On 1 July 2015, Tuna Ltd acquired all the issued shares of Brim Ltd. Tuna Ltd paid $30 000 in cash and 20 000 shares in Tuna Ltd valued at $3 per share. At this date, the equity of Brim Ltd consisted of $66 000 share capital and $6000 retained earnings.
At 1 July 2015, all the identifiable assets and liabilities of Brim Ltd were recorded at amounts equal to their fair values except for:
|
|
Carrying amount |
Fair value |
|
Plant (cost $150 000) |
$120 000 |
$123 000 |
|
Patents |
90 000 |
105 000 |
|
Inventory |
18 000 |
22 500 |
The plant was considered to have a further 5-year life. The patents were sold for $120 000 to
an external entity on 18 August 2015. The inventory was all sold by 30 June 2016.
(a) Tuna Ltd sells certain raw materials to Brim Ltd to be used in its manufacturing process.
At 1 July 2016, Brim Ltd held inventory sold to it by Tuna Ltd in the previous year at a profit of $600. During the 2016–17-year, Tuna Ltd sold inventory to Brim Ltd for $21 000. None of this was on hand at 30 June 2017.
(b) Brim Ltd also sells items of inventory to Tuna Ltd. During the 2016–17 year, Brim Ltd sold goods to Tuna Ltd for $4500. At 30 June 2017, inventory which had been sold to Tuna Ltd at a profit of $300 was still on hand in Tuna Ltd.’s inventory.
(c) On 1 July 2016, Brim Ltd sold an item of plant to Tuna Ltd for $15 000. This plant had a
carrying amount in the records of Brim Ltd of $14 000 at time of sale. This type of plant is
depreciated at 10% p.a. on cost.
(d) On 1 January 2015, Tuna Ltd sold an item of inventory to Brim Ltd for $18 000. The
inventory had cost Tuna Ltd $16 000. This item was classified by Brim Ltd as plant. Plant of this type is depreciated by Brim Ltd at 20% p.a.
(e) On 1 March 2017, Brim Ltd sold an item of plant to Tuna Ltd. Whereas Brim Ltd classified this as plant, Tuna Ltd classified it as inventory. The sales price was $9000 which included a profit to Brim Ltd of $1500. Tuna Ltd sold this to another entity on 31 March for $9900.
(f) The tax rate is 30%.
At 30 June 2017, the following financial information was provided by the two companies:
|
|
Tuna Ltd |
Brim Ltd |
||
|
|
Dr |
Cr |
Dr |
Cr |
|
Sales revenue |
|
64 500 |
|
78 000 |
|
Cost of sales |
30 900 |
|
46 350 |
|
|
Trading expenses |
4 800 |
|
9 000 |
|
|
Office expenses |
7 950 |
|
4 050 |
|
|
Depreciation expenses |
1 800 |
|
3 900 |
|
|
Proceeds on sale of plant |
|
9 000 |
|
15 000 |
|
Carrying amount of plant sold |
7 500 |
|
14 000 |
|
|
Income tax expense |
11 100 |
|
7 300 |
|
|
Share capital |
|
96 000 |
|
66 000 |
|
Retained earnings (1/7/16) |
|
48 000 |
|
31 500 |
|
Current liabilities |
|
21 100 |
|
10 500 |
|
Deferred tax liability |
|
11 000 |
|
15 000 |
|
Plant |
57 000 |
|
107 250 |
|
|
Accumulated depreciation – plant |
|
18 300 |
|
33 450 |
|
Intangibles |
12 000 |
|
11 100 |
|
|
Deferred tax assets |
8 100 |
|
9 450 |
|
|
Shares in Brim Ltd |
90 000 |
|
0 |
|
|
Inventory |
28 500 |
|
24 600 |
|
|
Receivables |
8 250 |
|
12 450 |
|
|
|
267 900 |
267 900 |
249 450 |
249 450 |
- Calculate acquisition analysis for Tuna Ltd
- Prepare consolidation journal entries for Tuna Ltd
- Prepare a consolidated set of financial statements for the group. Use the worksheet provided.
