consolidation

On 1 July 2008, Olympus Ltd acquired all the shares of Delphi Ltd. On this date, the equity of Delphi Ltd comprised the following balances:

Share Capital $180 000
General Reserve 20 000
Plant Maintenance Reserve 30 000
Retained Earnings 72 000

At acquisition date, all the identifiable assets and liabilities of Delphi Ltd were recorded at amounts equal to fair value except for:
Carrying Fair
Amount Value
Land $50 000 $75 000
Buildings (cost $75 000) 55 000 57 000
Inventory 45 000 60 000
Plant (cost $260 000) 182 000 190 000
Delivery Truck (cost $90 000) 36 000 38 000
Office Furniture (cost $21 000) 16 500 16 500

At 1 July 2008, Delphi Ltd had recorded goodwill of $12 000 arising from a prior period business combination. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed or lost.

Delphi Ltd registered a patent on 26 June 2008 but did not recognize it as an asset. Olympus Ltd believed the fair value of the patent was $45 000. The patent is legally enforceable for a period of 15 years. On 1 January 2012, Delphi Ltd sold the patent for $30 000.

At 1 July 2008, Delphi Ltd was involved in a lawsuit brought against it by a customer for damages suffered as a result of poor quality goods supplied. Lawyers for Olympus Ltd advised that the court is likely to find in favour of the customer and likely damages may amount to $30 000. After a prolonged court case, damages of $28 000 were paid in full settlement on 3 May 2012.

The plant had a further five year life at acquisition date and was expected to be used evenly over that time. Buildings have a further 10 years of useful life. The delivery truck which was expected to have a further four year useful life at acquisition date was sold on 1 April 2011 for 28 000. During the year ended 30 June 2009 all inventory, on hand at acquisition date, was sold. As a result of the annual impairment test Delphi Ltd wrote its Goodwill down by $5 000 on 30 June 2012.

In the financial year ended 30 June 2011 Delphi Ltd transferred $10 000 from retained earnings on hand at acquisition date to the General Reserve.

Additional information:

(a) On 1 July 2011, Delphi Ltd had on hand inventory worth $36 000, transferred from Olympus Ltd in June 2011. The inventory cost Olympus Ltd $28 000. This entire inventory was sold to external parties in the year ended 30 June 2012.
(b) On 1 April 2009, Olympus Ltd sold inventory which cost $27 000 to Delphi Ltd for $25 000. Delphi Ltd treated this item as plant with a five year useful life.
(c) During the year ended 30 June 2012, Delphi Ltd sold inventory to Olympus Ltd for $54 000 this being at cost plus 20% markup. Of this inventory 80% had been sold to external customers by 30 June 2012.
(d) During the year ended 30 June 2012, Olympus Ltd sold inventory costing $18 000 to Delphi Ltd for $27 000. Two thirds of this inventory was sold to external customers for $21 600.
(e) In May 2010 Olympus Ltd lent $35 000 at an annual interest rate of 4% to Delphi Ltd. Delphi Ltd has as yet made no repayments on the loan.
(f) Olympus Ltd rents surplus space in its warehouse to Delphi Ltd for an annual rental charge of $40 000.
(g) On 1 October 2011 Delphi Ltd sold an item of plant to Olympus Ltd which regarded the item as inventory. The plant had a carrying amount of $11 000 and was sold for $14 000. The item was subsequently sold to an external party in May 2012.
(h) On 1 January 2012 Olympus Ltd sold an item of office furniture to Delphi Ltd for $5 000. The furniture had a carrying amount at the date of sale of $4 500. Both companies depreciate office furniture at 20% per annum.
(i) The gains on Available-for-Sale Financial Assets for the year ended 30 June 2012 were $6 700 (Olympus Ltd) and $1 900 (Delphi Ltd). There were no other movements during the year.
(j) The tax rate is 30%.

On 30 June 2012 the trial balances of Olympus Ltd and Delphi Ltd were as follows:
Olympus Ltd Delphi Ltd
Debit Balances
Cash $90 620 $96 145
Receivables 36 000 83 800
Dividend Receivable 8 000 1 200
Inventory 72 000 97 800
Available-for-Sale Financial Assets 90 250 27 250
Loan Receivable – Delphi Ltd 35 000 –
Shares in Delphi Ltd 360 000 –
Deferred tax assets 32 080 24 725
Land 125 000 50 000
Buildings 120 000 75 000
Plant 450 000 320 000
Delivery Truck 75 000 120 000
Office Furniture 15 000 26 000
Goodwill 28 000 12 000
Cost of Sales 1 440 100 1 196 500
Amortisation and Depreciation 60 000 54 100
Impairment loss – 5 000
CA of non-current assets sold 4 500 11 000
Damages expense – 28 000
Other expenses 63 000 162 400
Income tax expense 68 100 79 860
Dividend paid 12 000 10 000
Dividend declared 6 000 8 000
Transfer to general reserve 10 000 –
3 200 650 2 488 780
Credit Balances
Share capital 450 000 180 000
General Reserve 80 000 30 000
Plant Maintenance Reserve – 10 000
Available-for-Sale Financial Assets Reserve 40 000 5 000
Retained earnings (1/7/11) 89 500 165 340
Dividend Payable 6 000 8 000
Accounts Payable 37 000 43 400
Loan Payable – Olympus Ltd – 35 000
Loan Payable (due 1/7/15) 100 000 50 000
Current Tax Liability 65 200 89 000
Deferred Tax Liability 19 250 26 040
Annual Leave Entitlements 50 000 25 000
Sales Revenue 1 830 000 1 517 000
Dividend Revenue 23 500 3 200
Proceeds on sale of non-current assets 5 000 44 000
Other Revenue 62 900 16 000
Transfer from plant maintenance reserve – 20 000
Accumulated impairment – Goodwill – 5 000
Accumulated depreciation – Buildings 56 000 40 000
Accumulated depreciation – Plant 252 000 148 000
Accumulated depreciation – Office Furniture 6 200 13 800
Accumulated depreciation – Delivery Truck 28 100 15 000
$3 200 650 $2 488 780

Assignment Tasks

Your group is required to prepare the following:
1. Acquisition analysis at 1 July 2008.
2. The BCVR & pre-acquisition worksheet journal entries ONLY at 30 June 2011
3. The consolidation worksheet journal entries at 30 June 2012
4. The consolidation worksheet for Olympus Ltd at 30 June 2012 Use the worksheet template attached to complete the consolidation worksheet.
5. The consolidated financial statements for Olympus Ltd at 30 June 2012