Part A (30 Marks)
At 1 July 2011, White Ltd acquired 80% of the share capital of Pages Ltd for $290,000 (cum div.). At this date the statement of financial position of Pages Ltd, including comparative information on fair values for assets, was as shown as follows.
     Carrying amount    Fair value
Current assets                   
 Inventory          60,000     65,000    
 Receivables     40,000              
 Allowance for doubtful debts     5,000     35,000     35,000    
 Total current assets          95,000         
                    
 Non-current assets                   
 Plant and machinery (at cost)     200,000              
 Accumulated depreciation    125,000     75,000     90,000    
 Vehicles (at cost)     80,000              
 Accumulated depreciation     10,000       70,000     75,000    
 Buildings (at cost)     120,000              
 Accumulated depreciation     5,000     115,000     115,000    
 Trademark (at valuation)          100,000     100,000    
 Other assets          40,000     40,000    
 Goodwill          20,000         
 Total non-current assets          420,000         
 Total assets         515,000         
                    
 Equity                   
 Share capital          200,000         
 Asset revaluation surplus          50,000         
 Retained earnings         50,000         
 Total equity          300,000         
                    
 Current liabilities                   
 Accounts payable          40,000         
 Dividend payable          20,000         
 Total current liabilities          60,000         
 Non-current liabilities                   
Debentures         155,000         
Total non-current liabilities         155,000         
Total liabilities         215,000         
Total equity and liabilities         515,000         
At 1 July 2011, the depreciable assets had the following remaining useful lives:
Plant and machinery    5 years
Vehicles    10 years
Trademark    100 years
Buildings    10 years
All the inventory on hand at 1 July 2011 was sold by Pages Ltd by 30 June 2012. Adjustments for differences between fair values and carrying amounts at acquisition date are made on consolidation.

Additional information:

(a) The dividend payable in the records of Pages Ltd at 1 July 2011 was paid in September 2011.

(b) On 1 January 2014, one of the machines that was on hand in Pages Ltd at 1 July 2011 was sold for $6,000. At 1 July 2011, the machine was recorded at cost of $50,000 with accumulated depreciation of $30,000, and had a fair value of $23,000. Any related revaluation surplus was transferred on consolidation to retained earnings.

(c) During the 2014 financial year, Pages Ltd transferred $10,000 from the asset revaluation surplus (on hand at 1 July 2011) to retained earnings, and transferred $20,000 to general reserve from retained earnings.

(d) Information on dividends paid and declared is as follows:
2011–12 period:
paid a $5000 dividend
2012–13 period:
paid a $4,000 interim dividend
declared, in June 2013, a $6,000 dividend
2013–14 period:
paid the $6,000 dividend declared in the previous period
paid a $5,000 interim dividend
declared, in June 2014, an $8,000 dividend.

(e) Information on inventory sold by Pages Ltd to White Ltd at cost plus 25%:

• At 1 July 2013 White Ltd had $10,000 of inventory on hand.
• During the 2013–14 period, $50,000 worth of inventory was sold, with 10% still on hand at White Ltd on 30 June 2014.
(f) On 1 July 2013 White Ltd leased a machine from Pages Ltd under a direct financing lease arrangement. The fair value of the asset leased was $25,000, and the lease agreement had an implicit interest rate of 10%. The lease term was for the whole of the machine’s useful life, being 5 years. The residual value at the end of the lease term was expected to be zero. At 30 June 2014 White Ltd made a lease payment to Pages Ltd of $7,500, which included an amount of $1,500 to cover the costs of insurance and maintenance, both supplied by Pages Ltd.

(g) The retained earnings balance at 30 June 2013 in Pages Ltd was $60,000. The total comprehensive income for the year ended 30 June 2014 was $28,000, including $3,000 due to revaluation of land measured using the revaluation model. The asset revaluation surplus balance at 30 June 2013 for Pages Ltd was $55,000.
 
(h) The tax rate is 30%.

  Required:
1. Determine the gain on bargain purchase or goodwill as at acquisition date using the partial goodwill method. (2 marks)
2. Determine the gain on bargain purchase or goodwill as at acquisition date using the full goodwill method. Assume the fair value of the Non-controlling interest at 1 July 2011 was $67,000. (3 marks)
3. Prepare the consolidation journal entries for White Ltd using the full goodwill method at 1 July 2011, immediately after acquisition. (7 marks)
4. Prepare the consolidation journal entries for White Ltd using the full goodwill method at 30 June 2014. (18 marks)

Read less