|
|
Tuna Ltd |
Brim Ltd |
Journal number |
Adjustments |
Journal |
Group |
|
|
Dr |
Cr |
number |
|||||
|
Sales revenue |
64 500 |
78 000 |
|
|
|
|
|
|
Cost of sales |
30 900 |
46 350 |
|
|
|
|
|
|
Gross profit |
33 600 |
31 650 |
|
|
|
|
|
|
Trading expenses |
4 800 |
9 000 |
|
|
|
|
|
|
Office expenses |
7 950 |
4 050 |
|
|
|
|
|
|
Depreciation |
1 800 |
3 900 |
|
|
|
|
|
|
|
14 550 |
16 950 |
|
|
|
|
|
|
Profit from trading |
19 050 |
14 700 |
|
|
|
|
|
|
Proceeds from sale of plant |
9 000 |
15 000 |
|
|
|
|
|
|
Carrying amount of plant sold |
7 500 |
14 000 |
|
|
|
|
|
|
Gain/loss on sale of machinery |
1 500 |
1 000 |
|
|
|
|
|
|
Profit before tax |
20 550 |
15 700 |
|
|
|
|
|
|
Tax expense |
11 100 |
7 300 |
|
|
|
|
|
|
Profit |
9 450 |
8 400 |
|
|
|
|
|
|
Retained earnings (1/7/16) |
48 000 |
31 500 |
|
|
|
|
|
|
Retained earnings (30/6/17) |
57 450 |
39 900 |
|
|
|
|
|
|
Share capital |
96 000 |
66 000 |
|
|
|
|
|
|
BCVR |
-- |
-- |
|
|
|
|
|
|
Total equity |
153 450 |
105 900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
21 100 |
10 500 |
|
|
|
|
|
|
Deferred tax liability |
11 000 |
15 000 |
|
|
|
|
|
|
Total liabilities |
32 100 |
25 500 |
|
|
|
|
|
|
Total equity and liabilities |
185 550 |
131 400 |
|
|
|
|
|
|
|
|
|
|
Dr |
Cr |
|
Plant |
57 000 |
107 250 |
|
|
|
|
Accumulated depreciation |
(18 300) |
(33 450) |
|
|
|
|
Intangibles |
12 000 |
11 100 |
|
|
|
|
Shares in Brim Ltd |
90 000 |
- |
|
|
|
|
Deferred tax asset |
8 100 |
9 450 |
|
|
|
|
Inventory |
28 500 |
24 600 |
|
|
|
|
Receivables |
8 250 |
12 450 |
|
|
|
|
Goodwill |
0 |
0 |
|
|
|
|
Total assets |
185 550 |
131 400 |
|
|
|
|
Particulars |
Calculation basis |
Amount |
|
Share Capital |
|
$66,000 |
|
Retained Earnings |
|
$6,000 |
|
Fair valuation of Plant |
((123000-120000)*(1-30%)) |
$2,100 |
|
Fair valuation of Patent |
((105000-90000)*(1-30%)) |
$10,500 |
|
Fair valuation of Inventory |
((22500-18000)*(1-30%)) |
$3,150 |
|
Net fair value of assets and liabilities identified |
|
$87,750 |
|
Consideration paid in cash |
|
$30,000 |
|
Consideration paid in shares |
(20,000*3) |
$60,000 |
|
Goodwill |
|
$2,250 |
Consolidation Journal Entries for Tuna Ltd. as on 30 June, 2017
|
Journal Number |
Particulars |
Debit |
Credit |
|
|
Pre-Acquisition entry as on 1/7/15 |
|
|
|
|
Share Capital A/c |
$66,000 |
|
|
|
Retained Earnings A/c |
$6,000 |
|
|
|
Goodwill A/c |
$2,250 |
|
|
|
Business Combination Valuation Reserve A/c |
$15,750 |
|
|
|
Shares in Brim Ltd. A/c |
|
$90,000 |
|
1 |
Pre-Acquisition entry as on 30/6/17 |
|
|
|
|
