Financial information identifiable assets and liabilities
Financial
information at 30 June 2020 of Great Ltd and its subsidiary company, Wall Ltd,
is shown below.
At 1 July
2017, the date Great Ltd acquired its 80% shareholding in Wall Ltd, all the
identifiable assets and liabilities of Wall Ltd were at fair value except for
the following assets:
|
Carrying amount |
Fair value |
|||
|
Plant (cost $75,000) |
$49,000 |
$55,000 |
||
|
Land |
29,000 |
37,000 |
The plant
has an expected life of 10 years, with benefits being received evenly over that
period. Differences between carrying amounts and fair values are adjusted on
consolidation. The land on hand at 1 July 2017 was sold on 1 February 2018 for
$40,000. Any valuation reserve in relation to the land is transferred on
consolidation to retained earnings.
Great Ltd
uses the full goodwill method. The fair value of the non-controlling interest
at 1 July 2017 was $31,500.
|
Great Ltd |
Wall Ltd |
|||||||
|
Sales revenue |
$ |
316,000 |
$ |
220,000 |
||||
|
Other revenue: |
||||||||
|
Debenture interest |
5,000 |
— |
||||||
|
Management and consulting fees |
5,000 |
— |
||||||
|
Dividend from Wall Ltd |
12,000 |
— |
||||||
|
Total revenues |
338,000 |
220,000 |
||||||
|
Cost of sales |
130,000 |
85,000 |
||||||
|
Manufacturing expenses |
90,000 |
60,000 |
||||||
|
Depreciation on plant |
15,000 |
15,000 |
||||||
|
Administrative |
15,000 |
8,000 |
||||||
|
Financial |
11,000 |
5,000 |
||||||
|
Other expenses |
14,000 |
12,000 |
||||||
|
Total expenses |
275,000 |
185,000 |
||||||
|
Profit before tax |
63,000 |
35,000 |
||||||
|
Income tax expense |
(25,000 |
) |
(17,000 |
) |
||||
|
Profit |
38,000 |
18,000 |
||||||
|
Retained earnings (1/7/19) |
50,000 |
45,000 |
||||||
|
88,000 |
63,000 |
|||||||
|
Transfer to general reserve |
3,000 |
— |
||||||
|
Interim dividend paid |
10,000 |
10,000 |
||||||
|
Final dividend declared |
10,000 |
5,000 |
||||||
|
23,000 |
15,000 |
|||||||
|
Retained earnings (30/6/20) |
65,000 |
48,000 |
||||||
|
General reserve |
50,000 |
10,000 |
||||||
|
Other components of equity |
13,000 |
10,000 |
||||||
|
Share capital |
300,000 |
100,000 |
||||||
|
Debentures |
200,000 |
100,000 |
||||||
|
Current tax liability |
25,000 |
17,000 |
||||||
|
Dividend payable |
10,000 |
5,000 |
||||||
|
Deferred tax liability |
— |
7,000 |
||||||
|
Other liabilities |
90,000 |
12,000 |
||||||
|
$ |
753,000 |
$ |
309,000 |
|||||
|
Financial assets |
$ |
50,000 |
$ |
60,000 |
||||
|
Debentures in Wall Ltd |
100,000 |
— |
||||||
|
Shares in Wall Ltd |
131,600 |
— |
||||||
|
Plant (cost) |
120,000 |
102,000 |
||||||
|
Accumulated depreciation – plant |
(65,000 |
) |
(55,000 |
) |
||||
|
Other depreciable assets |
76,000 |
55,000 |
||||||
|
Accumulated depreciation |
(40,000 |
) |
(25,000 |
) |
||||
|
Inventory |
90,000 |
85,000 |
||||||
|
Deferred tax asset |
85,400 |
30,000 |
||||||
|
Land |
201,000 |
57,000 |
||||||
|
Dividend receivable |
4,000 |
— |
||||||
|
$ |
753,000 |
$ |
309,000 |
|||||
Additional
information
a. At the acquisition date of 80% of
its issued shares by Great Ltd, the equity of Wall Ltd was:
b. Inventory on hand of Wall Ltd at
1 July 2019 included a quantity priced at $10,000 that had been sold to Wall
Ltd by its parent. This inventory had cost Great Ltd $7,500. It was all sold by
Wall Ltd during the year.
c. In Great Ltd’s inventory at 30
June 2020 were various items sold to it by Wall Ltd at $5,000 above cost.
d. During the year, intragroup sales
by Wall Ltd to Great Ltd were $60,000. It was also learned that Wall Ltd had
sold to Great Ltd an item from its inventory for $20,000 on 1 January 2019.
Great Ltd had treated this item as an addition to its plant and machinery. The
item was put into service as soon as received by Great Ltd and depreciation
charged at 20% p.a. The item had been fully imported by Wall Ltd at a landed
cost of $15,000.
e. Management and consulting fees
derived by Great Ltd were all from Wall Ltd and represented charges made for
administration $2,200 and technical services $2,800. The latter were charged by
Wall Ltd to manufacturing expenses.
f. All debentures issued by Wall Ltd
are held by Great Ltd.
g. Other components of equity relate
to movements in the fair values of the financial assets. The balance of this
account at 1 July 2019 was $10,000 (Great Ltd) and $8,000 (Wall Ltd).
h. The tax rate is 30%.
|
Share capital (100,000 shares) |
$100,000 |
|
|
General reserve |
3,000 |
|
|
Retained earnings |
37,000 |
Required:
a. Conduct the acquisition analysis.
(10 marks)
b. Prepare the consolidation journals
as at 30 June 2020. (51 marks)
c. What is the total amount of
non-controlling interests? (5 marks)
d. What is the total amount of
Business Combination Revaluation Reserve (BCVR) shown in the group account? (6
marks)
e.
What is
the total amount of Goodwill shown in the group account? (3 marks)
(Note:
You must show all workings. The calculation
figures will be marked.)
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