Prepare the following:
1. Acquisition analysis at 1 July 2009.
According to the formula:
Net FV of identifiable assets and liabilities of subsidiary
= recorded equity [capital + reserves] of subsidiary
+ differences between CA & FV of each recorded asset & liability after tax
+ FV of each unrecorded asset, liability and contingent liability recognized as part of the business combination after tax
Recorded equity [capital + reserves] of subsidiary:
Share Capital $180, 000
General Reserve $20, 000
Plant Maintenance Reserve $30, 000
Retained Earnings $72, 000
Subtotal: $302,000
Differences between CA & FV of each recorded asset & liability after tax:
Land $75, 000-$50,000=$25,000
Building $57, 000-$55,000=$2,000
Inventory $60, 000-$45,000=$15,000
Plant $190,000-$182,000=$8,000
Delivery Truck $38, 000-$36,000=$2,000
Subtotal: $52,000 (1-30%) =$36,400
FV of each unrecorded asset, liability and contingent liability recognized after tax:
Unrecorded patent: $45,000
Court case: ($30,000)
Subtotal: $15,000 (1-30%) =$10,500
So, the Net FV of identifiable assets and liabilities of subsidiary is $348,900. So the consideration transferred is 360,000, so the goodwill is $11,100.
2. The BCVR & pre-acquisition worksheet journal entries ONLY at 30 June 2012.
BCVR entries at 30 June 2012:
1) Land Dr 25,000
Deferred tax liability Cr 7,500
BCV reserve Cr 17,500
2) Accumulated depreciation Dr (75,000-55,000)=20,000
Building Cr 18,000
Deferred tax liability Cr 600
BCV reserve Cr 1,400
Depreciation expense Dr 200
Retained earnings Dr 400
Accumulated depreciation Cr 600
(10% x $2000 x 3 of difference between FV and CA)
Deferred tax liability Dr 180
Income tax expense Cr 60
Retained earnings Cr 120
(30% x $600 Dep. Expense)
3) Cost of sales Dr 15,000
Income tax expense Cr 4,500
BCV reserve Cr 10,500
(Inventory was sold during 2010)
4) Accumulated depreciation Dr (260,000-182,000)=78,000
Plant Cr 70,000
Deferred tax liability Cr 2,400
BCV reserve Cr 5,600
Depreciation expense Dr 1,600
Retained earnings Dr 3,200
Accumulated depreciation Cr 4,800
(20% x $8000 x 3 of difference between FV and CA)
Deferred tax liability Dr 1,440
Income tax expense Cr 480
Retained earnings Cr 960
(30% x $4,800 Dep. Expense)
5) Accumulated depreciation Dr (90,000-36,000)=54,000
Delivery truck Cr 52,000
Deferred tax liability Cr 600
BCV reserve Cr 1,400
Deprec. Expense Dr 375
Carrying amount of delivery truck sold Dr 850
Income Tax Expense Cr 525
Retained Earnings Dr 700
Transfer from BCV reserve Cr 1,400
For calculation:
Depreciation expense Dr 375
Retained earnings Dr 1000
Accumulated depreciation Cr 1,375
(25% x $2,000 x 9 months difference between FV and CA)
Deferred tax liability Dr 412.5
Income tax expense Cr 112.5
Retained earnings Cr 300
(30% x $1000 Dep. Expense)
Deferred tax liability Dr 412.5
Income tax expense Cr 412.5
(Truck sold in 2012)
6) Unrecorded patent
Goodwill Dr 45,000
Deferred tax liability Cr 13,500
BCV reserve Cr 31,500
7) Unrecorded court case
Deferred tax liability Dr 9,000
BCV reserve Dr 21,000
Damage expense Cr 30,000
8) Goodwill Dr 11,100
BCV reserve Cr 11,100
Pre-acquisition entries at 30 June 2012:
1）Pre-acquisition entry for reserve transfer
In Napoli company:
