Chalmers Ltd is a parent company that prepares consolidated financial statements. On 1 July 2019 Chalmers Ltd acquired 30% of the shares in Palmer Ltd at a cost of $210,000. The directors of Chalmers Ltd believe that they exert 'significant influence' over Palmer Ltd. At that time the equity in Palmer Ltd consisted of: Share capital $400,000; Retained profits $150,000 This equity at the acquisition date reflected the fair value of net assets in Palmer Ltd with the exception of some depreciable non-current assets with a fair value of $120,000 (before tax) greater than carrying amount. These depreciable assets are expected to have a further 5-year life. The results of Palmer Ltd for the year ended 30 June 2021 is as follows: 30 June 2020 30 June 2021 S S 150,000 200,000 Profit before tax (20,000) (30,000) Income tax 130,000 170,000 Profit after tax (12,000) (15,000) Dividends paid (10,000) (20,000) Transfer to General Reserve 135,000 108,000 Retained earnings Additional information: • At 30 June 2021, Chalmers Ltd had inventory costing $40,000 (2020: $50,000) on hand that had been purchased from Palmer Ltd. A profit before tax of $4,000 (2020: $5,000) had been recorded on the sale. . In the year ended 30 June 2021, Palmer revalued land by $60,000 (before tax), which it included as part of revaluation reserves. . Note that as at the date of acquisition of Palmer Ltd, Chalmers Ltd was (and still is) a controlling entity that prepares consolidated financial statements. . Corporate tax rate of 30% applies, where applicable. Required: Prepare the relevant consolidation journal entries on 30 June 2021, to account for Chalmers Ltd.'s investment in Palmer Ltd.
Chalmers Ltd is a parent company that prepares consolidated financial statements. On 1 July 2019 Chalmers Ltd acquired 30% of the shares in Palmer Ltd at a cost of $210,000. The directors of Chalmers Ltd believe that they exert 'significant influence' over Palmer Ltd. At that time the equity in Palmer Ltd consisted of: Share capital $400,000; Retained profits $150,000 This equity at the acquisition date reflected the fair value of net assets in Palmer Ltd with the exception of some depreciable non-current assets with a fair value of $120,000 (before tax) greater than carrying amount. These depreciable assets are expected to have a further 5-year life. The results of Palmer Ltd for the year ended 30 June 2021 is as follows: 30 June 2020 30 June 2021 S S 150,000 200,000 Profit before tax (20,000) (30,000) Income tax 130,000 170,000 Profit after tax (12,000) (15,000) Dividends paid (10,000) (20,000) Transfer to General Reserve 135,000 108,000 Retained earnings Additional information: • At 30 June 2021, Chalmers Ltd had inventory costing $40,000 (2020: $50,000) on hand that had been purchased from Palmer Ltd. A profit before tax of $4,000 (2020: $5,000) had been recorded on the sale. . In the year ended 30 June 2021, Palmer revalued land by $60,000 (before tax), which it included as part of revaluation reserves. . Note that as at the date of acquisition of Palmer Ltd, Chalmers Ltd was (and still is) a controlling entity that prepares consolidated financial statements. . Corporate tax rate of 30% applies, where applicable. Required: Prepare the relevant consolidation journal entries on 30 June 2021, to account for Chalmers Ltd.'s investment in Palmer Ltd.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Chalmers Ltd is a parent company that prepares consolidated financial statements. On 1 July
2019 Chalmers Ltd acquired 30% of the shares in Palmer Ltd at a cost of $210,000. The
directors of Chalmers Ltd believe that they exert 'significant influence' over Palmer Ltd. At that
time the equity in Palmer Ltd consisted of:
Share capital $400,000; Retained profits $150,000
This equity at the acquisition date reflected the fair value of net assets in Palmer Ltd with the
exception of some depreciable non-current assets with a fair value of $120,000 (before tax)
greater than carrying amount. These depreciable assets are expected to have a further 5-year
life.
The results of Palmer Ltd for the year ended 30 June 2021 is as follows:
30 June 2020
30 June 2021
S
S
Profit before tax
150,000
200,000
Income tax
(20,000)
(30,000)
170,000
130,000
Profit after tax
(12,000)
(15,000)
Dividends paid
(10,000)
(20,000)
Transfer to General Reserve
108,000
135,000
Retained earnings
Additional information:
At 30 June 2021, Chalmers Ltd had inventory costing $40,000 (2020: $50,000) on hand
that had been purchased from Palmer Ltd. A profit before tax of $4,000 (2020: $5,000) had
been recorded on the sale.
In the year ended 30 June 2021, Palmer revalued land by $60,000 (before tax), which it
included as part of revaluation reserves.
Note that as at the date of acquisition of Palmer Ltd, Chalmers Ltd was (and still is) a
controlling entity that prepares consolidated financial statements.
Corporate tax rate of 30% applies, where applicable.
Required:
Prepare the relevant consolidation journal entries on 30 June 2021, to account for Chalmers
Ltd.'s investment in Palmer Ltd.
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