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Consolidated financial statements rationale for adjustments
The plant was considered to have a further 5-year life. It was sold on 1 January 2017 for
$118 000. The inventory was all sold by 30 June 2015. Possum Ltd did not record a contingent liability relating to a lawsuit by a customer for faulty goods. Possum Ltd considered this liability had a fair value of $18 000. The lawsuit was settled in May 2015 when Possum Ltd was required to pay damages of $20 000.
(a) On 1 July 2015, Leadbeaters Ltd sold plant to Possum Ltd at a before-tax profit of $6000. This class of non-current asset is depreciated at 20% p.a. on cost by Leadbeaters Ltd while Possum Ltd uses a rate of 10% p.a. on cost.
(b) In June 2016 Possum Ltd sold $50 000 worth of inventory to Leadbeaters Ltd at a before-tax profit of $5400. At 30 June 2017, inventory on which Possum Ltd had made a profit of $750 on sale to Leadbeaters Ltd was still on hand.
(c) On 10 February 2017, Possum Ltd used the whole of the general reserve existing at 1 July 2014 to pay a bonus dividend of three shares for every ten held.
(d) Both Leadbeaters Ltd and Possum Ltd use the valuation method to measure land. In June 2017, Leadbeaters Ltd recorded revaluation increases of $15 000 while Possum Ltd recorded increases of $12 000.