Financial Statements

Financial StatementsFinancial Statements ,On 1 July 2013, Samwell Ltd acquired 100% of the share capital of Gilly Ltd (cum div) for $810,000. Gilly Ltd’s balance sheet on acquisition date included:

Dividend payable$10,000
Retained earnings200,000
Share capital500,000
General reserve50,000

At acquisition date, all of Gilly Ltd’s net assets were recorded at fair value except for:

Carrying amountFair value
Inventory$34,000$40,000
Land67,00075,000
Contingent liability10,000
Buildings (Cost $96,000)67,20078,000

Additional Information:

  1. a) The dividend payable at acquisition date was subsequently paid in August 2013.
  2. b) The revalued inventory was sold during the year ended 30 June 2014.c) The contingent liability identified on the acquisition of Gilly Ltd still existed at 30 June 2017.d) The revalued land was sold during the year ended 30 June 2017 for $42,000.
  3. e) The revalued buildings were still held at 30 June 2017 being depreciated on the straight line basis at 10% p.a.
  4. f) Since acquisition, goodwill has been impaired by $4,000. $1,500 of this impairment occurred during the year ended 30 June 2017.
  5. g) Of the management fee revenues earned by Samwell Ltd during the year ended 30 June 2017, $12,000 was collected from Gilly Ltd.
  6. h) Gilly Ltd’s inventory balance at 1 July 2016 included an item previously purchased from Samwell Ltd. This inventory had been sold by Samwell Ltd to Gilly Ltd at a profit of $4,000.
  7. i) During the year ended 30 June 2017, Gilly Ltd sold a quantity of inventory to Samwell Ltd for $18,000. This inventory had originally cost Gilly Ltd $12,000 with 25% of this inventory still being held by Samwell Ltd at 30 June 2017.
  8. j) All dividends paid/declared by Samwell Ltd during the year ended 30 June 2017 was from post-acquisition profits.
  1. k) Financial statements for the year ended 30 June 2017 are reproduced below:
(91,000)(35,000)
Ot

Samwell LtdGilly Ltd
Sales$5,220,000$2,670,000
Cost of goods sold(4,070,000)(2,210,000)
Gross profit1,150,000460,000
Dividend revenue92,000
Interest revenue20,000
Management fees revenue25,000
Other income30,000
Depreciation expense(180,000)(86,000)
Finance costs

her expenses

(284,000)(33,000)
Profit before income tax742,000326,000
Income tax expense(202,000)(88,000)
Profit after tax540,000238,000
Retained earnings at (01/07/16)695,000322,000
Interim dividend paid(70,000)(32,000)
Final dividend declared(140,000)(60,000)
Retained earnings at (30/06/17)1,025,000468,000
Share capital800,000500,000
General reserve210,00050,000
Total equity2,035,0001,018,000
Trade and other payables413,000137,000
Dividend payable140,00060,000
Loan from Gilly Ltd

(8% per year, interest payable 31 December)

250,000
Mortgage loan1,453,000401,000
Deferred tax liabilities90,000
Total liabilities2,346,000598,000
Total liabilities and equity4,381,0001,616,000
Cash194,000115,000
Trade and other receivables72,00035,000
Dividends receivable60,000
Inventory750,000440,000
Land770,000250,000
Buildings1,500,000780,000
Accumulated depreciation buildings(320,000)(494,000)
Plant and equipment790,000450,000
Accumulated depreciation plant and equipment(235,000)(210,000)
Investment in Gilly Ltd800,000
Loan to Samwell Ltd

(8% per year, interest payable 31 December)

250,000
Total Assets4,381,0001,616,000

 Required:

  1. Determine the gain on bargain purchase or goodwill as at acquisition date. (2 marks)2. Prepare the consolidation journal entries for Samwell Ltd immediately after acquisition on 1 July 2013. (6 marks)3. Prepare the consolidation journal entries for Samwell Ltd as at 30 June 2017. (14 marks)

    4.Prepare the consolidation worksheet for the preparation of the consolidated financial statements by Samwell Ltd as at 30 June 2017. (8 marks)

(Source: adapted from Arthur, N., Luff, L., Keet, P. Accounting for corporate combinations and associations (7e), Pearson Education, Australia.)