Transfer to general reserves Dr 10,000
General reserve Cr 10,000
Gneral reserves Dr 10,000
Transfer to general reserve Cr 10,000
2）Pre-acquisition entry for general reserve
Retained earnings Dr 62,000
Share capital Dr 180,000
General reserve Dr 30,000
Plant Maintenance Reserve Dr 30, 000
BCVR Dr 58,000
Shares in Napoli Ltd Cr 360,000
3. All of the consolidation worksheet journal entries at 30 June 2013.
BCVR entries at 30 June 2013:
1) Accumulated depreciation Dr (75,000-55,000)=20,000
Building Cr 18,000
Deferred tax liability Cr 600
BCV reserve Cr 1,400
Depreciation expense Dr 200
Retained earnings Dr 600
Accumulated depreciation Cr 800
(10% x $2000 x 4 of difference between FV and CA)
Deferred tax liability Dr 240
Income tax expense Cr 60
Retained earnings Cr 180
(30% x $800 Dep. Expense)
2) Accumulated depreciation Dr (260,000-182,000)=78,000
Plant Cr 70,000
Deferred tax liability Cr 2,400
BCV reserve Cr 5,600
Depreciation expense Dr 1,600
Retained earnings Dr 4,800
Accumulated depreciation Cr 6,400
(20% x $8000 x 4 of difference between FV and CA)
Deferred tax liability Dr 1,920
Income tax expense Cr 480
Retained earnings Cr 1,440
(30% x $6,400 Dep. Expense)
3) 2013-1-1, Napoli sold patent
Other revenues Dr 30,000
Goodwill Cr 28,000
BCV reverse Cr 2,000
Deferred tax asset Dr 9,000
Income tax expense Cr 9,000
4) Court case
Damage expense Dr 34,000
Transfer from BCV Cr 21,000
Income tax expense Cr 9000
Retained earnings Cr 4000
5)
Impairment expense Dr 5,000
Accumulated Impairment Losses Cr 5,000
Pre-acquisition entries at 30 June 2013: No entry
Intra-group transactions:
1) On 2012-7-1, Roma transferred inventory to Napoli:
Sales Dr 28,000
Cost of sales Cr 28,000
2) On 2011-4-1, Roma sold inventory to Napoli
Sales Dr 25,000
Cost of sales Cr 27,000
Inventory Cr -2,000
Deferred tax asset Dr -600
Income tax expense Cr -600
Depreciation expense Dr 11,250
Accumulated depreciation Cr 11,250
Deferred tax asset Dr 3,375
Income tax expense Cr 3,375
3) 2013-6-30, Roma sold inventory to Napoli, Napoli sold to external:
Sales Dr 27,000
Cost of sales Cr 24,000
Inventory Cr 3,000
Deferred tax asset Dr 900
Income tax expense Cr 900
4) 2011-5-1, Roma lent to Napoli:
Loan from Roma Ltd Dr 35,000
Loan to Napoli Ltd Cr 35,000
Loan reveivable-Napoli Dr 2,800
Loan payable-Roma Cr 2,800
5) 2012-10-1, Napoli sold plant to Roma
Proceeds on sale Dr 14,000
Available for sale Cr 11,000
Plant Cr 3,000
Deferred tax asset Dr 180
Income tax expense Cr 180
6) 2013-1-1, Roma sold furniture to Napoli
Proceeds on sale Dr 5,000
Available for sale Cr 4,500
Office furniture Cr 500
Deferred tax asset Dr 150
Income tax expense Cr 150
Depreciation expense Dr 350
Accumulated depreciation Cr 350
(450 for Group, 300 for Roma 3 months, 500 for Napoli 6 months, the adjustment is 500+300-450)
