Financial Statements
Financial 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 earnings | 200,000 |
Share capital | 500,000 |
General reserve | 50,000 |
At acquisition date, all of Gilly Ltd’s net assets were recorded at fair value except for:
Carrying amount | Fair value | |
Inventory | $34,000 | $40,000 |
Land | 67,000 | 75,000 |
Contingent liability | – | 10,000 |
Buildings (Cost $96,000) | 67,200 | 78,000 |
Additional Information:
- a) The dividend payable at acquisition date was subsequently paid in August 2013.
- 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.
- e) The revalued buildings were still held at 30 June 2017 being depreciated on the straight line basis at 10% p.a.
- f) Since acquisition, goodwill has been impaired by $4,000. $1,500 of this impairment occurred during the year ended 30 June 2017.
- g) Of the management fee revenues earned by Samwell Ltd during the year ended 30 June 2017, $12,000 was collected from Gilly Ltd.
- 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.
- 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.
- j) All dividends paid/declared by Samwell Ltd during the year ended 30 June 2017 was from post-acquisition profits.
- k) Financial statements for the year ended 30 June 2017 are reproduced below:
(91,000) | (35,000) | |||||||||||||||||||||||||||||
Ot
her expenses | (284,000) | (33,000) | ||||||||||||||||||||||||||||
Profit before income tax | 742,000 | 326,000 | ||||||||||||||||||||||||||||
Income tax expense | (202,000) | (88,000) | ||||||||||||||||||||||||||||
Profit after tax | 540,000 | 238,000 | ||||||||||||||||||||||||||||
Retained earnings at (01/07/16) | 695,000 | 322,000 | ||||||||||||||||||||||||||||
Interim dividend paid | (70,000) | (32,000) | ||||||||||||||||||||||||||||
Final dividend declared | (140,000) | (60,000) | ||||||||||||||||||||||||||||
Retained earnings at (30/06/17) | 1,025,000 | 468,000 | ||||||||||||||||||||||||||||
Share capital | 800,000 | 500,000 | ||||||||||||||||||||||||||||
General reserve | 210,000 | 50,000 | ||||||||||||||||||||||||||||
Total equity | 2,035,000 | 1,018,000 | ||||||||||||||||||||||||||||
Trade and other payables | 413,000 | 137,000 | ||||||||||||||||||||||||||||
Dividend payable | 140,000 | 60,000 | ||||||||||||||||||||||||||||
Loan from Gilly Ltd (8% per year, interest payable 31 December) | 250,000 | – | ||||||||||||||||||||||||||||
Mortgage loan | 1,453,000 | 401,000 | ||||||||||||||||||||||||||||
Deferred tax liabilities | 90,000 | – | ||||||||||||||||||||||||||||
Total liabilities | 2,346,000 | 598,000 | ||||||||||||||||||||||||||||
Total liabilities and equity | 4,381,000 | 1,616,000 | ||||||||||||||||||||||||||||
Cash | 194,000 | 115,000 | ||||||||||||||||||||||||||||
Trade and other receivables | 72,000 | 35,000 | ||||||||||||||||||||||||||||
Dividends receivable | 60,000 | – | ||||||||||||||||||||||||||||
Inventory | 750,000 | 440,000 | ||||||||||||||||||||||||||||
Land | 770,000 | 250,000 | ||||||||||||||||||||||||||||
Buildings | 1,500,000 | 780,000 | ||||||||||||||||||||||||||||
Accumulated depreciation buildings | (320,000) | (494,000) | ||||||||||||||||||||||||||||
Plant and equipment | 790,000 | 450,000 | ||||||||||||||||||||||||||||
Accumulated depreciation plant and equipment | (235,000) | (210,000) | ||||||||||||||||||||||||||||
Investment in Gilly Ltd | 800,000 | – | ||||||||||||||||||||||||||||
Loan to Samwell Ltd (8% per year, interest payable 31 December) | – | 250,000 | ||||||||||||||||||||||||||||
Total Assets | 4,381,000 | 1,616,000 |
Required:
- 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 profits | 350,000 |
General reserve | 50,000 |
At acquisition date, all of Sansa Ltd’s net assets were recorded at fair value except for:
Carrying Amount | Fair Value | |
Equipment (cost $67,000) | $50,000 | $58,000 |
Additional information:
- a) Petyr Ltd adopts the partial goodwill method.
- b) The revalued equipment was still held at 30 June 2017, being depreciated on the straight-line basis over 5 years.
- 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.
- 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.
- 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.
- 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 profit | 1,793,750 | 340,000 |
Gain on sale of plant | 80,000 | – |
Other income | 16,250 | – |
Depreciation expense | (320,000) | (240,000) |
Other expenses | (180,000) | (130,000) |
Profit (loss) before income tax | 1,390,000 | (30,000) |
Income tax expense/income | (440,000) | 10,000 |
Profit (loss) after tax | 950,000 | (20,000) |
Retained earnings at 01/07/16 | 1,100,000 | 600,000 |
Dividends paid | (500,000) | – |
Dividend declared | – | (25,000) |
Trans. from general reserve | – | 15,000 |
Retained earnings at 30/06/17 | 1,550,000 | 570,000 |
Share capital | 7,000,000 | 5,000,000 |
General reserve | – | 35,000 |
Total Equity | 8,550,000 | 5,605,000 |
Current tax liability | 480,000 | – |
Other liabilities | 960,000 | 855,000 |
Borrowings | – | 1,500,000 |
Deferred tax liability | – | – |
Total Liabilities | 1,440,000 | 2,355,000 |
Total liabilities and equity | 9,990,000 | 7,960,000 |
Inventory | 420,000 | 543,750 |
Other current assets | 930,000 | 2,180,000 |
Property, plant and equipment | 4,210,000 | 1,992,500 |
Accumulated depreciation | (1,050,000) | (800,000) |
Investments | 5,400,000 | 3,583,750 |
Deferred tax asset | 80,000 | 460,000 |
Total assets | 9,990,000 | 7,960,000 |
Required:
- 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 reserve | 3,000 |
Retained earnings | 25,000 |
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 amount | Fair value | |
Plant (cost $60,000) | $40,000 | $55,000 |
Inventory | 25,000 | 31,000 |
Receivables | 33,000 | 30,000 |
Additional information:
- a) One of the liabilities of Shae Ltd at 1 July 2017 was a dividend payable of $5,000.
- b) The tax rate is 30%
Required:
- Prepare the acquisition analysis as at acquisition date using the partial goodwill method. Show all workings. (2 marks)
- 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)