Title | Week 5 Ans - tutorial answer |
---|---|
Author | Sarah Leung |
Course | Financial Accounting 3 |
Institution | University of South Australia |
Pages | 9 |
File Size | 466.2 KB |
File Type | |
Total Downloads | 27 |
Total Views | 151 |
tutorial answer, tutorial answer...
Review Question 10 (Ch19) Why are some adjustment entries in the previous period’s consolidation worksheet also made in the current period’s worksheet? The consolidation worksheet is just a worksheet. The consolidation worksheet entries do not affect the underlying financial statements or the accounts of the parent or the subsidiary. Hence, if last year’s profits were required to be adjusted on consolidation, then potentially retained earnings needs to be adjusted in the current period. Similarly, a BCVR entry to recognise the land on hand at acquisition at fair value is made in the consolidation worksheet for each year that the land remains in the subsidiary. The entry does not change from year to year. Again the reason is that the adjustment to the carrying amount of the land is only made in a worksheet and not in the actual records of the subsidiary itself.
Question 19.8 Robert Ltd acquired all the issued shares (cum div.) of Matt Ltd on 1 July 2015. At this date the financial position of Matt Ltd was as follows:
The assets of Matt Ltd did not include a patent that was valued by Robert Ltd at $10 000. Its useful life was considered to be 5 years, with benefits being received equally over that period. The plant was considered to have a further 10-year life and is depreciated on a straight-line basis. All the inventory was sold by 30 June 2016. The goodwill on hand at 1 July 2015 was written off as the result of an impairment test conducted in June 2017. The dividend on hand at 1 July 2015 was paid in August 2015. In exchange for the shares in Matt Ltd, Robert Ltd gave the following consideration: • 50 000 shares in Robert Ltd, each share having a fair value of $2.00 per share. • Cash of $40 000. • Artworks having a fair value of $60 000. Robert Ltd incurred legal and accounting costs of $5000 and share issue costs of $4000. In January 2019, Matt Ltd paid a bonus dividend of $40 000, being one share for every three shares held, the dividend being paid from retained earnings on hand at 1 July 2015. The tax rate is 30%. Required Prepare the consolidation worksheet entries for consolidated financial statements prepared by Robert Ltd at 30 June 2020.
Solution: At 1 July 2015: Net FV of identifiable assets and liabilities of Matt Ltd
= $120,000 + $23,200 + $44,000 ‒ $4800 (goodwill) + $2000 x 0.7 (BCVR - plant) + $4000 x 0.7 (BCVR - inventory) + $10,000 x 0.7 (BCVR - patent) = $193,600 = $200,000 - $8000(dividend) = $192,000 = $193,600 - $192,000 = $1600 = ($4800)
Consideration transferred Gain on bargain purchase Goodwill adjustment 1. Business combination valuation entries at 30 June 2020 Amortisation expense - patents Income tax expense [2000 x 0.3] Retained earnings (1/7/19)[2000 x 0.7 x 4 yr] Transfer from BCVR [10,000 x 0.7] ($10,000 ÷ 5 yrs)
Dr Cr Dr Cr
2000
Accumulated depreciation - plant Plant [25,600 - 2000] Deferred tax liability [2000 x 0.3] BCVR [2000 x 0.7]
Dr Cr Cr Cr
25,600
Depreciation expense – plant [yr 5] Retained earnings (1/7/19) [200 x 4 yr] Accumulated depreciation – plant [200 x 5yrs] ($2000 ÷ 10 yrs)
Dr Dr Cr
200 800
Deferred tax liability [1000 x 0.3] Income tax expense [200 x 0.3] Retained earnings (1/7/19) [800 x 0.7]
Dr Cr Cr
300
600 5600 7000
23,600 600 1,400
1000
60 240
2. Pre-acquisition entries At 1 July 2015: Retained Earnings (1/7/15) Share Capital
Dr Dr
General Reserve Business Combination Valuation Reserve Gain on bargain purchase Shares in Matt Ltd
Dr Dr Cr Cr
Dividend payable Dividend receivable
Dr Cr
44,000 120,00 0 23,200 4800 1600 192,000 8,000 8,000
At 30 June 2020 This entry is affected by: - payment of dividend on hand at acquisition date - $8 000 - payment of bonus dividend of $40 000 in 2019 – prior period - in relation to the BCVR: the inventory was sold in a prior period 2015-6, the goodwill was impaired in 2017, a prior period, while in the current period, the goodwill was written off. Retained Earnings (1/7/19)* Share Capital General Reserve Business Combination Valuation Reserve** Shares in Matt Ltd
Dr Dr Dr Dr Cr
400 160,000 23,200 8,400 192,000
* $44 000 - $1 600 gain on bargain purchase - $40 000 bonus dividend + $2 800 (transfer of BCVR – inventory) - $4 800 (transfer of BCVR – goodwill) ** $1 400 (plant) + $7 000 (patents)
Business Combination Valuation Reserve Transfer from Business Combination Valuation Reserve
Dr Cr
7,000 7,000
Question 19.11 Consolidation worksheet Ethan Ltd acquired all the issued shares (ex div.) of Darren Ltd on 1 July 2014 for $110 000. At this date Darren Ltd recorded a dividend payable of $10 000 and equity of: Share capital Retained earnings Asset revaluation surplus
$ 54 000 36 000 18 000
All the identifiable assets and liabilities of Darren Ltd were recorded at amounts equal to their fair values at acquisition date except for:
Inventory Machinery (cost $100 000)
Carrying amount $ 14 000 92 500
Fair value $ 16 000 94 000
The machinery was considered to have a further 5-year life. Of the inventory, 90% was sold by 30 June 2015. The remainder was sold by 30 June 2016. Both Darren Ltd and Ethan Ltd use the valuation method to measure the land. At 1 July 2014, the balance of Ethan Ltd’s asset revaluation surplus was $13 500. In May 2015, Darren Ltd transferred $3600 from the retained earnings at 1 July 2014 to a general reserve. The tax rate is 30%. The following information was provided by the two companies at 30 June 2015.
