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Question:

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.

Additional information

(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


Required
  1. Calculate acquisition analysis for Tuna Ltd
  2. Prepare consolidation journal entries for Tuna Ltd
  3. Prepare a consolidated set of financial statements for the group. Use the worksheet provided.
Worksheet for requirement 3.

 

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

 

 

 

Answer:
Acquisition analysis for Tuna Ltd. as on 1 July, 2015

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

Consolidation Worksheet in the books of Tuna Ltd.

 

 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

Cite This Work

To export a reference to this article please select a referencing stye below:

My Assignment Help. (2020). Acquisition Analysis And Consolidation Entries For Tuna Ltd. Retrieved from https://myassignmenthelp.com/free-samples/acc705-corporate-accounting-and-reporting/analysis-for-tuna-ltd.html.

"Acquisition Analysis And Consolidation Entries For Tuna Ltd." My Assignment Help, 2020, https://myassignmenthelp.com/free-samples/acc705-corporate-accounting-and-reporting/analysis-for-tuna-ltd.html.

My Assignment Help (2020) Acquisition Analysis And Consolidation Entries For Tuna Ltd [Online]. Available from: https://myassignmenthelp.com/free-samples/acc705-corporate-accounting-and-reporting/analysis-for-tuna-ltd.html
[Accessed 15 June 2024].

My Assignment Help. 'Acquisition Analysis And Consolidation Entries For Tuna Ltd' (My Assignment Help, 2020) <https://myassignmenthelp.com/free-samples/acc705-corporate-accounting-and-reporting/analysis-for-tuna-ltd.html> accessed 15 June 2024.

My Assignment Help. Acquisition Analysis And Consolidation Entries For Tuna Ltd [Internet]. My Assignment Help. 2020 [cited 15 June 2024]. Available from: https://myassignmenthelp.com/free-samples/acc705-corporate-accounting-and-reporting/analysis-for-tuna-ltd.html.

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