Acquisition analysis as on 1 July, 2015
1. 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.
2. 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.
3. 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.
4. 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.
5. All debentures issued by Soda Ltd are held by Pepsi Ltd and interests are accounted for appropriately by both companies.
6. 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 2017 was $8,000 (Pepsi Ltd) and $6,400 (Soda Ltd).
Required:
1. Prepare an acquisition analysis.
2. Prepare the consolidation worksheet entries for the year ended 30 June 2018.
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 $10,000 had been made on the sale.
(1)
Acquisition analysis as on 1 July, 2015
|
Description |
Amount ($) |
|
Share Capital |
80,000 |
|
Retained Earnings |
29,600 |
|
General Reserve |
2,400 |
|
Fair value of inventories ((28000-25000)*(1-30%)) |
2,100 |
|
Fair value of plant ((56000-52000)*(1-30%)) |
2,800 |
|
Fair value of Land ((45000-40000)*(1-30%)) |
3,500 |
|
Fair value of Customer List (unrecorded) (18000*(1-30%)) |
12,600 |
|
Net fair value of assets acquired |
133,000 |
|
Consideration paid - (a) |
115,000 |
|
Non-controlling interest - (b) |
28,000 |
|
Aggregate of (a) and (b) |
143,000 |
|
Goodwill (143000-133000) |
10,000 |
|
Goodwill of Subsidiary |
|
|
Fair value (28000/20%) |
140,000 |
|
Fair value of net assets of Soda Ltd |
133,000 |
|
Goodwill of Soda Ltd |
7,000 |
|
Goodwill of Holding |
|
|
Goodwill acquired |
10,000 |
|
Goodwill of Soda Ltd |
7,000 |
|
Goodwill of Pepsi Ltd - Control premium |
3,000 |
(2) Consolidation Worksheet Entries as at 30 June, 2018
|
1. Business Combination Valuation Entries |
|
|
Description |
Amount ($) |
|
Accumulated Depreciation A/c |
13,000 |
|
To Plant A/c |
9,000 |
|
To Deferred tax liability A/c |
1,200 |
|
To Business Combination Valuation Reserve A/c |
2,800 |
|
Depreciation expense (4000/10*1) A/c |
400 |
|
Retained earnings (1/7/17) (4000/10*2) A/c |
800 |
|
To Accumulated depreciation A/c |
1,200 |
|
Deferred tax liability A/c |
360 |
|
To Income tax expense A/c |
120 |
|
To Retained earnings (1/7/17) A/c |
240 |
|
Gain/ loss on sale of land A/c |
5,000 |
|
To Income Tax expense A/c |
1,500 |
|
To Transfer from business combination valuation reserve A/c |
3,500 |
|
Unrecorded Customer List A/c |
18,000 |
|
To Deferred tax liability A/c |
5,400 |
|
To Business Combination Valuation Reserve A/c |
12,600 |
|
Goodwill A/c |
7,000 |
|
To Business Combination Valuation Reserve A/c |
7,000 |
|
2. Pre-Acquisition entry as on 31/7/18 |
|
|
Description |
Amount ($) |
|
Share Capital A/c |
64,000 |
|
Retained Earnings (1/7/17) A/c |
25,360 |
|
General Reserve A/c |
1,920 |
|
Goodwill A/c |
3,000 |
|
Business combination valuation reserve A/c ((2100+2800+3500+12600+7000)*80%) |
20,720 |
|
To Investment in Soda Ltd. A/c |
115,000 |
|
Transfer from business combination valuation reserve A/c |
2,800 |
|
To Business combination valuation reserve A/c |
2,800 |
|
3. Non-controlling interest share of equity at acquisition date (1/7/15) |
|
|
Description |
Amount ($) |
|
Share Capital A/c |
16,000 |
|
Retained Earnings (1/7/17) A/c |
5,920 |
|
General Reserve A/c |
480 |
|
Business combination valuation reserve A/c ((2100+2800+3500+12600+7000)*20%) |
5,600 |
|
To Non-controlling interest |
28,000 |
|
Non-controlling interest share of equity: 1/7/15 to 30/06/17 |
|
|
Description |
Amount ($) |
|
Retained Earnings (1/7/17) A/c ((36000-29600+2100+800-240)*20%) |
1,588 |
|
General Reserve A/c ((8000-2400)*20%)) |
1,120 |
|
Other components of equity A/c |
1,280 |
|
To Business combination valuation reserve A/c |
420 |
|
To Non-controlling interest A/c |
3,568 |
|
Non-controlling interest share of equity: 1/7/17 to 30/06/18 |
|
|
Description |
Amount ($) |
|
Non-controlling interest share of profit A/c [(14,400-400+120)*20%] |
2,824 |
|
To Non-controlling interest A/c |
2,824 |
|
Transfer from business combination valuation reserve A/c |
700 |
|
To Business combination valuation reserve A/c |
700 |
|
Gains/Losses: other components of equity A/c ((8000-6400)*20%) |
320 |
|
To Non-controlling interest A/c |
320 |
|
Non-controlling interest A/c |
1,600 |
|
To Interim Dividend Paid A/c |
1,600 |
|
Non-controlling interest A/c |
800 |
|
To Final Dividend declared A/c |
800 |
|
4. Other journal entries |
|
|
Description |
Amount ($) |
|
Elimination of Profit from opening inventory |
|
|
Retained Earnings (1/7/17) A/c |
