On 1 July 2010, Taylor Ltd acquired 100% of the issued shares of Durand Ltd for

MAA716 Financial AccountingAssignment – Part 3 Consolidation (32 marks/16%)T1 2015Section AConsolidation Journal EntriesOn 1 July 2010, Taylor Ltd acquired 100% of the issued shares of Durand Ltd for$300,000. At the date of acquisition, the shareholders’ equity of Durand Ltdconsisted of:Share capitalGeneral reserveRetained earnings$200,00040,00020,000All identifiable assets and liabilities of Durand are recorded at fair value at thisdate. Further information concerning the year ended 30 June 2014 is as follows:i.ii.iii.iv.v.vi.vii.Goodwill had been impaired by 10% in the first year following theacquisition. During the year to 30 June 2014 it was considered that thegoodwill had been further impaired by an amount of $800.The interim dividend paid by Durand Ltd is $4,000 and Durand Ltd alsodeclared $6,000 dividend from the current year’s profits.Durand Ltd holds debentures in Taylor Ltd amounting to $3,200. TaylorLtd paid the 10% annual interest on debentures on 30 June 2014.During the 2013-2014 period, Durand sold inventory to Taylor Ltd for$9,200, recording a profit before tax of $1,200. Taylor Ltd has sold halfof these items to Sam Ltd.During the 2013-2014 period, Taylor Ltd sold inventory to Durand Ltd for$7,200, recording a profit before tax of $800. Durand Ltd has not soldany of the inventory to other entities.The opening inventory of Taylor Ltd includes unrealised profit of $1,600on inventory sold from Durand Ltd during the prior financial year. Theinventory was all sold to an external entity by Taylor Ltd during the yearended 30 June 2014.On 1 July 2012, Durand Ltd sold a plant to Taylor Ltd for $22,000. DurandLtd recorded a profit of $8,000 before tax. Taylor Ltd applies a 10% p.a.straight-line method of depreciation in relation to this plant.1viii.ix.On 1 June 2014, Durand Ltd paid $4,000 to Taylor Ltd for servicesrendered.The tax rate is 30%.Required:In accordance with AASB 10 Consolidation Financial Statements, prepareconsolidated journal entries for the year ended 30 June 2014 (24 marks).(Please note that no narrations required for journal entries).Section BConcept of ControlOrd Ltd owns 40% of the shares of Derwent Ltd, and holds the only substantialblock of shares in that entity, no other party owning more than 3% of theshares. The annual general meeting of Derwent Ltd is to be held in a month’stime. Two situations that may arise are:Ord Ltd will be able to elect a majority of Derwent Ltd’s board ofdirectors as a result of exercising its votes as the largest holder of shares.As only 75% of shareholders voted in the previous year’s annual meeting,Ord Ltd may have the majority of the votes that are cast at the meeting.By obtaining the proxies of other shareholders and, after meeting withother shareholders who normally attend general meetings of DerwentLtd, by convincing these shareholders to vote with it, Ord Ltd may obtainthe necessary votes to have its nominees elected as directors of theboard of Derwent Ltd, regardless of the attendance at the generalmeeting.Required:Discuss the potential for Derwent Ltd being classified as a subsidiary of OrdLtd, with reference to AASB 10 Consolidated Financial Statements. You needto discuss the two situations above separately (4 + 4 = 8 marks).2