Pepsi Ltd acquired 80% of the shares of Soda Ltd on 1 July 2015 for $115 000. At this date the equity of Soda Ltd consisted of:
|
$ |
|
|
Share capital (100,000 shares) |
80,000 |
|
Retained earnings |
29,600 |
|
General reserve |
2,400 |
All the identifiable assets and liabilities of Soda Ltd were recorded at amounts equal to their fair values except for:
|
Carrying amount |
Fair value |
|
|
$ |
$ |
|
|
Inventories |
25,000 |
28,000 |
|
Plant (cost $65,000) |
52,000 |
56,000 |
|
Land |
40,000 |
45,000 |
The plant was expected to have a further useful life of 10 years. The land was sold on 1 January 2018. The inventory was all sold by 30 June 2016. Pepsi Ltd uses the full goodwill method. The fair value of the non-controlling interest at 1 July 2015 was $28,000. At 1 July 2015, Soda Ltd had unrecorded (internally generated) customer lists that had a fair value of $18,000. These customer lists had an indefinite life.
Financial information provided by the two companies at 30 June 2018 was:
|
Pepsi Ltd |
Soda Ltd |
|
|
$ |
$ |
|
|
Sales |
252,800 |
176,000 |
|
Debenture interest |
4,000 |
- |
|
Management and consultation fees |
4,000 |
- |
|
Pepsi Ltd |
Soda Ltd |
|
|
$ |
$ |
|
|
Dividends |
9,600 |
- |
|
Total revenue |
||
|
270,400 |
176,000 |
|
|
Cost of sales |
104,000 |
68,000 |
|
Manufacturing expenses |
82,000 |
53,000 |
|
Depreciation on plant |
12,000 |
12,000 |
|
Administrative expenses |
12,000 |
6,400 |
|
Financial expenses |
8,800 |
4,000 |
|
Other expenses |
11,200 |
9,600 |
|
Total expenses |
||
|
230,000 |
153,000 |
|
|
Profit from trading |
40,400 |
23,000 |
|
Gains on sale of non-current assets |
10,000 |
5,000 |
|
Profit before income tax |
||
|
50,400 |
28,000 |
|
|
Income tax expense |
20,000 |
13,600 |
|
Profit for the year |
||
|
30,400 |
14,400 |
|
|
Retained earnings 1 July 2017 |
40,000 |
36,000 |
|
70,400 |
50,400 |
|
|
Dividend paid |
||
|
Dividend declared |
8,000 |
4,000 |
|
16,000 |
12,000 |
|
|
Retained earnings 30 June 2018 |
||
|
54,400 |
38,400 |
|
|
Share capital |
240,000 |
80,000 |
|
General reserve |
37,600 |
8,000 |
|
Other components of equity |
10,400 |
8,000 |
|
Debentures |
160,000 |
80,000 |
|
Current tax liability |
20,000 |
13,600 |
|
Dividend payable |
8,000 |
4,000 |
|
Pepsi Ltd |
Soda Ltd |
|
|
$ |
$ |
|
|
Deferred tax liabilities |
12,000 |
5,600 |
|
Other current liabilities |
60,000 |
9,600 |
|
Total equity and liabilities |
||
|
602,400 |
247,200 |
|
|
Shares in Soda Ltd |
115,000 |
- |
|
Debentures in Soda Ltd |
80,000 |
- |
|
Plant |
96,000 |
81,600 |
|
Accumulated depreciation - plant |
(52,000) |
(44,000) |
|
Intangibles |
60,800 |
44,000 |
|
Accumulated amortisation - intangibles |
(32,000) |
(20,000) |
|
Deferred tax assets |
58,600 |
24,000 |
|
Financial assets |
40,000 |
48,000 |
|
Land |
120,000 |
45,600 |
|
Inventories |
72,000 |
44,000 |
|
Receivables |
44,000 |
24,000 |
|
Total assets |
||
|
602,400 |
247,200 |
|
- Soda Ltd had inventory on hand at 30 June 2017 that included inventory at cost of $8,000 that had been sold to Soda Ltd by Pepsi Ltd. This inventory had cost Pepsi Ltd $6,000. It was all sold by Soda Ltd by 30 June 2018.