Required Prepare the consolidated financial statements of Ethan Ltd at 30 June.
Acquisition analysis At 1 June 2014: Net fair value of identifiable assets and liabilities of Darren Ltd
Consideration transferred Gain on bargain purchase
A.
=
($54 000 + $36 000 + $18 000) (equity) + $1 500 (1 – 30%) (plant) + $2 000 (1 – 30%) (inventory) = $110 450 = $110 000 = $450
THE WORKSHEET ENTRIES AT 1 JULY 2014 ARE:
1. Business combination valuation entries Accumulated depreciation Plant & machinery Deferred tax liability Business combination valuation reserve
Dr Cr Cr Cr
7 500
Depreciation expense Accumulated depreciation (1/5 x $1 500)
Dr Cr
300
Deferred tax liability Income tax expense (30% x $300)
Dr Cr
90
Cost of sales Income tax expense Transfer from business combination valuation reserve
Dr Cr Cr
1 800
Inventory Deferred tax liability Business combination valuation reserve
Dr Cr Cr
6 000 450 1 050
300
90
540 1 260 200 60 140
2. Pre-acquisition entries At 1 July 2014: Retained earnings (1/714) Share capital Asset revaluation surplus Business combination valuation reserve Gain on bargain purchase Shares in Darren Ltd
Dr Dr Dr Dr Cr Cr
36 000 54 000 18 000 2 450
Retained earnings (1/7/14) Share capital Asset revaluation surplus Business combination valuation reserve Gain on bargain purchase Shares in Darren Ltd
Dr Dr Dr Dr Cr Cr
36 000 54 000 18 000 2 450
Transfer from business combination valuation reserve Business combination valuation reserve
Dr Cr
1 260
General reserve Transfer to general reserve
Dr Cr
3 000
450 110 000
The entry at 30 June 2015 is affected by: - sale of inventory - transfer to general reserve of $3 600
450 110 000
1 260
3 000
Ethan Ltd 120 000
Darren Ltd 12 500
Income tax expense
56 000
4 200
Profit Retained earnings (1/7/14) Transfer from BCVR
64 000 80 000
8 300 36 000
144 000 0
44 300 3 000
144 000
41 300
360 000 -
54 000 -
2 2
54 000 2 450
10 000 514 000 13 500
3 000 98 300 18 000
2
3 000
2
18 000
5 000 18 500
2 000 20 000
532 500 42 500
118 300 13 000
575 000
131 300
160 000 360 000 (110 000) 55 000 110 000 575 000
20 000 125 600 (33 000) 18 700 131 300
Profit before tax
Transfer to general reserve Retained earnings (30/6/15) Share capital BCVR
General reserve Asset revaluation surplus (1/7/14) Gains Asset revaluation surplus (30/6/15) Liabilities
Land Plant & machinery Accum depreciation Inventory Shares in Darren
1 1
Adjustments Dr Cr 300 450 1 800 90 540
2
36 000
2
1 260
Group 2
130 850
1 1
59 570 71 280 80 000
1 260
1
3 000
2
0 151 280 0 151 280
1 050 140 1 260
360 000 0
1 1 2
10 000 521 280 13 500 7 000 20 500
1
90
450 60
541 780 55 920
1 1
597 700
1 1
7 500 200 124 600
6 000 300
1 1
110 000 124 600
2
180 000 479 600 (135 800) 73 900 0 597 700
ETHAN LTD Consolidated Statement of Profit or Loss and Other Comprehensive Income for financial year ended 30 June 2015 Profit before income tax Income tax expense Profit for the period Other comprehensive income Gains on revaluation of assets Comprehensive income
$130 850 59 570 $71 280 7 000 $78 280
ETHAN LTD Consolidated Statement of Changes in Equity for financial period ending 30 June 2015 Comprehensive income for the period
$78 280
Retained earnings at 1 July 2014 Profit for the period Retained earnings at 30 June 2015
$80 000 71 280 $151 280
Share capital at 1 July2014 Share capital at 30 June 2015
$360 000 $360 000
Asset revaluation surplus at 1 July 2014 Increments Asset revaluation surplus at 30 June 2015
$13 500 7 000 $20 500
General reserve at 1 July 2014 General reserve at 30 June 2015
$10 000 $10 000
ETHAN LTD Consolidated Statement of Financial Position as at 30 June 2015 Current Assets Inventories Non-current Assets Property, plant and equipment: Land Plant & machinery Accumulated depreciation Total Non-current Assets
$73 900
180 000 $479 600 (135 800)
343 800 523 800
Total Assets
$597 700
Equity Share capital Retained earnings General reserve Asset revaluation surplus Total Equity Liabilities Total Equity and Liabilities
$360 000 151 280 10 000 20 500 541 780 55 920 $597 700...