Question 4 (40 marks)

Part A (30 marks)

On 1 January 2013, Petyr Ltd acquired 80% of the share capital of Sansa Ltd for $4,400,000. At acquisition date, Sansa Ltd’s balance sheet included:

Share capital$5,000,000
Retained profits350,000
General reserve50,000

At acquisition date, all of Sansa Ltd’s net assets were recorded at fair value except for:
 

Carrying AmountFair Value
Equipment (cost $67,000)$50,000$58,000

Additional information:

  1. a) Petyr Ltd adopts the partial goodwill method.
  2. b) The revalued equipment was still held at 30 June 2017, being depreciated on the straight-line  basis over 5 years.
  3. c) On 1 January 2016, Sansa Ltd sold an item of equipment to Petyr Ltd, recognising a gain of $22,000 on the sale. This equipment was still held at 30 June 2017 and at the time of the sale it was estimated that it would have a further useful life of 10 years.
  4. d) During the year ended 30 June 2017, Sansa Ltd sold a quantity of inventory to Petyr Ltd for $28,000. Sansa Ltd received a gain of $8,500 on the sale and Petyr Ltd still held 25% of this inventory at 30 June 2017.
  5. e) During the year ended 30 June 2017, Petyr Ltd sold an item of plant to Sansa Ltd at a gain of $80,000. This machinery was held as inventory in the books of Sansa Ltd at 30 June 2017.
  6. f) Financial statements for the year ended 30 June 2017 are reproduced below:
Petyr Ltd Sansa Ltd
Sales$3,283,750$1,800,000
Cost of goods sold(1,490,000)(1,460,000)
Gross profit1,793,750340,000
Gain on sale of plant80,000
Other income16,250
Depreciation expense(320,000)(240,000)
Other expenses(180,000)(130,000)
Profit (loss) before income tax1,390,000(30,000)
Income tax expense/income(440,000)10,000
Profit (loss) after tax950,000(20,000)
Retained earnings at 01/07/161,100,000600,000
Dividends paid(500,000)
Dividend declared(25,000)
Trans. from general reserve15,000
Retained earnings at 30/06/171,550,000570,000
Share capital7,000,0005,000,000
General reserve35,000
Total Equity8,550,0005,605,000
Current tax liability480,000
Other liabilities960,000855,000
Borrowings1,500,000
Deferred tax liability
Total Liabilities1,440,0002,355,000
Total liabilities and equity9,990,0007,960,000
Inventory420,000543,750
Other current assets930,0002,180,000
Property, plant and equipment4,210,0001,992,500
Accumulated depreciation(1,050,000)(800,000)
Investments5,400,0003,583,750
Deferred tax asset80,000460,000
Total assets9,990,0007,960,000

Required:

  1. Determine the gain on bargain purchase or goodwill as at acquisition date. (2 marks)2. Prepare the consolidation journal entries for Petyr Ltd at 1 January 2013, immediately after acquisition. (4 marks)

    3. Prepare the consolidation journal entries for Petyr Ltd as at 30 June 2017. (16 marks)

    4.Prepare the consolidation worksheet for the preparation of the consolidated financial statements by Petyr Ltd as at 30 June 2017. (8 marks)

(Source: adapted from Arthur, N., Luff, L., Keet, P. Accounting for corporate combinations and associations (7e), Pearson Education, Australia.) 

Part B (10 marks)

On 1 July 2017, Tywin Ltd acquired 75% of the shares (cum div.) of Shae Ltd for $120,500. At this date the equity of Shae Ltd consisted of:

Share capital$ 40,000
General reserve3,000
Retained earnings25,000

At the date of the business combination, all the identifiable assets and liabilities of Shae Ltd had carrying amounts equal to their fair values except for:

Carrying amountFair value
Plant (cost $60,000)$40,000$55,000
Inventory25,00031,000
Receivables33,00030,000

 Additional information:

  1. a) One of the liabilities of Shae Ltd at 1 July 2017 was a dividend payable of $5,000.
  2. b) The tax rate is 30%

Required:

  1. Prepare the acquisition analysis as at acquisition date using the partial goodwill method. Show all workings. (2 marks)
  2. Prepare the acquisition analysis as at acquisition date using the full goodwill method and the fair value of the non-controlling interest at the date of acquisition is $20,000.
    Show all workings. (3 marks)