- During the 2017–18 year, Soda Ltd sold inventory to Pepsi Ltd for $48,000. At 30 June 2018, Pepsi Ltd still had some of this inventory on hand. This inventory had been sold to Pepsi Ltd by Soda Ltd at a profit of $4,000.
- On 1 January 2017, Soda Ltd sold plant to Pepsi Ltd for $16,000. This had a carrying amount in Soda Ltd at time of sale of $12,000. Plant of this class is depreciated at 20% p.a.
- Management and consultation fees derived by Pepsi Ltd are all from Soda Ltd and represent charges for administration of $1,760 and charges for technical services for the manufacturing section of $2,240.
- All debentures issued by Soda Ltd are held by Pepsi Ltd and interests are accounted for appropriately by both companies.
- Other components of equity relate to movements in the fair values of financial assets held by the entities. Gains and losses on these financial assets are recognised in other comprehensive income. The balance of the other components of equity account at 1 July
- Prepare an acquisition analysis.
- Prepare the consolidation worksheet entries for the year ended 30 June 2018.
Ingram Ltd acquired 35% of ordinary shares issued in A Ltd for $300,000 on 1 July 2017. The equity of A Ltd at that date was as follows.
|
$ |
|
|
Ordinary |
560,000 |
|
share |
|
|
capital |
|
|
Retained |
54,000 |
|
earnings |
All assets were recorded at fair value at acquisition date, except for plant and equipment which had a fair value of $20,000 above its carrying amount. This plant and equipment was estimated to have a remaining useful life of 5 years.
On 1 July 2017, land was recorded in the books of A Ltd at $100,000. The fair value of this asset has since risen by $40,000, with $28,000 ($40,000 less 30% tax) being credited to a revaluation surplus account by A Ltd on 30 June 2018.
On 1 January 2018, A Ltd sold a motor vehicle to Ingram Ltd for $34,000. The vehicle had originally cost A Ltd $68,000, and had a carrying amount of $20,000 at 1 January 2018. The motor vehicle had a remaining useful life of 4 years.
At 30 June 2018, Ingram Ltd had inventory costing $40,000 on hand which had been purchased from A Ltd during the financial year. A profit before tax of $10,000 had been made on the sale.
As at 30 June 2018, the following relates to A Ltd:
|
$ |
|
|
Operating profit before income tax |
180,000 |
|
Income tax expense |
54,000 |
|
Dividends paid |
30,000 |
The tax rate is 30%.
- Prepare an acquisition analysis in relation to the acquisition made by Ingram Ltd.
- Assume Ingram Ltd does prepare consolidated financial statements. Prepare the consolidated worksheet entries for the year ended 30 June 2018 for inclusion of the equity-accounted results of A Ltd.
Behappy Ltd is an Australian company with a reporting period ends on 30 June. The company has entered into two independent transactions denominated in foreign currency as follows.
- Behappy Ltd sells some goods on credit on 13 June 2018 to a Singaporean company, Mother Kwan. The contract, denominated in Singapore dollars, amounts to $125,000. Mother Kwan settles the contract on 10 July 2018.
The relevant exchange rates are as follows:
13 June 2018 A$1.00 = S$1.2536
30 June 2018 A$1.00 = S$1.2875
10 July 2018 A$1.00 = S$1.3103
- On 15 June 2018, Behappy Ltd acquires plant and equipment on credit from Senang Bhd, a Malaysian company. The contract is denominated in Malaysian Ringgit and the acquisition amounts to MYR300,000. Behappy Ltd settles the contract on 20 July 2018.
