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Accounting


Question 2 Cena Ltd purchased 75% of the capital of Lesnar Ltd for $250 000 on 1 July 2003

Question 2 Cena Ltd purchased 75% of the capital of Lesnar Ltd for $250 000 on 1 July 2003. At this date the equity of Lesnar Ltd was: Share capital $ 100 000 General reserve 60 000 Retained earnings 40 000 At this date, Lesnar Ltd had not recorded any goodwill, and all identifiable assets and liabilities were recorded at fair value except for the following assets: The plant has a remaining useful life of 10 years. As a result of an impairment test, all goodwill was written off in 2006. All the inventory on hand at 1 July 2003 was sold by 30 June 2004. Differences between carrying amounts and fair values are recognised on consolidation. The tax rate is 30%. During the 2003-2004 period, Lesnar Ltd sold a quantity of inventory to Cena Ltd for $10 000. The original cost of these items to Lesnar Ltd was $7000. One-third of this inventory was still on hand at the end of the year. On 1 January 2004, Lesnar Ltd transferred an item of plant with a carrying amount of $15000 to Cena Ltd for $20 000. Cena Ltd treated this item as inventory. The item was still on hand at the end of the year. Lesnar Ltd applied a 20% depreciation rate to this type of plant. Carrying amount Fair value Inventory $ 70 000 $ 100 000 Plant (cost $170 000) 150 000 190 000 Land 50 000 100 000 The trial balances of Cena Ltd and Lesnar Ltd at 30 June 2009 are: Cena Ltd Lesnar Ltd Shares in Lesnar Ltd $ 250 000 Plant 425 500 $ 190 000 Land 110 000 50 000 Current assets 162 000 84 000 Cost of sales 225 000 35 000 Other expenses 65 000 7 000 Income tax expense 50 000 5 000 $1 287 500 $371 000 Share capital $ 400 000 $ 100 000 General reserve 60 000 80 000 Retained earnings (1/7/08) 120 000 75 000 Sales revenue 510 600 80 000 Payables 72 900 12 000 Accumulated depreciation (plant) 124 000 24 000 $1 287 500 $371 000 Required: Prepare the consolidation worksheet journal entries for Cena Ltd at 30 June 2004. Assume a profit for Lesnar Ltd for the 2003-04 period of $40 000.

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