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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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[Accessed 21 February 2024].

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