1,400 |
|
Income tax expenses A/c |
600 |
|
To Cost of Sales A/c |
2,000 |
|
Elimination of Profit from closing inventory |
|
|
Sales A/c |
48,000 |
|
To Cost of Sales A/c |
44,000 |
|
To Inventory A/c |
4,000 |
|
Deferred tax asset A/c |
1,200 |
|
To Income tax expense A/c |
1,200 |
|
Non-controlling interest A/c ((4000-1200)*20%) |
560 |
|
To Non-controlling interest share of profit A/c |
560 |
|
Elimination of Profit from inter-company sale of plant |
|
|
Retained Earnings (1/7/17) A/c |
2,800 |
|
Deferred tax asset A/c |
1,200 |
|
To Plant A/c |
4,000 |
|
Non-controlling interest A/c (2800*20%) |
560 |
|
To Non-controlling interest share of profit A/c |
560 |
|
Accumulated Depreciation A/c |
1,200 |
|
To Retained Earnings (1/7/17) A/c (4000*20%*6/12) |
400 |
|
To Depreciation expenses A/c (4000*20%) |
800 |
|
Income tax expense A/c |
240 |
|
Retained Earnings (1/7/17) A/c |
120 |
|
To Deferred tax liability A/c |
360 |
|
Non-controlling interest share of profit A/c ((400-120)*20%) |
56 |
|
Retained Earnings (1/7/17) A/c ((800-240)*20%) |
112 |
|
To Non-controlling interest A/c |
168 |
|
Elimination of inter-company transactions |
|
|
Management and consultation fees A/c |
4,000 |
|
To Administration expenses A/c |
1,760 |
|
To Manufacturing expenses A/c |
2,240 |
|
Elimination of inter-company transaction of debenture |
|
|
Debentures A/c |
80,000 |
|
To Debentures in Soda Ltd. A/c |
80,000 |
|
Debenture Interest A/c |
4,000 |
|
To Non-controlling interest expenses A/c |
4,000 |
|
Elimination of dividend paid / declared by Soda Ltd. |
|
|
Dividend revenue A/c (8000*80%) |
6,400 |
|
To Dividend paid A/c |
6,400 |
|
Dividend Payable A/c (4000*80%) |
3,200 |
|
To Dividend declared A/c |
3,200 |
|
Dividend revenue A/c (4000*80%) |
3,200 |
|
To Dividend receivable A/c |
3,200 |
(1)
Preparation of Acquisition analysis
|
Description |
Amount ($) |
|
Share Capital |
560,000 |
|
Retained Earnings |
54,000 |
|
Fair value: Plant & Equipment |
14,000 |
|
Fair value of net assets & liabilities acquired |
628,000 |
|
% holding in A Ltd. |
35% |
|
Fair value of net assets acquired |
219,800 |
|
Consideration paid for shares in A Ltd. |
300,000 |
|
Goodwill |
80,200 |
(2)
Consolidation Worksheet Entries as at 30 June, 2018
|
Description |
Amount ($) |
|
Gain on revaluation of land |
|
|
Investment in A Ltd. A/c (28000*35%) |
9,800 |
|
To Asset revaluation surplus A/c |
9,800 |
|
Share in profit of current year |
|
|
Investment in A Ltd. A/c (refer WN-1) |
37,669 |
|
To Share of profit or loss of associates and joint ventures A/c |
37,669 |
|
Receipt of dividend |
|
|
Dividend Revenue A/c (30000*35%) |
10,500 |
|
To Investment in A Ltd. A/c |
10,500 |
|
WN-1: Profit Calculation |
|
|
Description |
Amount ($) |
|
Profit for the year |
126,000 |
|
Depreciation on fair value of plant & equipment |
(2,800) |
|
Unreliased profit in sale of vehicle |
(9,800) |
|
Reversal of excess depreciation charged on above profit |
1,225 |
|
Unreliased profit in closing inventory |
(7,000) |
|
Net Profit |
107,625 |
|
Investor's share in profit (107,625*35%) |
37,669 |
|
Behappy Ltd. |
||
|
Journal entries for the year ending 30 June 2018 |
||
|
Date |
Description |
Amount ($) |
|
|
Sale of product |
|
|
13-Jun-18 |
Accounts receivable A/c (125,000/1.2536) |
99,713 |
|
To sales A/c |
99,713 |
|
|
Loss on restatement at year end |
||
|
30-Jun-18 |
Unrealized foreign exchange loss A/c (99713-(125000/1.2875)) |
2,626 |
|
To Accounts receivable A/c |
2,626 |
|
|
Receipt of money |
||
|
10-Jul-18 |
Cash A/c |
95,398 |
|
Foreign exchange loss A/c |
1,689 |
|
|
To Accounts receivable A/c |
97,087 |
|
|
Transfer of amount |
||
|
10-Jul-18 |
Foreign exchange loss A/c |
2,626 |
|
To Unrealised foreign exchange loss A/c |
2,626 |
|
|
Behappy Ltd. |
||
|
Journal entries for the year ending 30 June 2018 |
||
|
Date |
Description |
Amount ($) |
|
|
Purchase of asset |
|
|
15-Jun-18 |
Plant & Equipment A/c (300000/2.8079) |
106,841 |
|
To Accounts Payable A/c |
106,841 |
|
|
Gain on restatement at year end |
||
|
30-Jun-18 |
Accounts Payable A/c (106841-(300000/2.9946)) |
6,661 |
|
To Unrealised foreign exchange gain A/c |
6,661 |
|
|
Payment to vendor |
||
|
20-Jul-18 |
Accounts Payable A/c |
100,181 |
|
Foreign exchange loss A/c |
10,308 |
|
|
To Cash A/c (300000/2.7152) |
110,489 |
|
|
Transfer of amount |
||
|
20-Jul-18 |
Unrealised foreign exchange gain A/c |
6,661 |
|
To Foreign exchange loss A/c |
6,661 |
|
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