External Reporting - Consolidation Financial Statements, Acquisition Analysis of Jordan Ltd - Math Problem Example

1. Acquisition analysis at 1 July 2008 Entry in the books of Kowloon Tong Ltd Debit Credit -------- ------- Shares in Jordan 60,000 Cash (or other consideration) 60,000 To record acquisition of 60,000 shares of Jordan Ltd (Memorandum: With 6,000 shares bonus dividend) Entry in the books of Jordan Ltd Cash (or other consideration) 60,000 Share capital 60,000 To record sale of 60,000 shares to Kowloon Tong Ltd (Memorandum: With 6,000 shares bonus dividend) Subsequent entry: By January 2010, the following entry shall be recorded in the books of Kowloon Tong Ltd Shares in Jordan 6,000 Dividend income (or Other revenue) 6,000 To record receipt of dividend income from Jordan Ltd. Subsequent entry: By January 2010, the following entry shall be recorded in the books of Jordan Ltd Other reserves 6,000 Share capital 6,000 To record issuance of bonus dividend of 6,000 shares to Kowloon Tong Ltd. from Other reserves 2. Consolidation worksheet journal entries at 30 June 2010 The following consolidation journal entries will be recorded in the books of Kowloon Tong Ltd for the acquisition of all the shares of Jordan Ltd. Debit Credit -------- ------- Land 24,480 Machinery 22,000 Equipment 37,300 Inventory 70,320 Deferred tax asset 7,400 Other assets 3,100 Retained earnings 3,200 Current tax liability 2,500 Other payables 10,100 Shares in Jordan 137,200 Advance to Jordan Ltd 10,000 Accumulated depreciation – machinery 2,000 Accumulated depreciation – equipment 6,000 To consolidate the assets and liabilities of Jordan Ltd. Current tax liability 950 Tax expense 950 To adjust tax expense computed, thus – Total consolidated profit before tax 27,500 Tax rate 30% ----------- Should-be tax expense 8,250 Total tax per books 9,200 ----------- Adjustment 950 vvvvvvv Retained earnings 4,500 Cost of sales 53,500 Other expenses 27,000 Tax expenses 2,000 Sales revenue 65,000 Other revenue 22,000 To consolidate the nominal accounts of Jordan Ltd. Retained earnings 14,000 Dividend paid 4,000 Dividend declared 14,000 To reclassify dividends paid and declared to Retained earnings. Exhibit A Kowloon Tong Ltd Consolidated Balance Sheet June 30, 2010 ASSETS Current assets Inventory 241,900 Deferred tax asset 23,600 Total current assets 265,500 Property, plant and equipment Land 24,480 Machinery 50,000 Equipment 71,300 ----------- Total property, plant and equipment 145,780 Less accumulated depreciation: machinery, 6,000; equipment, 8,000 14,000 ----------- Property, plant and equipment – net 131,780 Other assets 11,720 ------------ TOTAL ASSETS 409,000 ====== LIABILITIES AND STOCKHOLERS’ EQUITY Liabilities Current liabilities Dividend payable 10,000 Current tax liability 9,550 ------------ 19,550 Debentures 120,000 Other payables 44,900 ----------- TOTAL LIABILITIES 184,450 Stockholders’ equity Share capital 170,000 General reserve 41,000 Retained earnings, beginning 16,000 Add: Profit for the period 19,250 ----------- 35,250 Less: Consolidation adjustments and reclassification of paid and declared dividends 21,700 ----------- Retained earnings, ending - Exhibit B 13,550 ---------- TOTAL STOCKHOLDERS’ EQUITY 224,550 ----------- TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 409,000 ====== Exhibit B Kowloon Tong Ltd Consolidated Income Statement For the Year Ended June 30, 2010 Sales revenue 150,000 Less: Cost of sales 118,500 ----------- Gross profit on sales 31,500 Add: Other revenue 45,000 ----------- Total revenue 76,500 Less: Other expenses 49,000 ----------- Profit before tax 27,500 Less: Tax expense (30%) 8,250 ----------- Profit for the period 19,250 Add: Retained earnings, beginning 16,000 ----------- 35,250 Less: Consolidation adjustments 7,700 Reclassification of paid and declared dividends to Retained earnings 14,000 ---------- 21,700 ----------- Retained earnings, ending - Exhibit A 13,550 ======= Read More