Inventory and plant sales essay between Tuna and Brim.

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.

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

Calculate acquisition analysis for Tuna Ltd (10 marks)
Prepare consolidation journal entries for Tuna Ltd (10 marks)
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
	Tuna Ltd	Brim Ltd	Journal number	Dr	Cr	number	Group
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

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

Particulars	Calculation basis	Amount	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 - (a)			$ 87,750

Consideration paid - (b)
- In cash		$ 30,000
- In shares		$ 60,000	$ 90,000

Goodwill (b-a)			$ 2,250


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

I	Pre Acquisition entry as on 1/7/15


	Particulars	Debit	Credit
	Share Capital	$ 66,000
	Retained Earnings	$ 6,000
	Goodwill	$ 2,250
	Businee Combination Valuation Reserve	$ 15,750
	To Shares in Brim Ltd.		$ 90,000


II	Pre Acquisition entry as on 30/6/17


JV	Particulars	Debit	Credit
I	Share Capital	$ 66,000
	Retained Earnings	$ 19,650
	Goodwill	$ 2,250
	Businee Combination Valuation Reserve	$ 2,100
	To Shares in Brim Ltd.		$ 90,000


III	Business Combination Valuation Entries


JV	Particulars	Debit	Credit
II	Accumulated Depreciation	$ 30,000
	To Plant		$ 27,000
	To Deferred tax liability		$ 900
	To Business Combination Valuation Reserve		$ 2,100
	(To record fair value of the plant)

III	Depreciation (3000/5)	$ 600
	Retained earnings (1/7/16)	$ 600
	To Accumulated Depreciation		$ 1,200
	(To record depreciation on above fair valuation)

	Deferred tax liablility	$ 360
	To Income tax expense		$ 180
	To Retained earnings (1/7/16)		$ 180
	(To record income tax impact on above)


IV	Other consolidation entries


JV	Particulars	Debit	Credit
IV(a)	Sales revenue	$ 21,000
	To Cost of sales		$ 21,000
	(To record elimination of inter company sale of inventory)

	Retained earnings (1/7/16)	$ 420
	Income tax expense	$ 180
	To Cost of sales		$ 600
	(To record elimination of profit in opening inventory)

IV(b)	Sales revenue	$ 4,500
	To Cost of sales		$ 4,200
	To Inventory		$ 300
	(To record elimination of profit in closing inventory)

	Deferred tax asset	$ 90
	To Income tax expense		$ 90
	(To record income tax impact on above)

IV(c)	Proceeds on sale of Plant	$ 15,000
	To Carrying amount of plant sold		$ 14,000
	To Plant		$ 1,000
	(To record elimination of profit in inter company sale of plant)

	Deferred tax asset	$ 300
	To Income tax expense		$ 300
	(To record income tax impact on above)

	Accumulated Depreciation (1000*10%)	$ 100
	To Depreciation		$ 100
	(To record reversal of excess depreciation charged)

	Income tax expense	$ 30
	To Deferred tax asset		$ 30
	(To record income tax impact on above)

IV(d)	Retained earnings (1/7/16)	$ 1,400
	Deferred tax asset	$ 600
	To Plant (18000-16000)		$ 2,000
	(To record elimination of unrealised profit)

	Accumulated depreciation	$ 1,000
	To Depreciation expense (2000*20%)		$ 400
	To Retained earnings (1/7/16) (200020%1.5)		$ 600
	(To record reversal of excess depreciation charged)

	Income tax expense	$ 120
	Retained earnings (1/7/16)	$ 180
	To Deferred tax asset		$ 300
	(To record deferred tax impact on above)

IV(e)	Proceeds on sale of Plant	$ 9,000
	To Carrying amount of plant sold		$ 7,500
	To Cost of sales		$ 1,500
	(To record elimination of unrealised profit)



Consolidated set of financial statements


	Tuna Ltd.	Brim Ltd.	Journal number	Adjustments		Journal number	Group
	Tuna Ltd.	Brim Ltd.	Journal number	Dr	Cr	Journal number	Group
Sales revenue	64,500	78,000	IV(a),IV(b)	25,500			1,17,000
Cost of sales	30,900	46,350			27,300	IV(a),IV(b),IV(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	III	600	500	IV(c),IV(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	IV(c),IV(e)	24,000			-
Carrying amount of plant sold	7,500	14,000			21,500	IV(c),IV(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	IV(a),IV(c),IV(d)	330	570	III,IV(b),IV(c)	18,160
Profit	9,450	8,400					17,290
Retained earnings (1/7/16)	48,000	31,500	I,III,IV(a),IV(d)	22,250	780	III,IV(d)	58,030

Retained earnings (30/6/17)	57,450	39,900					75,320
Share capital	96,000	66,000	I	66,000			96,000
BCVR	-	-	I	2,100	2,100	II	-
Total equity	1,53,450	1,05,900					1,71,320

Current liabilities	21,100	10,500					31,600
Deferred tax liability	11,000	15,000	III	360	900	II	26,540
Total liabilities	32,100	25,500					58,140
Total equity and liabilities	1,85,550	1,31,400					2,29,460

Plant	57,000	1,07,250			30,000	II,IV(c),IV(d)	1,34,250
Accumulated depreciation	(18,300)	(33,450)	II,IV(c),IV(d)	31,100	1,200	III	(21,850)
Intangibles	12,000	11,100					23,100
Shares in Brim Ltd	90,000	-			90,000	I	-
Deferred tax asset	8,100	9,450					17,550
Inventory	28,500	24,600			300	IV(b)	52,800
Receivables	8,250	12,450					20,700
Goodwill	-	-	I	2,250			2,250
Deferrec tax asset	-	-	IV(b),IV(c),IV(d)	990	330	IV(c),IV(d)	660
Total assets	1,85,550	1,31,400					2,29,460

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