1 Appendix 1: Apple Ltd acquired 100% of the issued shares of Orange Ltd, for $290,000 paid in cash. At the date of acquisition, 1 July 2018, the reported shareholder’s equity of Orange Ltd was:...

Provide all journal entries (as shown below) necessary to consolidate the Apple Group for the year ended 30 June 2020.(1) journal to eliminate the investment in subsidiary at 30 June 2020.(2) journal to record Business Combination Valuation Reserve or fair value adjustment.(3) consolidation worksheet journal entries to eliminate the effects of intragroup transactions at 30 June 2020.


1 Appendix 1: Apple Ltd acquired 100% of the issued shares of Orange Ltd, for $290,000 paid in cash. At the date of acquisition, 1 July 2018, the reported shareholder’s equity of Orange Ltd was: Ordinary shares $180,000 Retained earnings $120,000 $300,000 The Apple Group adopted the cost model to measure property, plant and equipment and identifiable intangible assets. The carrying amounts and fair values of the recorded assets and liabilities of Orange Ltd at 1 July 2018 were as shown below: Carrying amount Fair value Assets Cash at bank $25,000 $25,000 Trade debtors $26,000 $26,000 Inventories $40,000 $45,000 Equipment $1,620,000 $1,350,000 Less Accumulated depreciation -$450,000 Land $50,000 $64,000 Less Liabilities Current liabilities $42,000 $42,000 Deferred tax liability $13,000 $13,000 Net assets $1,256,000 Other information: 1) Apple borrowed $27,000 from Orange during the financial year. Interest is $2,700 per annum of which Apple has paid $1,200 before 30 June 2020. 2 2) At the acquisition, Orange Ltd has disclosed information on its contingent liabilities of $25,000 in the notes to its financial statement. Orange Ltd is not permitted to recognise a contingent liability on its statement of financial position as according to AASB 137 par. 27 3) At the date of acquisition, the equipment owned by Orange Ltd was three years old and has a remaining useful life of six years. The Group decides to depreciate the equipment over five years. The depreciation method used in both companies is assumed is to be on straight-line basis. The revaluation is made on consolidation. 4) The Apple Group sold all of Orange Ltd’s land to an external party for $220,000 on 30 November 2019. 5) Inventory on hand at 1 July 2018 was sold within six months of acquisition. 6) Orange Ltd developed a new product during the two years before 1 July 2018. The product is selling profitably under its current brand name and is expected to generate profits for at least 15 years after 1 July 2018. The fair value of the brand name was reliably measured at $150,000 7) Apple Ltd sold inventory of $134,000 to Orange Ltd on 1 July 2019. The original cost of this inventory to Apple Ltd was $112,500. Orange Ltd has 60% of this inventory on hand at 30 June 2020. 8) Apple Ltd transferred its plant to Orange Ltd on 31 December 2018. The proceeds on the sale were $750,000. At the date of the transfer the plant had a carrying amount to Apple Ltd of $500,000 (cost of $1,350,000 and accumulated depreciation of $850,000) and a remaining useful life of 4 years. 9) The annual impairment test assessed the recoverable amounts of Orange’s goodwill at $30,000 on 30 June 2019. The directors of Apple Ltd believe that the goodwill relating to the acquisition of Orange Ltd has been impaired by a further $6,000, during the year ended 30 June 2020. 10) The company income tax rate over the relevant period was 30% Provide all journal entries necessary to consolidate the Apple Group for the year ended 30 June 2020 based on available information in the above question. Complete the following consolidation worksheet. Apple Ltd Orange Ltd Sales 756000 570000 Cost of sales Inventory 1/7/2019 65000 92000 Purchase 400000 110000 465000 202000 Inventory 30/6/2020 70000 2000 395000 200000 7 Gross profit 361000 370000 Expense Selling and administrative 3000 Interest on debentures 7000 Depreciation - plant 85000 44700 Other expenses 23000 10000 Total expenses 118000 54700 243000 315300 Gain on sale: land $50,000 Dividend revenue 7000 5000 Other revenues 4000 30000 11000 85000 Income tax expense 27260 11800 Operating profit: 226740 388500 Retained profits 1/7/2019 $154,000 $180,000 380740 568500 Dividend paid 10000 Proposed final dividend 25000 10000 25000 20000 Retained profits 30/6/2020 355740 548500 Share capital 950000 $180,000 Fair value adjustment 14% Debentures 60000 Other non-current liabilities 188500 Provision for dividend 25000 10000 Other current liabilities 21260 330000 1412000 1257000 Investment in Orange Ltd $290,000 Land $146,000 82500 Plant and machinery 560000 $1,620,000 Accumulated depreciation - Plants -149000 -$517,500 Brand Name - Accumulated amortisation Other non-current assets 200000 27000 Inventory 185000 $15,000 Prepaid expenses 60000 7 Other current assets $120,000 30000 Goodwill (on consolidation) $1,412,000 $1,257,000