4. The consolidation worksheet for Roma Ltd at 30 June 2013.
| Account Name | Roma Ltd | Napoli Ltd | Adjustments | Group | |||
| Dr | Cr | ||||||
| Cash | 90620.00 | 96145.00 | 186765.00 | ||||
| Receivables | 36000.00 | 83800.00 | 119800.00 | ||||
| Dividend Receivable | 8000.00 | 1200.00 | 9200.00 | ||||
| Inventory | 72000.00 | 97800.00 | -2000 | 171800.00 | |||
| 3000 | -3000.00 | ||||||
| Available-for-Sale -Financial assets | 90250.00 | 27250.00 | 117500.00 | ||||
| Loan Receivable – Napoli Ltd | 35000.00 | 35000 | 70000.00 | ||||
| 2800 | 2800.00 | ||||||
| Shares in Napoli Ltd | 360000.00 | 360000.00 | |||||
| Deferred Tax Assets | 32080.00 | 24725.00 | 56805.00 | ||||
| Land | 125000.00 | 50000.00 | 175000.00 | ||||
| Buildings | 120000.00 | 75000.00 | 18000 | 177000.00 | |||
| Plant | 450000.00 | 320000.00 | 70000 | 700000.00 | |||
| Delivery Truck | 75000.00 | 120000.00 | 195000.00 | ||||
| Office Furniture | 15000.00 | 26000.00 | 41000.00 | ||||
| Goodwill | 28000.00 | 28000 | 0.00 | ||||
| Cost of Sales | 1440100.00 | 1190500.00 | 28000 | 2602600.00 | |||
| 27000 | -27000.00 | ||||||
| 24000 | -24000.00 | ||||||
| Proceeds on sale | 14000 | 14000.00 | |||||
| 5000 | 5000.00 | ||||||
| Amortisation & Depreciation | 60000.00 | 59100.00 | 200 | 119300.00 | |||
| 1600 | 1600.00 | ||||||
| 11250 | 11250.00 | ||||||
| 350 | 350.00 | ||||||
| Damages Expense | 34000.00 | 34000 | 68000.00 | ||||
| Other expenses | 63000.00 | 162400.00 | 225400.00 | ||||
| Income tax expense | 68100.00 | 79860.00 | 480 | 147480.00 | |||
| 9000 | -9000.00 | ||||||
| 9000 | -9000.00 | ||||||
| -600 | 600.00 | ||||||
| 3375 | -3375.00 | ||||||
| 900 | -900.00 | ||||||
| 180 | -180.00 | ||||||
| 150 | -150.00 | ||||||
| Impairment expense | 5000 | 5000.00 | |||||
| Dividend paid | 12000.00 | 10000.00 | 22000.00 | ||||
| Dividend declared | 6000.00 | 8000.00 | 14000.00 | ||||
| Transfer to General Reserve | 10000.00 | 10000.00 | |||||
| Total Debit Balances | 3196150.00 | 2465780.00 | 109200 | 218485 | 5552645.00 | ||
| Account Name | Roma Ltd | Napoli Ltd | Adjustments | Group | |||
| Dr | Cr | ||||||
| Share Capital | 450000.00 | 180000.00 | 630000.00 | ||||
| General Reserve | 80000.00 | 30000.00 | 110000.00 | ||||
| Plant Maintenance Reserve | 10000.00 | 10000.00 | |||||
| Available for sale - FA Reserve | 40000.00 | 5000.00 | 45000.00 | ||||
| Retained Earnings (1/7/12) | 89500.00 | 165340.00 | 600 | 1440 | 255680.00 | ||
| 4800 | 4000 | -800.00 | |||||
| Dividend Payable | 6000.00 | 8000.00 | 14000.00 | ||||
| Accounts Payable | 37000.00 | 31400.00 | 68400.00 | ||||
| Loan Payable – Roma Ltd | 35000.00 | 35000 | 70000.00 | ||||
| 2800 | 2800.00 | ||||||
| Loan Payable (due 1/7/16) | 100000.00 | 50000.00 | 150000.00 | ||||
| Current Tax Liability | 65200.00 | 89000.00 | 154200.00 | ||||
| Deferred Tax Liability | 19250.00 | 26040.00 | 1920 | 600 | 43970.00 | ||
| 9000 | 2400 | -6600.00 | |||||
| -600 | 600.00 | ||||||
| 3375 | -3375.00 | ||||||
| 900 | -900.00 | ||||||
| 180 | -180.00 | ||||||
| 150 | -150.00 | ||||||
| Annual Leave Entitlements | 50000.00 | 25000.00 | 75000.00 | ||||
| Sales Revenue | 1830000.00 | 1500000.00 | 28000 | 3302000.00 | |||
