000
3,554,000
Please use the following format
General Journal
Consolidated worksheet for Tim Ltd & Tam Ltd as at 30 June 2014
Tim Ltd
Tam Ltd
Eliminations
Consolidation
Sales
2,970,000
1,650,000
Less: Cost of Sales
Inventory 01/07/2013
240,000
104,000
Purchases
1,250,000
626,000
1,490,000
730,000
Inventory 30/06/2014
230,000
98,000
Cost of Goods Sold
1,260,000
632,000
Gross Profit
1,710,000
1,018,000
Administration support fees
20,000
0
Gain on Sale of Plant
0
7,000
Dividends Received
61,000
0
Interest Received from Tam ltd
16,000
0
1,807,000
1,025,000
Less: Expenses - Selling Exp.
160,000
71,000
- Admin Exp.
583,000
628,000
- Financial Exp.
104,000
16,000
847,000
715,000
Operating Profit before Tax
960,000
310,000
Less: Tax expense
288,000
93,000
Profit after Tax
672,000
217,000
Retained Earnings 01/07/2013
1,176,000
843,000
Available for Appropriation
1,848,000
1,060,000
Appropriations
Interim Dividend paid
160,000
28,000
Final Dividend declared
280,000
40,000
Total Appropriations
440,000
68,000
Retained Earnings 30/06/2014
1,408,000
992,000
Share Capital
4,000,000
2,200,000
8% Debentures
0
200,000
Accounts Payable
144,000
72,000
Final Dividends Payable
280,000
40,000
Taxation Payable
188,000
50,000
6,020,000
3,554,000
Property, Plant & Equip (net)
1,464,000
1,800,000
Shares in Tam Ltd
3,020,000
0
8% Debentures in Tam
200,000
0
Other Non-Current Assets
650,000
1,300,000
Inventory
230,000
98,000
Other Current Assets
456,000
356,000
Goodwill on Consolidation
6,020,000
3,554,000
$
Share Capital
2,200,000
Retained Earnings
640,000
Explanation / Answer
1.Inter-company Sales 30-Jun-14 Tim Ltd to Tam Ltd $ 42,000.00 Tam Ltd to Tim Ltd $ 36,000.00 Total Amoun to be eliminate from Debtors & Creditors $ 78,000.00 30-Jun-14 Creditos A/c Dr $ 78,000.00 To Debtors $ 78,000.00 (Being Debors and crediors on interstate sales and purchase is eliminated) 2.Unrealised profits in Closing inventory to be eliminated 30-Jun-14 Tim Ltd $ 2,400.00 Tam Ltd $ 4,800.00 Total Profits to be eliminated $ 7,200.00 30-Jun-14 Consolidated Profit & Loss A/c $ 7,200.00 To Inventory A/c $ 7,200.00 (Being Unrealised profis in Inventory is elimated on 30th June 2014 as the considation is done on 30th June 2014) 3.Unrealised profits in Opening inventory to be eliminated Tim Ltd $ 2,800.00 Tam Ltd $ 4,200.00 Total Profits to be eliminated $ 7,000.00 30-Jun-13 Consolidated Profit & Loss A/c $ 7,000.00 To Inventory A/c $ 7,000.00 (Being Unrealised profis in Inventory is elimated) 4. Adminstration Support Services 30-Jun-14 Creditors A/c Dr $ 20,000.00 To Debtors $ 20,000.00 (Being Inter-Company profit elimated on administration support provided by Tim Ltd to the Tam Ltd) 5.Declaration & Payment of Final dividend as well as Interim Dividend) 30-Jun-13 Retained Earnings A/c - Dr. $ 33,000.00 Dividend Payable A/c - Cr. $ 33,000.00 (Being Final Dividend declared by the company) 1-Jan-14 Retained Earnings A/c - Dr. $ 28,000.00 Dividend Payable A/c - Cr. $ 28,000.00 (Being Interim Dividend declared by the company) 1-Jan-14 Dividend payable A/c dr $ 33,000.00 To Bank $ 33,000.00 (Being Interim declared dividend paid by the company) 30-Oct-14 Dividend payable A/c dr $ 33,000.00 To Bank $ 33,000.00 (Being final declared dividend paid by the company) 6.Inter-company Sales Vehicle purchased by Tim Ltd from tam $ 30,000.00 profits of Tam Ltd to be reduced by Tam Ltd $ 7,000.00 30-6-2014 Sales of Tam Ltd $ 24,000.00 Profits & Loss A/c of Tam Ltd $ 7,000.00 Creditors of Tim Ltd $ 30,000.00 Debtors of Tam Ltd $ 30,000.00 Inventory of Tim Ltd $ 30,000.00 (Being Inter-sales & Profit eliminated by Tam Ltd. and creditors and Inventory of TIM Ltd is also reduced as its inter-company transaction) 7.Funds Raised 1/6/2013 Bank of Tam Ltd. $ 200,000.00 To 8% Debentures $ 200,000.00 (Being funds raised by Tam Ltd by issuing 8% Debentures to Tim Ltd) 30-6-2014 Interest On Debtentures A/c (Income)dr $ 16,000.00 Interest On Debtentures A/c (Expenditure) $ 16,000.00 (Being interest on Debentures Paid by Tam Ltd to Tim Ltd eliminated as its inter-company transaction ) Since the debture issed by Tam Ltd to Tim Ltd is inter-company Transaction the debenture is to be Eliminated at the time of Consolidation) 30-6-2014 Debentures of Tam Ltd Dr $ 200,000.00 To Debtures Investment of Tam Ltd. $ 200,000.00 (Being Debentures Issues by Tam Ltd to Tim Ltd eliminated. 8. Goodwill Impairment 30-6-2014 Impairment of Goodwill A/c Dr $ 10,000.00 To Goodwill $ 10,000.00 (Being Goodwill Impaired by Company) 30-6-2014 Impairment of Goodwill A/c Dr $ 40,000.00 To Goodwill $ 40,000.00 (Being Goodwill Impaired by Company)
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