GROUP CASE STUDY
On 1 July 2013 Batman Ltd acquired all of the share capital of Robin Limited for a consideration of $472000 cash and a patent that was held in their accounts at a book value of $8000 but now had a fair value of $13000.
At that date all the identifiable assets and liabilities were recorded at fair value with the exception of:
|
ASSET
|
Book Value
|
Market Value
|
|
Inventory
|
9,600
|
11,500
|
|
Land
|
20,000
|
25,000
|
|
Plant
|
14,000
|
|
|
(lessdepn.)
|
(2000)
|
|
|
12,000
|
19,000
|
|
Accounts Receivable
|
14,000
|
12,700
|
- The inventory was all sold by 30/6/14. The remaining useful life of the plant is 7 years.
- The accounts receivable were collected by 30/6/14 for $12,500.
- The land was sold on 30/12/16 for $26000. The plant was on hand still at 30/6/17.
At the date of acquisition the equity of Batman Ltd consisted of:
Share Capital - 300,000
General Reserve - 96,000
Retained Earnings - 56,000
Information from the trial balances of Batman Ltd and Robin Ltd at 30 June 2017 is presented overleaf.
Additional Information
1. On 1 Jan 2017 Robin Ltd sold inventory to Batman Ltd costing $60,000 for $80,000. Half of this inventory was sold to outside parties for $60,000 by 30/6/17.
2. On 1 Jan 2016 Robin Ltd sold inventory costing $5000 to Batman Ltd for $7000. Batman Ltd treats the item as equipment and depreciates it at 5% per annum.
3. On 1 July 2016 Robin sold plant to Batman for $10,000. The plant had cost Robin $10,000 on 1 July 2014 and it was being depreciated at 10% per annum. Batman regards the plant as inventory. The inventory was all sold by 30th July 2016.
4. At 1 July 2016 Robin Ltd held inventory that it had purchased from Batman Ltd on 1 June 2016 at a profit of $6000. All inventory was sold by 30 J2017.
5. Batman Ltd accrues dividends from Robin Ltd once they are declared.
6. Batman Ltd has earned $500 in interest revenue in the 2017 financial year from Robin Ltd.
7. Batman Ltd has earned $3500 in service revenue in the 2017 financial year from Robin Ltd.
8. Assume a tax rate of 30%.
Required:
A. Prepare the acquisition analysis at 1 July 2013.
B. Prepare the BCVR and pre-acquisition journal entries at 1 July 2013.
C. Prepare the BCVR and pre-acquisition journal entries at 30 June 2017.
D. Prepare the consolidation worksheet journal entries to eliminate the effects of inter-entity transactions as at 30 June 2017.
E. Prepare the consolidation worksheet for the preparation of the consolidated financial statements for the period ended 30 June 2017.
F. Prepare the consolidated statement of profit or loss and other comprehensive income, the consolidated balance sheet and the consolidated statement of changes in equity for the period ended 30 June 2017.
THE CASE STUDY IS WORTH 20% OF THE TOTAL MARKS FOR THE UNIT
Trial Balances As at 30 June 2017
|
Batman Ltd
|
Robin Ltd
|
|
DR
|
CR
|
DR
|
CR
|
|
Sales Revenue
|
|
1,192,500
|
|
932,500
|
|
Cost of Sales
|
888,000
|
|
676,000
|
|
|
Wages and Salaries
|
61,000
|
|
32,000
|
|
|
Depreciation Expense
|
5,200
|
|
4,800
|
|
|
Service Expense
|
3,500
|
|
5,000
|
|
|
Interest Expense
|
7,000
|
|
500
|
|
|
Other Expenses
|
4,000
|
|
6,000
|
|
|
Gain on Sale of Non-Current Assets
|
-
|
|
|
7,000
|
|
Service Revenue
|
|
6,000
|
|
5,000
|
|
Interest Revenue
|
|
500
|
|
7,000
|
|
Dividend Revenue
|
|
10,000
|
|
-
|
|
Income tax expense
|
97,120
|
|
118,480
|
|
|
Retained Earnings 1/7/16
|
|
100,820
|
|
70,280
|
|
Dividend Paid
|
10,000
|
|
5,000
|
|
|
Dividend Declared
|
12,000
|
|
5,000
|
|
|
Share Capital
|
|
500,000
|
|
300,000
|
|
General Reserve
|
|
135,000
|
|
96,000
|
|
Other Equity 1/7/16
|
|
4,000
|
|
12,000
|
|
Gains on Financial Assets
|
|
1,000
|
|
6,000
|
|
Loan Payable to Batman Ltd
|
|
-
|
|
5,000
|
|
Deferred Tax Liability
|
|
52,000
|
|
30,000
|
|
Dividend Payable
|
|
12,000
|
|
5,000
|
|
Shares in Robin Ltd
|
485,000
|
|
-
|
|
|
Cash
|
125,000
|
|
85,000
|
|
|
Inventories
|
168,000
|
|
36,000
|
|
|
Other Current Assets
|
11,000
|
|
300,000
|
|
|
Dividend Receivable
|
5,000
|
|
-
|
|
|
Loan receivable from Robin Ltd
|
5,000
|
|
-
|
|
|
Financial Assets
|
15,000
|
|
68,000
|
|
|
Plant and Equipment
|
52,000
|
|
28,000
|
|
|
Acc. Depreciation Plant
|
|
10,000
|
|
14,000
|
|
Land
|
70,000
|
|
120,000
|
|
|
2,023,820
|
2,023,820
|
1,489,780
|
1,489,780
|