Question 1 (45 marks)
ABC Ltd acquired all the share capital of XYZ Ltd for $114,000 on 1 January 2010. The Equity of XYZ Ltd at 1 January 2010 consisted of:
At 1 January 2010, the recorded amounts of XYZ Ltd’s assets and liabilities were equal to their fair values except as follows:
All inventory was sold by XYZ Ltd by 30 June 2010. Plant and equipment have a further 5-year useful life and the company uses straight-line method to depreciate it. Any business combination valuation adjustments are mad on consolidation. The tax rate is 30%.
(a)During the current period, ABC sold inventory to XYZ for $20,000. This had originally cost ABC $18,200. By 31/12/2012, XYZ sold half this inventory for $12,310.
(b)On 20/06/2011, ABC sold inventory to XYZ for $15,000. This had cost ABC $12,000. BY 21/12/2012, XYZ still held this entire inventory.
(cOn /0/1/01/2011, XYZ sold a machine to ABC for $50,000. This item had a carrying amount of 55,000 at time of sale. Both entities use straight-line depreciation method with depreciation rate of 5% per year with no residual value.
(d)Income tax rate: 30%.
1.Prepare Acquisition Analysis.
2.Prepare the adjusting journal entries for the consolidation worksheet at 31/12/2012.
3.Prepare consolidation worksheet.
Question 2 (5 Marks)
Mary is a second year accounting student at CQUniversity but has not yet done Corporate Accounting. She is looking at your completed consolidation worksheet and very keen to understand how it is worked out. She asks you for help. You need to write NO MORE THAN 300 words to explain how the consolidation worksheet is prepared and completed.