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Question:

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 (10 marks)
  2. Prepare consolidation journal entries for Tuna Ltd (10 marks)
  3. Prepare a consolidated set of financial statements for the group. Use the worksheet provided. (10 marks)

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:

Solution-1

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

Calculation of Fair Value of net assets acquired as on 1 July, 2015

   

Particulars

 

 Amount ($)

Share Capital

 

66,000

Retained Earnings

 

6,000

Fair value:

   

 - Plant ((123000-120000)*(1-30%))

 

2,100

 - Patent ((105000-90000)*(1-30%))

 

10,500

 - Inventory ((22500-18000)*(1-30%))

 

3,150

Net fair value of assets acquired

 

87,750

 

   

Consideration paid

   

 - In cash

30,000

 

 - In shares

60,000

90,000

 

   

Goodwill

 

2,250

Solution-2

 

Consolidation Journal Entries for Tuna Ltd. as on 30 June, 2017

 

 

 

Pre-Acquisition entry as on 1/7/15

     

 

         

 

 

Share Capital

 

$          66,000

 

 

 

Retained Earnings

 

$           6,000

 

 

 

Goodwill

 

$           2,250

 

 

 

Business Combination Valuation Reserve

 

$          15,750

 

 

 

To Shares in Brim Ltd.

   

$        90,000

 

         

 

         

 

 

Pre-Acquisition entry as on 30/6/17

     

 

         

 

 

The pre-acquisition entry as on 30/6/17 is affected due to sale of patent and inventory

     

 

 

 

 

 

1

Share Capital

 

$          66,000

 

 

 

Retained Earnings

 

$          19,650

 

 

 

Goodwill

 

$           2,250

 

 

 

Business Combination Valuation Reserve

 

$           2,100

 

 

 

To Shares in Brim Ltd.

   

$        90,000

 

         

 

 

Business Combination Valuation Entries

     

 

2

Accumulated Depreciation

 

$          30,000

 

 

 

To Plant

   

$        27,000

 

 

To Deferred tax liability

   

$            900

 

 

To Business Combination Valuation Reserve

   

$         2,100

 

         

 

3

Depreciation (3000/5)

 

$              600

 

 

 

Retained earnings (1/7/16)

 

$              600

 

 

 

To Accumulated Depreciation

   

$         1,200

 

         

 

 

Deferred tax liability

 

$              360

 

 

 

To Income tax expense

   

$            180

 

 

To Retained earnings (1/7/16)

   

$            180

 

         

 

         

 

 

Other consolidation entries

     

 

         

 

4(a)

Sales revenue

 

$          21,000

 

 

 

To Cost of sales

   

$        21,000

 

         

 

 

Retained earnings (1/7/16)

 

$              420

 

 

 

Income tax expense

 

$              180

 

 

 

To Cost of sales

   

$            600

 

         

 

         

 

4(b)

Sales revenue

 

$           4,500

 

 

 

To Cost of sales

   

$         4,200

 

 

To Inventory

   

$            300

 

         

 

 

Deferred tax asset

 

$                90

 

 

 

To Income tax expense

   

$              90

 

         

 

         

 

4(c)

Proceeds on sale of Plant

 

$          15,000

 

 

 

To Carrying amount of plant sold

   

$        14,000

 

 

To Plant

   

$         1,000

 

         

 

 

Deferred tax asset

 

$              300

 

 

 

To Income tax expense

   

$            300

 

         

 

 

Accumulated Depreciation (1000*10%)

 

$              100

 

 

 

To Depreciation

   

$            100

 

         

 

 

Income tax expense

 

$                30

 

 

 

To Deferred tax asset

   

$              30

 

         

 

         

 

4(d)

Retained earnings (1/7/16)

 

$           1,400

 

 

 

Deferred tax asset

 

$              600

 

 

 

To Plant (18000-16000)

   

$         2,000

 

         

 

 

Accumulated depreciation

 

$           1,000

 

 

 

To Depreciation expense (2000*20%)

   

$            400

 

 

To Retained earnings (1/7/16) (2000*20%*1.5)

   

$            600

 

         

 

 

Income tax expense

 

$              120

 

 

 

Retained earnings (1/7/16)

 

$              180

 

 

 

To Deferred tax asset

   

$            300

 

         

 

         

 

4(e)

Proceeds on sale of Plant

 

$           9,000

 

 

 

To Carrying amount of plant sold

   

$         7,500

 

 

To Cost of sales

   

 $         1,500

 

                 

 Solution-3

Worksheet 

 

 Tuna

 Brim

Journal number

 Adjustments

Journal  number

Group

 

 Ltd

 Ltd

 

 Dr

 Cr

 

Sales revenue

64,500

78,000

4(a),4(b)

25,500

   

117,000

Cost of sales

30,900

46,350

   

27,300

4(a),4(b),4(e)

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

4(c),4(d)

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

4(c),4(e)

24,000

   

-

Carrying amount of plant sold

7,500

14,000

   

21,500

4(c),4(e)

-

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(a),4(c),4(d)

330

570

3,4(b),4(c)

18,160

Profit

9,450

8,400

       

17,290

Retained earnings (1/7/16)

48,000

31,500

1,3,4(a),4(d)

22,250

780

3,4(d)

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

2,4(c),4(d)

134,250

Accumulated depreciation

(18,300)

(33,450)

2,4(c),4(d)

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

4(b)

52,800

Receivables

8,250

12,450

       

20,700

Goodwill

-

-

1

2,250

   

2,250

Deferred tax asset

-

-

4(b),4(c),4(d)

990

330

4(c),4(d)

660

Total assets

185,550

131,400

       

229,460

 

Cite This Work

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My Assignment Help. (2020). Essay On Consolidated Financial Statements. Retrieved from https://myassignmenthelp.com/free-samples/acc705-corporate-accounting-and-reporting/sales-price.html.

"Essay On Consolidated Financial Statements." My Assignment Help, 2020, https://myassignmenthelp.com/free-samples/acc705-corporate-accounting-and-reporting/sales-price.html.

My Assignment Help (2020) Essay On Consolidated Financial Statements [Online]. Available from: https://myassignmenthelp.com/free-samples/acc705-corporate-accounting-and-reporting/sales-price.html
[Accessed 16 June 2024].

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My Assignment Help. Essay On Consolidated Financial Statements [Internet]. My Assignment Help. 2020 [cited 16 June 2024]. Available from: https://myassignmenthelp.com/free-samples/acc705-corporate-accounting-and-reporting/sales-price.html.

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