Hammer Ltd acquired all the issued capital of Nail Ltd on 1 July 2005 for cash consideration of $1.5 million.The fair value of the net assets of Nail Ltd at that date was $1.2 million as follows: During the period ended 30 June 2006,Nail Ltd declared a dividend of $200,000 that is identified as being paid out of pre-acquisition profits and a further $100,000 is declared at the end of the period that is out of post-acquisition profits.Goodwill had been determined to have been impaired by $15,000 during the period.What consolidation journal entries would be required to prepare group accounts for the period ended 30 June 2006?
E) None of the given answers.

Question

Hammer Ltd acquired all the issued capital of Nail Ltd on 1 July 2005 for cash consideration of $1.5 million.The fair value of the net assets of Nail Ltd at that date was $1.2 million as follows:  During the period ended 30 June 2006,Nail Ltd declared a dividend of $200,000 that is identified as being paid out of pre-acquisition profits and a further $100,000 is declared at the end of the period that is out of post-acquisition profits.Goodwill had been determined to have been impaired by $15,000 during the period.What consolidation journal entries would be required to prepare group accounts for the period ended 30 June 2006?
E) None of the given answers.

Quizplus · Accepted Answer

To prepare group accounts for the period ended 30 June 2006, the following consolidation journal entries are required:
1) Eliminate the inter-company dividend:
Dr. Nail Ltd Retained Earnings $200,000
Cr. Nail Ltd Dividend Payable $200,000
2) Adjust goodwill for impairment:
Dr. Nail Ltd Retained Earnings $15,000
Cr. Hammer Ltd Goodwill $15,000
3) Record the post-acquisition dividend:
Dr. Nail Ltd Retained Earnings $100,000
Cr. Nail Ltd Dividend Payable $100,000
Therefore, option B is the correct answer.

Hammer Ltd Acquired All the Issued Capital of Nail Ltd