Share Capital A/c |
$66,000 |
|
|
|
Retained Earnings A/c |
$19,650 |
|
|
|
Goodwill A/c |
$2,250 |
|
|
|
Business Combination Valuation Reserve A/c |
$2,100 |
|
|
|
Shares in Brim Ltd. A/c |
|
$90,000 |
|
|
Business Combination Valuation Entries |
|
|
|
2 |
Fair valuation of plant |
|
|
|
|
Accumulated Depreciation A/c |
$30,000 |
|
|
|
Plant A/c |
|
$27,000 |
|
|
Deferred tax liability A/c |
|
$900 |
|
|
Business Combination Valuation Reserve A/c |
|
$2,100 |
|
3 |
Depreciation recorded on above fair valuation |
|
|
|
|
Depreciation (3000/5) A/c |
$600 |
|
|
|
Retained earnings (1/7/16) A/c |
$600 |
|
|
|
Accumulated Depreciation A/c |
|
$1,200 |
|
|
Income tax effect on above depreciation |
|
|
|
|
Deferred tax liability A/c |
$360 |
|
|
|
Income tax expense A/c |
|
$180 |
|
|
Retained earnings (1/7/16) A/c |
|
$180 |
|
|
Other consolidation entries |
|
|
|
4 |
Elimination of intercompany sale transaction |
|
|
|
|
Sales revenue A/c |
$21,000 |
|
|
|
Cost of sales A/c |
|
$21,000 |
|
|
Retained earnings (1/7/16) A/c |
$420 |
|
|
|
Income tax expense A/c |
$180 |
|
|
|
Cost of sales A/c |
|
$600 |
|
5 |
Elimination of intercompany sale & inventory transaction |
|
|
|
|
Sales revenue A/c |
$4,500 |
|
|
|
Cost of sales A/c |
|
$4,200 |
|
|
Inventory A/c |
|
$300 |
|
|
Tax impact on above elimination |
|
|
|
|
Deferred tax asset A/c |
$90 |
|
|
|
Income tax expense A/c |
|
$90 |
|
6 |
Elimination of intercompany sale of plant |
|
|
|
|
Proceeds on sale of Plant A/c |
$15,000 |
|
|
|
Carrying amount of plant sold A/c |
|
$14,000 |
|
|
Plant A/c |
|
$1,000 |
|
|
Tax impact on above elimination |
|
|
|
|
Deferred tax asset A/c |
$300 |
|
|
|
Income tax expense A/c |
|
$300 |
|
|
Depreciation reversal on above transaction |
|
|
|
|
Accumulated Depreciation (1000*10%) A/c |
$100 |
|
|
|
Depreciation A/c |
|
$100 |
|
|
Tax impact on above depreciation reversal |
|
|
|
|
Income tax expense A/c |
$30 |
|
|
|
Deferred tax asset A/c |
|
$30 |
|
7 |
Elimination of intercompany sale of inventory classified as plant |
|
|
|
|
Retained earnings (1/7/16) A/c |
$1,400 |
|
|
|
Deferred tax asset A/c |
$600 |
|
|
|
Plant (18000-16000) A/c |
|
$2,000 |
|
|
Depreciation reversal on above transaction |
|
|
|
|
Accumulated depreciation A/c |
$1,000 |
|
|
|
Depreciation expense (2000*20%) A/c |
|
$400 |
|
|
Retained earnings (1/7/16) (2000*20%*1.5) A/c |
|
$600 |
|
|
Tax impact on above depreciation reversal |
|
|
|
|
Income tax expense A/c |
$120 |
|
|
|
Retained earnings (1/7/16) A/c |
$180 |
|
|
|
Deferred tax asset A/c |
|
$300 |
|
8 |
