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

Answer 1

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)