CONSOLDIATION ACCOUNTING &n

CONSOLDIATION ACCOUNTING (TOTAL: 20 MARKS)

1. On 1 January 2014 Rome Ltd acquired 100% of Carthage Ltd for $1,630,000 in cash. At the time of acquisition Carthage Ltd had a recorded Share Capital of $150,000 and Retained Earnings of $80,000. As at the date of acquisition, Carthage Ltd also had an internally generated identifiable brand (Hannibal’s Elephant Glue) which was previously unrecognised, but valued at $300,000. It was viewed that due to being well-known this brand would have a useful life of 15 years.

Additional information

Rome Ltd lent Carthage Ltd $150,000 on 23 February 2014, for which the interest rate is 10%. This financial year, Carthage Ltd paid this and next year’s interest. None of the loan has been repaid.
During the current financial year Rome Ltd bought inventory from Carthage Ltd for $70,000, which cost Carthage Ltd $50,000. Rome Ltd has sold 10% of this inventory outside the group for $10,000. Rome Ltd bought all the inventory on credit and has not repaid any of the amount owing at the end of the year.
Assume a 31 December year end and no tax.

1,Record the consolidation adjustments for the year ending 31 December 2018:

Account	Debit	Credit

2. The combined profit of Rome Ltd and Carthage Ltd for the year ending 2018 without any consolidation adjustments is the last six digits of your student ID number. Calculate the consolidated profit for the group for the year ending 31 December 2018 and ignore tax (hint: this is the last 6 numbers of your student ID plus or minus consolidation adjustments made that would affect profit).

3. Explain whether Rome Ltd can recognise the brand (Hannibal’s Elephant Glue), and whether you think this treatment provides more useful accounting information.

Expert Solution

ekkarill92 answered 2 years ago

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