ASSIGNMENT
On 1 July 2011 Topaz Ltd acquired all the shares of Agate Ltd on a cum-div basis. On this date, the recorded equity of Agate Ltd consisted of:
Share Capital $120 000
General Reserve 25 000
Retained Earnings 55 000
Asset Revaluation Reserve 30 000
At acquisition date, all the identifiable assets and liabilities of Agate Ltd were recorded at amounts equal to fair value except for:
Carrying Fair
Amount Value
Vehicles (cost $58 000) $47 000 $53 000
Machinery (cost $74 000) $52 000 $56 800
Inventory 34 200 38 700
The vehicles and machinery were expected to have a further useful life of four (4) and six (6) years respectively with benefits to be received evenly over those periods. Inventory on hand at 1 July 2011 was all sold by 31 January 2012. The machinery on hand at 1 July 2011 was sold on 1 January 2015 for $28 000.
Additionally, Agate Ltd's records show a dividend payable at 1 July 2011 of $8 000. This dividend was paid on 31 October 2011. The assets of Agate Ltd at acquisition date included goodwill valued at $15 000 arising from a business combination in 2009.
At 1 July 2011 Agate Ltd owned but had not recorded an internally generated brand name. This brand name was considered by Topaz Ltd to have a fair value of $36 000 and an indefinite useful life. An impairment test conducted with respect to the brand name on 30 June 2015 concluded that its recoverable amount at that date was $8 000 less than its carrying amount.
On 1 May 2011, Agate Ltd was charged by the Water Authority for breaching its licence to extract water from an underground aquifer. Agate Ltd recorded no liability in respect to any potential fines. However, legal advice sought by Topaz Ltd has indicated that, if found guilty, Agate Ltd faces fines of $15 000. Subsequently, on 14 February 2014, the court found Agate Ltd guilty and imposed fines of $12 000 payable on 1 June 2014.
For assets, other than land, adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation. Both companies have adopted the fair value model, as per AASB 116, to account for land. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed.
In June 2014, Agate Ltd paid a bonus share dividend worth $20 000 from the general reserve on hand at 1 July 2011.
Additional information:
(a) On 1 May 2014, Agate Ltd sold a machine to Topaz Ltd for $3 800. The machine had a carrying amount of $3 000 at the date of sale. Topaz Ltd classified the machine as inventory. This inventory was sold to an external party in November 2014 for $4 200.
(b) On 1 July 2014, Topaz Ltd sold an item of equipment to Agate Ltd for $28,000. The equipment had a carrying amount at the date of sale of $31 000. Agate Ltd classified the item as "Machinery" which is depreciated at 20% per annum on a straight-line basis.
(c) All interest on the 8% Debentures has been paid and bought to account in the records of both companies.
(d) During the 2014-2015 financial year, Agate Ltd sold inventory to Topaz Ltd for $55 000. The inventory had originally cost Topaz Ltd $43 000. Thirty percent (30%) of this inventory is still on hand at 30 June 2015.
(e) The transfer to general reserve recorded by Agate Ltd in the current year was from retained earnings recorded at 1 July 2011.
(f) On 1 January 2015, Topaz Ltd sold furniture to Agate Ltd for $6 000. This had originally cost Topaz Ltd $10 000 and had a carrying amount at the time of sale of $5 000. Both entities charge depreciation at a rate of 20% p.a.
(g) The balance of the asset revaluation reserve at 30 June 2014 was $36 000 (Topaz Ltd) and $47 000 (Agate Ltd).
(h) For both companies, employee entitlements relate to accrued annual leave.
(i) Both companies hold the investment - Shares in Listed Companies for short-term trading purposes.
(j) The tax rate is 30%.
On 30 June 2015 the trial balances of Topaz Ltd and Agate Ltd were as follows:
Topaz Ltd Agate Ltd
Debit Balances $ $
Cash 27 500 1 250
Receivables 27 000 13 000
Inventory 39 700 24 500
Other current assets 15 200 8 200
Deferred tax assets 7 500 3 500
Vehicles 88 000 158 000
Machinery - 42 000
Furniture 10 000 8 000
Land (at fair value) 130 000 172 000
Shares in Listed Companies 48 000 14 800
Shares in Agate Ltd 250 000 -
Debentures in Topaz Ltd - 25 000
Goodwill 28 000 15 000
Dividend Paid 10 000 5 000
Dividend Declared 20 000 12 000
Transfer to General Reserve 10 000 5 000
Cost of Sales 210 000 192 550
Income Tax Expense 30 000 32 000
Depreciation and other expenses 39 000 36 000
Loss on sale of NCA 3 000 -
992 900 767 800
Credit Balances
Share capital 200 000 140 000
General Reserve 35 000 10 000
Retained earnings (1/7/14) 29 300 44 500
Asset Revaluation Reserve 27 000 35 000
Accounts Payable 69 500 36 000
Dividend Payable 20 000 12 000
Employee Entitlements 12 500 9 300
Current Tax Liability 43 000 24 000
Deferred Tax Liability 11 800 5 000
Loan Payable (Due 30/6/17) 25 000 15 000
8% Debentures (Mature 30/6/18) 25 000 -
Sales Revenue 450 000 320 000
Dividend Revenue 17 000 3 000
Other income 9 200 11 600
Gain on Sale of NCA 1 000 7 500
Accumulated depreciation - Vehicles 16 400 60 000
Accumulated depreciation - Furniture 1 200 400
Accumulated depreciation - Machinery - 34 500
992 900 767 800
Required
Prepare the following:
1. Acquisition analysis at 1 July 2011.
2. The BCVR & pre-acquisition worksheet journal entries ONLY at 30 June 2014.
3. The BCVR, pre-acquisition elimination and intra-group transaction worksheet journal entries at 30 June 2015.
4. The consolidation worksheet for Topaz Ltd at 30 June 2015.
5. The consolidated financial statements for Topaz Ltd at 30 June 2015.
Marking Guide
This assignment is worth 20% of the total assessment. Marks will be apportioned as follows:
1. Acquisition analysis at 1 July 2011.
2. The BCVR & pre-acquisition worksheet journal entries at 30 June 2014.
3. The BCVR, pre-acquisition elimination and intra-group transaction worksheet journal entries at 30 June 2015.
4. The consolidation worksheet at 30 June 2015.
5. The consolidated financial statements at 30 June 2015.
Parts 1 to 3:
The acquisition analysis and the journal entries will be marked based solely on their accuracy. In other words, you have to get both the account name and amount correct to get your mark. For the adjusting entries, consequential marking will be applied to the journal entries if the acquisition analysis is incorrect.
Parts 4 and 5:
For both the consolidation worksheet and the consolidated financial statements, the tutor will grade you out of 5 based purely on format and completeness of each of these items. Use the Excel Spreadsheet provided, do not reformat the worksheet and add only additional asset, liability and equity accounts as required.