The relevant exchange rates are as follows:
15 June 2018 A$1.00 = MYR2.8079
30 June 2018 A$1.00 = MYR2.9946
20 July 2018 A$1.00 = MYR2.7152
In accordance with AASB 121, prepare all relevant journal entries of Behappy Ltd to account for the above transactions.
|
1. Acquisition analysis |
|
|
Amount (in $) |
|
|
Share Capital |
80,000.00 |
|
Retained Earnings |
29,600.00 |
|
General Reserve |
2,400.00 |
|
Excess of fair value over carrying value: |
|
|
Inventories |
2,100.00 |
|
Plant |
2,800.00 |
|
Land |
3,500.00 |
|
Unrecorded Customer List |
12,600.00 |
|
Fair value of identifiable assets & liabilities acquired |
133,000.00 |
|
% of shares acquired |
80% |
|
Consideration paid |
115,000.00 |
|
Non-controlling interest |
28,000.00 |
|
Aggregate |
143,000.00 |
|
Goodwill |
10,000.00 |
|
Goodwill of Soda Ltd. |
|
|
Fair value |
140,000.00 |
|
Fair value of identifiable assets & liabilities acquired of Soda Ltd. |
133,000.00 |
|
Goodwill of Soda Ltd |
7,000.00 |
|
Goodwill of Pepsi Ltd |
|
|
Goodwill acquired |
10,000.00 |
|
Goodwill of Soda Ltd |
7,000.00 |
|
Goodwill of Pepsi Ltd - Control premium |
3,000.00 |
|
2. Consolidation Worksheet Entries for the year ended 30 June, 2018 |
||
|
1. Business Combination Valuation Entries |
||
|
Accumulated Depreciation |
Dr. |
13,000.00 |
|
Plant |
Cr. |
9,000.00 |
|
Deferred tax liability |
Cr. |
1,200.00 |
|
BCVR |
Cr. |
2,800.00 |
|
(Fair valuation of Plant) |
||
|
Depreciation expense (4000/10*1) |
Dr. |
400.00 |
|
Retained earnings (1/7/17) (4000/10*2) |
Dr. |
800.00 |
|
Accumulated depreciation |
Cr. |
1,200.00 |
|
(Recording depreciation) |
||
|
Deferred tax liability |
Dr. |
360.00 |
|
Income tax expense |
Cr. |
120.00 |
|
Retained earnings (1/7/17) |
Cr. |
240.00 |
|
(Recording income tax on depreciation) |
||
|
Gain on sale of land |
Dr. |
5,000.00 |
|
Income Tax expense |
Cr. |
1,500.00 |
|
Transfer from BCVR |
Cr. |
3,500.00 |
|
(Recording sale of land in the current year) |
||
|
Unrecorded Customer List |
Dr. |
18,000.00 |
|
Deferred tax liability |
Cr. |
5,400.00 |
|
BCVR |
Cr. |
12,600.00 |
|
(Record customer list at fair value) |
||
|
Goodwill |
Dr. |
7,000.00 |
|
BCVR |
Cr. |
7,000.00 |
|
(Recording goodwill on acquisition) |
||
|
2. Pre-Acquisition entry as on 31/7/18 |
||
|
Share Capital |
Dr. |
64,000.00 |
|
Retained Earnings (1/7/17) |
Dr. |
25,360.00 |
|
General Reserve |
Dr. |
1,920.00 |
|
Goodwill |
Dr. |
3,000.00 |
|
BCVR |
Dr. |
20,720.00 |
|
Investment in Soda Ltd. |
Cr. |
115,000.00 |
|
(Recording acquisition of subsidiary) |
||
|
Transfer from BCVR |
Dr. |
2,800.00 |
|
BCVR |
Cr. |
2,800.00 |
|
(Recording transfer of amount -sale of land) |
||
|
3. NCI share of equity at acquisition date (1/7/15) |
||
|
Share Capital |
Dr. |
16,000.00 |
|
Retained Earnings (1/7/17) |
Dr. |
5,920.00 |
|
General Reserve |
Dr. |
480.00 |
|
BCVR |
Dr. |
5,600.00 |
|
NCI |
Cr. |
28,000.00 |
|
(Recording share of NCI) |
||
|
Retained Earnings (1/7/17) |
Dr. |
1,588.00 |
|
General Reserve |
Dr. |
1,120.00 |
|
