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ACCT20073 Company Accounting

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You are a newly appointed accountant at Palvidia Ltd, who is considering purchasing the majority of the shares in Soletta Ltd. Senior management of Palvidia arranged a meeting with the executive team to discuss the effect of this decision. They asked Jane Penfold, the Chief Financial Officer, to explain a few issues about their decision to purchase shares in Soletta Ltd in preparation for their meeting with the executive team.


Draft a memorandum for Jane Penfold to sign for her presentation to the executive team that explains the following issues:

  • What is the purpose of preparing consolidated financial statements
  • What is a group, a parent and a subsidiary
  • How many parents can a group have? Justify your answer. 
  • Why is it necessary to make adjustments for intragroup transactions
  • When are profits realised in relation to inventories transfers within the group

Word limit: maximum 300 words 

Question 2 

On 1 July 2019, Paldivia Ltd acquired all the issued shares of Soletta Ltd for a cash consideration of $1 000 000. At that date, the financial statements of Soletta Ltd showed the following information.



Share capital

650 000

General reserve

20 000

Retained earnings

250 000

All the assets and liabilities of Soletta Ltd were recorded at amounts equal to their fair values at the acquisition date, except some equipment recorded at $50 000 below its fair value with a related accumulated depreciation of $80 000. Also, Palvidia Ltd identified at acquisition date a contingent liability related to a lawsuit where Soletta Ltd was sued by a former supplier and attached a fair value of $40 000 to that liability.


  • Prepare the acquisition analysis at 1 July 2019.
  • Prepare the consolidation worksheet entries for Paldivia Ltd’s group at 1 July 2019, assuming that Soletta Ltd has not revalued the equipment in its own accounts

Question 3 

Patagonia Ltd owns all the share capital of Salto Ltd. The income tax rate is 30%. The following transactions took place during the periods ended 30 June 2018 to 30 June 2020.

  • In February 2018, Patagonia Ltd sold inventories to Salto Ltd for $6 000, at a mark-up of 20% on cost. One-quarter of this inventories were unsold by Salto Ltd at 30 June 2018 to external parties and none at 30 June 2019.

(b)   On 1 January 2018, Salto Ltd sold a new tractor to Patagonia Ltd for $20 000. This had cost Salto Ltd $16 000 on that day. Both entities charged depreciation at the rate of 10% p.a. on the diminishing balance. The tractor was still on hand with Patagonia Ltd at 30 June 2020.

(c)   On 1 May 2019, Salto Ltd sold inventories costing $200 to Patagonia Ltd for $400 on credit. On 30 June 2019, only half of these goods had been sold by Patagonia Ltd, and Patagonia Ltd had paid $300 to Salto Ltd. All remaining inventories were sold to external entities by 30 June 2020 and Patagonia Ltd paid the outstanding amount to Salto Ltd on 5 May 2020.

  • Patagonia Ltd provided management services to Salto Ltd during the period ended 30 June 2020. The total charge for those services was $3 000 that was unpaid at 30 June 2020.
  • Patagonia Ltd borrows $50 000 from Salto Ltd on 1 July 2018 with an interest rate of 6% p.a. The loan is for 5 years. The interest is to be paid biannually in arrears, starting on 31 December 2018.
  • In December 2019, Salto Ltd paid a $1 500 interim dividend.
  • During March 2020, Salto Ltd declared a $3 000 dividend. The dividend was paid in August 2020. 


In relation to the above intragroup transactions:

Prepare adjusting journal entries for the consolidation worksheet at 30 June 2019 and 30 June 2020.              

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