Q1. Buildit Ltd, a fabricating company, bought an industrial drill on 1st July 2020 for a price of $150,000. The CFO estimated that the drill had a useful life of 6 years and a straight line basis of depreciation was applied. One year later, on 1st July 2021 due to technological improvements the CFO determined that the drill would have to be replaced earlier in order to remain competitive. The remaining useful life was estimated to be 4 years. The accounting depreciation rate was changed to reflect this alteration.
The drill was sold for $69,000 on 30 June 2023. This equipment attracted a tax depreciation rate of 35% p.a. The company tax rate is 30%.
Q2. Cotton Ltd had purchased all the assets and taken over all the liabilities of Towelling Ltd on 1st July 2022. The purchase consideration included Cotton Ltd issuing to the Towelling Ltd shareholders 6 Cotton Ltd shares and giving them a cash payment of $2.70 for each one Towelling Ltd share held. The Cotton Ltd shares were deemed to have a fair value of $9.45 each. The costs of issuing the Cotton Ltd shares amounted to $810. The Towelling Ltd shareholders would also have a patent transferred to them. This patent was internally generated by Cotton Ltd with a carrying value of $540,000 and was deemed to have a fair value of $1,350,000. At 30th June 2022 Towelling Ltd had noted in its financial statements a contingent liability due to a guarantee that the company had given for another company’s loan. No value had been placed on the guarantee but the fair value at the date of acquisition was assessed at $54,000.
Prior to the acquisition of Towelling Ltd Cotton Ltd sought advice from lawyers and accountants and at the completion of the acquisition their fees amounted to $13,500.
Complete the journal entries in the books of Cotton Ltd recording the acquisition of Towelling Ltd.
Q3 Benjamin Ltd owns all of the issued share capital of Franklin Ltd. The following transactions occurred during the financial year ending 30th June 2022.
(b) On 1st February 2021 Benjamin Ltd sold equipment, which had cost Benjamin Ltd $374,000 with an accumulated depreciation balance at the time of sale of $44,000, to Franklin Ltd for $352,000. Franklin Ltd applies a 10% straight line depreciation rate to equipment. On 30th June 2022 Franklin Ltd sold the equipment to Jefferson Ltd for $220,000.
(c) Benjamin Ltd, owns a car dealership and sold a car on 1st July 2021 to Franklin Ltd which Franklin Ltd classified as a motor vehicle. The sale price was $44,000 with a cost of sales of $22,000. Franklin depreciates motor vehicles at 20% on a straight-line basis.
Prepare the adjusting consolidation worksheet journal entries for the year ended 30th June 2022 to eliminate the intragroup transactions.
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