Other components of equity |
Dr. |
1,280.00 |
|
BCVR |
Cr. |
420.00 |
|
NCI |
Cr. |
3,568.00 |
|
(Recording NCI share in profits for 1/7/15 30/06/17) |
||
|
NCI share of profit |
Dr. |
2,824.00 |
|
NCI |
Cr. |
2,824.00 |
|
(Recording NCI share in profit for 1/7/17 30/06/18) |
||
|
Transfer from BCVR |
Dr. |
700.00 |
|
BCVR |
Cr. |
700.00 |
|
(Recording NCI share on sale of land) |
||
|
Gains/Losses: other components of equity |
Dr. |
320.00 |
|
NCI |
Cr. |
320.00 |
|
(Recording NCI share of profit for current year) |
||
|
NCI |
Dr. |
1,600.00 |
|
Interim Dividend Paid |
Cr. |
1,600.00 |
|
(Recording payment of interim dividend) |
||
|
NCI |
Dr. |
800.00 |
|
Final Dividend declared |
Cr. |
800.00 |
|
(Recording payment of final dividend) |
||
|
4. Other journal entries |
||
|
Retained Earnings (1/7/17) |
Dr. |
1,400.00 |
|
Income tax expenses |
Dr. |
600.00 |
|
Cost of Sales |
Cr. |
2,000.00 |
|
(Recording elimination of profit from opening inventory) |
||
|
Sales |
Dr. |
48,000.00 |
|
Cost of Sales |
Cr. |
44,000.00 |
|
Inventory |
Cr. |
4,000.00 |
|
(Recording elimination of profit from closing inventory) |
||
|
Deferred tax asset |
Dr. |
1,200.00 |
|
Income tax expense |
Cr. |
1,200.00 |
|
(Recording tax impact on above elimination) |
||
|
NCI |
Dr. |
560.00 |
|
NCI share of profit |
Cr. |
560.00 |
|
(Recording reduction in NCI due above adjustment) |
||
|
Retained Earnings (1/7/17) |
Dr. |
2,800.00 |
|
Deferred tax asset |
Dr. |
1,200.00 |
|
Plant |
Cr. |
4,000.00 |
|
(Recording elimination of profit from inter-company sale of plant) |
||
|
NCI |
Dr. |
560.00 |
|
NCI share of profit |
Cr. |
560.00 |
|
(Recording reduction in NCI due above adjustment) |
||
|
Accumulated Depreciation |
Dr. |
1,200.00 |
|
Retained Earnings (1/7/17) |
Cr. |
400.00 |
|
Depreciation expenses |
Cr. |
800.00 |
|
(Recording reversal of depreciation on above elimination) |
||
|
Income tax expense |
Dr. |
240.00 |
|
Retained Earnings (1/7/17) |
Dr. |
120.00 |
|
Deferred tax liability |
Cr. |
360.00 |
|
(Recording income tax) |
||
|
NCI share of profit |
Dr. |
56.00 |
|
Retained Earnings (1/7/17) |
Dr. |
112.00 |
|
NCI |
Cr. |
168.00 |
|
(Recording reduction in NCI due to above adjustment) |
||
|
Management and consultation fees |
Dr. |
4,000.00 |
|
Administration expenses |
Cr. |
1,760.00 |
|
Manufacturing expenses |
Cr. |
2,240.00 |
|
(Recording elimination of inter-company transaction) |
||
|
Debentures |
Dr. |
80,000.00 |
|
Debentures in Soda Ltd. |
Cr. |
80,000.00 |
|
(Recording elimination of inter-company transaction of debentures) |
||
|
Debenture Interest |
Dr. |
4,000.00 |
|
Financial expenses |
Cr. |
4,000.00 |
|
(Recording elimination of inter-company transaction of debenture interest) |
||
|
Dividend revenue |
Dr. |
6,400.00 |
|
Dividend paid |
Cr. |
6,400.00 |
|
(Recording elimination of inter-company dividend) |
||
|
Dividend Payable |
Dr. |
3,200.00 |
|
Dividend declared |
Cr. |
3,200.00 |
|
(Recording elimination of inter-company dividend payable) |
||
|
Dividend revenue |
Dr. |
3,200.00 |
