CASE STUDY

CONSOLIDATION WORKSHEET

On 1 July 2007, Mickey Ltd acquired 80% of the shares of Mouse Ltd on an ex div basis. At this date, all the identifiable assets and liabilities of Mouse Ltd were recorded at amounts equal to fair value except for:
Carrying Fair
Amount Value
Inventory $120 000 $130 000
Machinery (cost $200 000) 160 000 165 000

The inventory was all sold by 30 November 2007. The machinery had a further 5-year life but was sold on 1 April 2010. At acquisition date Mouse Ltd reported a contingent liability of $15 000 that Mickey Ltd considered to have a fair value of $7 000. This liability was settled in June 2008 for $10 000. At acquisition date, Mouse Ltd had not recorded an asset relating to equipment design as the asset was still in the research phase. Mickey Ltd placed a fair value on the asset of $12 000, reflecting expected benefits existing at acquisition date. The asset was considered to have a further 10-year life. On 1 January 2009, the asset met the requirements of IAS 38 Intangible Assets and subsequent expenditure by Mouse Ltd on the asset was capitalised.

Additional information:
(a) On 1 July 2008, Mouse Ltd sold an item of plant to Mickey Ltd at a profit before tax of $4 000. Mickey Ltd depreciates this class of plant at a rate of 10% per annum on cost while Mouse Ltd applies a rate of 20% per annum on cost.
(b) At 30 June 2009 Mickey Ltd has on hand some items of inventory purchased from Mouse Ltd in June 2008 at a profit before tax of $500. These were all sold by 30 June 2010.
(c) During the 2009-10 period Mickey Ltd sold $12 000 inventory to Mouse Ltd at a mark-up of 20% on cost. $3 000 of this inventory remains unsold by 30 June 2010.
(d) The other components of equity relate to available-for-sale financial assets. These assets are measured at fair value with movements in fair value being taken directly to equity.
(e) The parent and the subsidiary are considered to be separate cash generating units. Management have analysed the impairment indicators on an annual basis and conducted an impairment test on the subsidiary cash generating unit in the 2008-09 year which resulted in the writing down of goodwill by $4 000. There have been no other business combinations involving these entities since 1 July 2007.
(f) The tax rate is 30%.
(g) Shareholder approval is not required in relation to dividends.



(h) On 30 June 2010 the trial balances of Mickey Ltd and Mouse Ltd were as follows:

Mickey Ltd-Mouse Ltd

Shares in Mouse Ltd $295 200 -
Inventory 180 000 $60 000
Available for-sale financial assets 229 000 215 000
Other current assets 10 000 2 000
Deferred tax assets 15 800 8 000
Plant and machinery 462 500 303 000
Land 144 200 42 000
Equipment design - 18 000
Goodwill 20 000 22 000
Cost of sales 120 000 70 000
Other expenses 50 000 10 000
Income tax expense 35 000 40 000
Dividend paid 14 000 6 000
Dividend declared 20 000 4 000
1 595 700 800 000

Share capital 800 000 330 000
Other components of equity 100 000 80 000
Other reserves 50 000 1 000
Retained earnings (1/7/09) 45 000 16 000
Transfer from other reserves - 2 000
Sales 200 000 160 000
Other income 50 000 10 000
Debentures 70 000 20 000
Deferred tax liability 20 000 12 000
Other current liabilities 38 700 35 000
Dividend payable 10 000 4 000
Accumulated amortisation
– equipment design - 4 000
Accumulated impairment losses – goodwill - 16 000
Accumulated depreciation – plant
and machinery 212 000 110 000
$1 595 700 $800 000







(I) Extracts from the Statement of Changes in Equity for Mouse Ltd were as follows:
2007-08 2008-09 2009-10
Retained earnings (opening balance) $20 000 $19 000 $16 000
Profit for the period 20 000 20 000 50 000
Dividends paid * (3 000) * (6 000) (6 000)
Dividends declared (15 000) (17 000) * (4 000)
Transfers to/from other reserves * (3 000) * 2 000
Retained earnings (closing balance) 19 000 16 000 58 000
Other reserves (opening balance) 30 000 33 000 33 000
Transfers to/from retained earnings * 3 000 0 * (2 000)
Bonus issue 0 0 * (30 000)
Other reserves (closing balance) 33 000 33 000 1 000
Other components of equity (op. bal.) 10 000 42 000 72 000
Movements in fair value 32 000 30 000 8 000
Other components of equity (cl. bal.) 42 000 72 000 80 000
Share capital (opening balance) 300 000 300 000 300 000
Bonus issue 0 0 * 30 000
Share capital (closing balance) 300 000 300 000 330 000

* these items were from equity earned prior to the date of acquisition

Required

1. Prepare the consolidation worksheet for Mickey Ltd for the preparation of consolidated financial statements at 30 June 2010 using the consolidation worksheet provided.

2. The consolidation worksheet journal entries used to prepare the worksheet are to be attached to the worksheet.

Hi, mounose!

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Consolidation