BFA605 - Financial and Corporate Accounting 7 Question 5
On 1^' July 2013 Hazelnut L t d acquires 100% of the equity of Chestnut Ltd at a
cost of $1,100,000. At the date of acquisition, all assets of Chestnut L t d are
fairly stated except for the Property, Plant and Equipment which has a cost of
$900,000, accumulated depreciation of $250,000 and a fair value of $800,000.
The shareholder's funds at the date of acquisition are:
Share capital
Retained earnings 700,000
230,000
930,000 Additional information
1. A l l companies in the group recognised dividend revenue on the accruals
basis and used a perpetual inventory system. 2. Goodwill was determined to be impaired by $2,000 last year (30/6/2014)
and $4,000 this year (30/6/2015). 3. Hazelnut L t d sold inventory to Chestnut L t d for $70,000 during the
period. This inventory had originally cost Hazelnut Ltd $30,000.
Chestnut L t d sold three-quarters of this inventory during the period to
parties external to the group. 4. Both companies depreciate their assets using 10% straight line. 5. Chestnut has paid an interim dividend of $7,000 and declared a final
dividend of $9,000. 6. I n May 2014, Chestnut L t d sold goods to Hazelnut L t d for $50,000. This
inventory had cost Chestnut L t d $20,000. A t that time none of the
inventory had been sold to external parties. The inventory has now been
sold by the group. 7. During the year Chestnut L t d paid Hazelnut L t d management fees of
$4,000. 8. The rate of company income tax is 30%. 9. A l l other consolidation journal entries (i.e. other than those required for
the above intra-group transactions) have no effect on the calculation of
group profit.
Required:
Prepare the consolidation elimination journal entries required for the above
intra-group transactions for 30* Jime 2015. N B : Narrations are not required
[Total for Question 5 = 35 marks]

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