Preparation of Consolidated Worksheet for Sisters Ltd and Brothers Ltd

This assignment provides a detailed solution for preparing a consolidated worksheet for Sisters Ltd and Brothers Ltd. The solution begins with an acquisition analysis, calculating the net fair value of assets and liabilities, and determining goodwill. It then presents the pre-acquisition entry to eliminate the investment in Brothers Ltd from Sisters Ltd's books. Subsequent steps involve preparing elimination and consolidation journal entries, including entries to eliminate the gain on the within-group sale of assets and its related tax effects, excess depreciation, and impairment loss on goodwill. The solution includes a complete consolidated worksheet for the year ended June 30, 2017, with adjustments, and reconciliations of retained earnings and the statement of financial position. The worksheet reflects the consolidated financial performance and position of the two companies, after eliminating intercompany transactions and adjusting for fair value differences.

For Preparation of Consolidated worksheet, the first step is to prepare the acquisition analysis.
STEP-1
Acquisition Analysis as on 1 July, 2016
Net fair value of assets and liabilities acquired
Share capital 600,000
Reserves 120,000
Retained earnings 150,000
Total fair value of assets and liabilities acquired 870,000
Consideration paid to acquire Brothers Ltd 950,000
Goodwill on acquisition (950,000-870,000) 80,000
STEP-2
Next step is to prepare the pre-acquisition entry for elimination of transaction from the parents
books, this is so because the parents book i.e. Sisters Ltd contains the account of Investment in
Brothers Ltd which needs to be eliminated.
Hence, the pre-acquisition entry as on the date of purchase i.e. 1 July, 2016 is as below:
Reference No. - a
Share capital Dr. $600,000
Reserves Dr. $120,000
Retained earnings Dr. $150,000
Goodwill Dr. $80,000
To Investment in Brothers Ltd Cr. 950,000
STEP-3
The next step is to prepare the elimination and other consolidation journal entries as on the date
of consolidation, i.e. 30 June, 2017.
The first entry is to eliminate the gain on within the group sale of assets and its related tax
effects. This entry is required because gain on within the group transaction is the notional gain
and hence requires to be eliminated.
Reference No. – b
Gain on sale of vehicle * Dr. $100,000
Vehicle Dr. $600,000
To Accumulated Depreciation Cr. $700,000

* (900000-800000)
Deferred tax asset * Dr. $ 30,000
To Income tax expense Cr. $30,000
*(100,000*30%)
The next entry is to eliminate the excess depreciation charged due to involvement of gain on
sale of asset. Hence, this excess depreciation needs to be eliminated so that the income
statement reflects true and fair view.
Reference No. – c
Accumulated depreciation Dr. $20,000
To Depreciation expense* Cr. $20,000
* (100,000/5)
Income tax expense * Dr. $6,000
To Deferred tax asset Cr. $6,000
*(20000*30%)
The last entry is to record the impairment loss on goodwill, this is required so that the goodwill is
recorded at fair value in the books.
Reference No. – d
Impairment loss Dr. $10,000
To Accumulated impairment loss Cr. $10,000

SISTERS LTD.
Consolidated worksheet
For the year ended 30 June 2017
Particulars Sisters Ltd Brothers Ltd Total
Adjustments
For GroupRef
.
No.
Dr.
Ref
.
No.
Cr.
Reconciliation of opening and closing retained earnings
Sales revenue $ 30,000,000 $ 2,200,000 $ 32,200,000 $ 32,200,000
less Cost of
goods sold $ (14,000,000) $ (550,000) $(14,550,000) $(14,550,000)
Gross profit $ 16,000,000 $ 1,650,000 $ 17,650,000 $ 17,650,000
Other income
Gain on sale of
fixed asset $ 6,000,000 $ 100,000 $ 6,100,000 b $100,000 $ 6,000,000
Expenses $ - $ -
Depreciation $ (2,000,000) $ (400,000) $ (2,400,000) c $ 20,000 $ (2,380,000)
Other expenses $ (3,800,000) $ (200,000) $ (4,000,000) d $ 10,000 $ (4,010,000)
Profit before tax $ 16,200,000 $ 1,150,000 $ 17,350,000 $ 17,260,000
Tax expense (30
% Tax Rate) $ (4,860,000) $ (345,000) $ (5,205,000) c $ 6,000 b $ 30,000 $ (5,181,000)
Profit after tax $ 11,340,000 $ 805,000 $ 12,145,000 $ 12,079,000
Retained
earnings-1 July
2016 $ 6,000,000 $ 150,000
$ 6,150,000 a $150,000 $ 6,000,000
Retained
earnings-30
June 2017
$ 17,340,000 $ 955,000 $ 18,295,000 $ 18,079,000
Statement of financial position
Shareholders'
equity
Retained
earnings - 30
June 2017
$ 17,340,000 $ 955,000 $ 18,295,000 $ 18,079,000
Share capital $ 10,000,000 $ 600,000 $ 10,600,000 a $600,000 $ 10,000,000
Reserves $ - $ 120,000 $ 120,000 a $120,000 $ -
Current
liabilities $ - $ - $ -
Tax payable $ 5,600,000 $ 20,000 $ 5,620,000 $ 5,620,000
Non-current
liabilities $ -
Loans $ 4,000,000 $ 750,000 $ 4,750,000 $ 4,750,000
Total Liabilities $ 36,940,000 $ 2,445,000 $ 39,385,000 $ 38,449,000
Current assets

Cash $ 5,000,000 $ 800,000 $ 5,800,000 $ 5,800,000
Accounts
receivable $ 7,500,000 $ 335,000 $ 7,835,000 $ 7,835,000
Inventory/stock $ 6,200,000 $ 520,000 $ 6,720,000 $ 6,720,000
Non-current
assets $ - $ -
Land $ 14,290,000 $ 320,000 $ 14,610,000 $ 14,610,000
Vehicles, at cost $ 3,450,000 $ 500,000 $ 3,950,000 b $600,000 $ 4,550,000
Vehicle-
accumulated
depreciation $ (450,000) $ (30,000)
$ (480,000) c $ 20,000 b 700,000 $ (1160,000)
Investment in
Brothers Ltd $ 950,000 $ - $ 950,000 a $950,000 $ -
Deferred tax
asset $ - $ - b $ 30,000 c $ 6,000 $ 24,000
Goodwill $ - $ - a $ 80,000 $ 80,000
Accumulated
impairment loss -
Goodwill
d $ 10,000 $ (10,000)
Total Assets $ 36,940,000 $ 2,445,000 $ 39,385,000 $ 38,449,000