Elimination of intercompany sale of plant classified as inventory |
|
|
|
|
Proceeds on sale of Plant A/c |
$9,000 |
|
|
|
Carrying amount of plant sold A/c |
|
$7,500 |
|
|
Cost of sales A/c |
|
$1,500 |
|
|
Tuna Ltd |
Brim Ltd |
Journal number |
Adjustments |
Journal number |
Group |
|
|
Dr |
Cr |
||||||
|
Sales revenue |
$64,500 |
$78,000 |
4,5 |
$25,500 |
|
|
$117,000 |
|
Cost of sales |
$30,900 |
$46,350 |
|
|
$27,300 |
4,5,8 |
$49,950 |
|
Gross profit |
$33,600 |
$31,650 |
|
|
|
|
$67,050 |
|
Trading expenses |
$4,800 |
$9,000 |
|
|
|
|
$13,800 |
|
Office expenses |
$7,950 |
$4,050 |
|
|
|
|
$12,000 |
|
Depreciation |
$1,800 |
$3,900 |
3 |
$600 |
$500 |
6,7 |
$5,800 |
|
|
$14,550 |
$16,950 |
|
|
|
|
$31,600 |
|
Profit from trading |
$19,050 |
$14,700 |
|
|
|
|
$35,450 |
|
Proceeds from sale of plant |
$9,000 |
$15,000 |
6,8 |
$24,000 |
|
|
$- |
|
Carrying amount of plant sold |
$7,500 |
$14,000 |
|
|
$21,500 |
6,8 |
$- |
|
Gain/loss on sale of machinery |
$1,500 |
$1,000 |
|
|
|
|
$- |
|
Profit before tax |
$20,550 |
$15,700 |
|
|
|
|
$35,450 |
|
Tax expense |
$11,100 |
$7,300 |
4,6,7 |
$330 |
$570 |
3,5,6 |
$18,160 |
|
Profit |
$9,450 |
$8,400 |
|
|
|
|
$17,290 |
|
Retained earnings (1/7/16) |
$48,000 |
$31,500 |
1,3,4,7 |
$22,250 |
$780 |
3,7 |
$58,030 |
|
Retained earnings (30/6/17) |
$57,450 |
$39,900 |
|
|
|
|
$75,320 |
|
Share capital |
$96,000 |
$66,000 |
1 |
$66,000 |
|
|
$96,000 |
|
BCVR |
$- |
$- |
1 |
$2,100 |
$2,100 |
2 |
$- |
|
Total equity |
$153,450 |
$105,900 |
|
|
|
|
$171,320 |
|
Current liabilities |
$21,100 |
$10,500 |
|
|
|
|
$31,600 |
|
Deferred tax liability |
$11,000 |
$15,000 |
3 |
$360 |
$900 |
2 |
$26,540 |
|
Total liabilities |
$32,100 |
$25,500 |
|
|
|
|
$58,140 |
|
Total equity and liabilities |
$185,550 |
$131,400 |
|
|
|
|
$229,460 |
|
Plant |
$57,000 |
$107,250 |
|
|
$30,000 |
2,6,7 |
$134,250 |
|
Accumulated depreciation |
$(18,300) |
$(33,450) |
2,6,7 |
$31,100 |
$1,200 |
3 |
$(21,850) |
|
Intangibles |
$12,000 |
$11,100 |
|
|
|
|
$23,100 |
|
Shares in Brim Ltd |
$90,000 |
$- |
|
|
$90,000 |
1 |
$- |
|
Deferred tax asset |
$8,100 |
$9,450 |
|
|
|
|
$17,550 |
|
Inventory |
$28,500 |
$24,600 |
|
|
$300 |
5 |
$52,800 |
|
Receivables |
$8,250 |
$12,450 |
|
|
|
|
$20,700 |
|
Goodwill |
$- |
$- |
1 |
$2,250 |
|
|
$2,250 |
|
Deferred tax asset |
$- |
$- |
5,6,7 |
$990 |
$330 |
6,7 |
$660 |
|
Total assets |
$185,550 |
$131,400 |
|
|
|
|
$229,460 |
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[Accessed 15 November 2024].
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