Financial Accounting Assignment
Part A - On June 30 2012 Alpha Ltd acquired all the shares in Beta Ltd for $1,440 000 cash. At the date of acquisition the shareholders funds of Beta Ltd were as follows:
Shareholders' Funds -Beta Ltd
Share Capital 850,000
Revaluation Surplus 120 000
Retained Earnings 270 000
Total Shareholders' Funds $1 240 000
Additional Information
At the date of acquisition all identified net assets of Beta Ltd were recorded at fair value with the exception of land, which was determined to have a fair value of $950 000. The land was recorded in the books of Beta Ltd at $880000 and had not been previously revalued.
During the current financial year Beta Ltd paid $60 000 in dividends to Alpha Ltd. These were paid from post-acquisition profits.
Intra-group sales for the current financial year were as follows:
- Alpha Ltd to Beta Ltd $900 000
- Beta Ltd to Alpha Ltd $400 000
At the 30 June 2015 15% of the stock sold to Beta Ltd from Alpha Ltd remained unsold in the closing inventory of Beta Ltd. This stock had originally cost Alpha Ltd $680 000.
At 1 July 2014 the opening inventory of Alpha Ltd includes stock purchased from Beta Ltd for $280 000. The stock has originally cost Beta Ltd $190 000.
On 1 July 2014 Beta Ltd sold an item of equipment to Alpha Ltd for $220,000. Beta Ltd had acquired the equipment on 1 July 2013 at a cost of $270 000. The equipment when purchased had an estimated useful life of 5 years with no residual value.
During the year ended 30 June 2015 Alpha Ltd charged Beta Ltd $90 000 in management fees.
Assume a tax rate of 30%.
Required: Prepare the consolidation entries for the financial year ended 30 June 2015 (narrations not required).
Your answer must clearly indicate the most appropriate account to be adjusted by indicating at the end of the journal entry whether the account is (A), (L), (R), (E) or (OE).
Part B - Assume that within a few days of Alpha acquiring Beta, that Beta paid dividends from pre-acquisition profits.
I. How would this dividend be treated in the accounts of Alpha;
II. What implications might this have on the value of Investment in Beta? Explain the accounting treatment which may be required with reference to pre and post the release of AASB127.