|
Dividend receivable |
Cr. |
3,200.00 |
|
(Recording elimination of inter-company dividend receivable) |
|
1. Acquisition analysis |
|
|
Amount (in $) |
|
|
Share Capital |
560,000.00 |
|
Retained Earnings |
54,000.00 |
|
Excess of fair value over carrying value: |
|
|
Plant & Equipment |
14,000.00 |
|
Fair value of net assets acquired |
628,000.00 |
|
% of shares acquired |
35% |
|
Fair value of net assets |
219,800.00 |
|
Consideration paid |
300,000.00 |
|
Goodwill |
80,200.00 |
|
2. Consolidation Worksheet Entries for the year ended 30 June, 2018 |
||
|
Assuming Ingram Ltd does prepare consolidated financial statements |
||
|
Investment in A Ltd. |
Dr. |
9,800.00 |
|
Asset revaluation surplus |
Cr. |
9,800.00 |
|
(Recording gain on revaluation of land) |
||
|
Investment in A Ltd. (WN-1) |
Dr. |
37,668.75 |
|
Share of profit or loss of associates and joint ventures |
Cr. |
37,668.75 |
|
(Recording share in profit of current year) |
||
|
Dividend Revenue |
Dr. |
10,500.00 |
|
Investment in A Ltd. |
Cr. |
10,500.00 |
|
(Recording receipt of dividend paid by A Ltd.) |
|
WN-1: Working for share in profit |
||
|
Net Profit |
107,625.00 |
|
|
Investor's share |
35% |
|
|
Investor's share in profit |
37,668.75 |
|
|
Profit for the year |
126,000.00 |
|
|
Depreciation on fair value of plant & equipment |
(2,800.00) |
|
|
Unreliased profit in sale of vehicle |
(9,800.00) |
|
|
Reversal of excess depreciation charged on above profit |
1,225.00 |
|
|
Unreliased profit in closing inventory |
(7,000.00) |
107,625.00 |
|
Behappy Ltd. |
|||
|
Journal entries for the year ending 30 June 2018 |
|||
|
Date |
Account description |
Dr./Cr. |
Amount ($) |
|
13-Jun-18 |
Accounts receivable |
Dr. |
99,713 |
|
Sales |
Cr. |
99,713 |
|
|
(Recording sale of product) |
|||
|
30-Jun-18 |
Unrealized foreign exchange loss |
Dr. |
2,626 |
|
Accounts receivable |
Cr. |
2,626 |
|
|
(Recording loss on restatement at year end) |
|||
|
10-Jul-18 |
Cash |
Dr. |
95,398 |
|
Foreign exchange loss |
Dr. |
1,689 |
|
|
Accounts receivable |
Cr. |
97,087 |
|
|
(Recording receipt of money) |
|||
|
10-Jul-18 |
Foreign exchange loss |
Dr. |
2,626 |
|
Unrealised foreign exchange loss |
Cr. |
2,626 |
|
|
(Recording transfer of amount) |
|||
|
Behappy Ltd. |
|||
|
Journal entries for the year ending 30 June 2018 |
|||
|
Date |
Account description |
Dr./Cr. |
Amount ($) |
|
15-Jun-18 |
Plant & Equipment |
Dr. |
106,841 |
|
Accounts Payable |
Cr. |
106,841 |
|
|
(Recording purchase of asset on credit) |
|||
|
30-Jun-18 |
Accounts Payable |
Dr. |
6,661 |
|
Unrealised foreign exchange gain |
Cr. |
6,661 |
|
|
(Recording gain on restatement at year end) |
|||
|
20-Jul-18 |
Accounts Payable |
Dr. |
100,181 |
|
Foreign exchange loss |
Dr. |
10,308 |
|
|
Cash |
Cr. |
110,489 |
|
|
(Recording payment of cash vendor) |
|||
|
20-Jul-18 |
Unrealised foreign exchange gain |
Dr. |
6,661 |
|
Foreign exchange loss |
Cr. |
6,661 |
|
|
(Recording transfer of amount) |
|||
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