| 25000 | -25000.00 | ||||||
| 27000 | -27000.00 | ||||||
| Available for sale | 11000 | 11000.00 | |||||
| 4500 | 4500.00 | ||||||
| Dividend Revenue | 23500.00 | 3200.00 | 26700.00 | ||||
| Gain on Sale of NCA | 500.00 | 50000.00 | 50500.00 | ||||
| Other Revenue | 62900.00 | 16000.00 | 30000 | 48900.00 | |||
| Transfer from PMR | 20000.00 | 20000.00 | |||||
| Accum. Depreciation –Buildings | 56000.00 | 40000.00 | 20000 | 800 | 76800.00 | ||
| Accum. Depreciation –Plant | 252000.00 | 153000.00 | 78000 | 6400 | 333400.00 | ||
| 11250 | 11250.00 | ||||||
| 3000 | 3000.00 | ||||||
| Accum Depreciation –Office Furniture | 6200.00 | 13800.00 | 350 | 20350.00 | |||
| 500 | 500.00 | ||||||
| Accum. Depreciation – Delivery Truck | 28100.00 | 15000.00 | 43100.00 | ||||
| Accum. Impairment loss | 5000 | 5000.00 | |||||
| BCR Reverse | 1400 | 1400.00 | |||||
| 5600 | 5600.00 | ||||||
| 2000 | 2000.00 | ||||||
| Transfer from BCR | 21000 | 21000.00 | |||||
| Total Credit Balances | 3196150.00 | 2465780.00 | 228325 | 119040 | 5552645.00 | ||
5. The consolidated financial statements for Roma Ltd at 30 June 2013.
| Account Name | Group | Account Name | Group |
| Current Assets | Equity | ||
| Cash | 186765.00 | Share Capital | 630000.00 |
| Receivables | 119800.00 | General Reserve | 110000.00 |
| Dividend Receivable | 9200.00 | Plant Maintenance Reserve | 10000.00 |
| Inventory | 168800.00 | Available for sale - FA Reserve | 45000.00 |
| Available-for-Sale -Financial assets | 117500.00 | Retained Earnings (1/7/12) | 254880.00 |
| Loan Receivable – Napoli Ltd | 72800.00 | BCR Reverse | 9000.00 |
| Shares in Napoli Ltd | 360000.00 | Transfer from BCR | 21000.00 |
| Deferred Tax Assets | 56805.00 | Profit | 248625.00 |
| Fixed Assets | Total Equity | 1328505.00 | |
| Land | 175000.00 | ||
| Buildings | 177000.00 | Liability | |
| Plant | 700000.00 | Dividend Payable | 14000.00 |
| Delivery Truck | 195000.00 | Accounts Payable | 68400.00 |
| Office Furniture | 41000.00 | Loan Payable – Roma Ltd | 72800.00 |
| Transfer to General Reserve | 10000.00 | Loan Payable (due 1/7/16) | 150000.00 |
| Current Tax Liability | 154200.00 | ||
| Deferred Tax Liability | 33365.00 | ||
| Annual Leave Entitlements | 75000.00 | ||
| Accum. Depreciation –Buildings | 76800.00 | ||
| Accum. Depreciation –Plant | 347650.00 | ||
| Accum Depreciation –Office Furniture | 20850.00 | ||
| Accum. Depreciation – Delivery Truck | 43100.00 | ||
| Accum. Impairment loss | 5000.00 | ||
| Total Assets | 2389670.00 | Total Liability | 1061165.00 |
| Revenue | |
| Sales Revenue | 3250000.00 |
| Available for sale | 15500.00 |
| Cost of goods sold | |
| Cost of Sales | 2551600.00 |
| Proceeds on sale | 19000.00 |
| Other expenses | |
| Amortisation & Depreciation | 132500.00 |
| Damages Expense | 68000.00 |
| Other expenses | 225400.00 |
| Income tax expense | 125475.00 |
| Impairment expense | 5000.00 |
| Dividend paid | 22000.00 |
| Dividend declared | 14000.00 |
| Other Revenue | |
| Dividend Revenue | 26700.00 |
| Gain on Sale of NCA | 50500.00 |
| Other Revenue | 48900.00 |
| Transfer from PMR | 20000.00 |
| Net Income | 248625.00 |
15012858052
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