Assessment Type Short report on consolidated financial statements and calculations — individual assessment.

Assessment 3
Assessment Type: Short report on consolidated financial statements and calculations — individual assessment.
Purpose: This assessment is designed to allow students to research and analyze accounting standards and interpret how they apply to various corporate groups. It enables students to identify and solve problems relating to accounting for consolidated groups. It allows students to communicate the financial affairs of a company to financial report users. This relates to learning outcomes a, b and c.
Value: Due Date: Week 10 — Friday 8.00 pm.
Submission: Soft copy uploaded to Moodle via KOI’s Moodle subject homepage.
Topic: Consolidated worksheet, consolidated financial statements, concept of realisation.
Task Details: On 1 July 2019, Gilberts Ltd acquired all the issued shares (cum div.) of Potoroo Ltd for $50 000. At this date the equity of Potoroo Ltd consisted of:

Share capital $25 000 Retained earnings 7 500

At this date, Potoroo Ltd had recorded a dividend payable of $7500 which was paid in August 2019. All the identifiable assets and liabilities of Potoroo Ltd were recorded at amounts equal to fair values except for inventory for which the fair value was $1000 greater than carrying amount. Only 10% of the inventory on hand at 1 July 2019 remained unsold by 30 June 2020. The tax rate is 30%.
During the 2019—20 period, the following transactions occurred.
(a) Gilberts Ltd sold inventory to Potoroo Ltd for $30 000 at a profit before tax of $6000. At 30 June 2020, inventory which was sold to Potoroo Ltd for $12 500 at a profit before tax of $2500 was still on hand in the records of Potoroo Ltd.
(b) On 1 January 2020, Gilberts Ltd sold machinery to Potoroo Ltd at a gain of $5000. The machinery was considered to have a further 5-year life.
(c) During the period Potoroo Ltd rented a warehouse from Gilberts Ltd, paying $1250 in rent to Gilberts Ltd.
(d) During the period Gilberts Ltd recorded gains from revaluation of land, which is measured using the fair value method. These gains increased the asset revaluation surplus by $2000 to give a balance of $14 000 at 30 June 2020.
In June 2020, an impairment test was conducted on Potoroo Ltd and resulted in the recognition of impairment losses on goodwill of $8000 (recognised in other expenses)
The following financial information was provided by the companies at 30 June 2020:
Gilberts Ltd Potoroo Ltd

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Sales revenue $62 500 $59 000
Dividend revenue 2 500
Other income 2 500
Gains on sale of non-current assets 2 500
Total income 70 000 69 000

Cost of sales (52 500) (45 000)
Other expenses (7 500) (2 500)

Profit before income tax 10 000 21 500
Income tax expense (3 375) (4875)
Profit for the year 6 625 16625
Retained earnings (1/7/19) 15
-7 500
Total expenses (60 000) (47 500)

21 625 24125
Dividend paid (6 250) (2 500)

Retained earnings (30/6/20) $15375 $21 625

(a) Calculate acquisition analysis
(b) Prepare consolidation journal entries
(c) Prepare consolidation worksheet
(d) Prepare the consolidated statement of profit or loss and other comprehensive income and the consolidated statement of changes in equity for Gilberts Ltd at 30 June 2020.
Discuss the concept of realisation using the intragroup transactions in this question to illustrate your answer.
Marking Guide: Interpretation and representation
Analysis 10%
Assumptions 10% Communication 10%
Total mark will be scaled to a mark out of 30 subject marks