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A non-parent entity, L Ltd, acquired on 1 July 2010 a 21% voting interest in P Ltd for $190,000 cash.  The recorded identifiable net assets and assumed liabilities of P Ltd as at the date of acquisition were represented by the following equity items:

Issued capital              $231,000

Retained earnings       $166,070

Total equity                

At the date of acquisition, all of the identifiable assets and liabilities of P Ltd were stated in the accounts at fair value except for plant and equipment which was carried at $230,000 and had a fair value of $351,000.  At this date it was considered to have a further working life of 5 years.

The following information has been extracted from the management accounts for both entities for 30 June 2012:

2120_Prepare an acquisition analysis.png

Management statements of financial position as at 30 June 2012


 L Ltd


 P Ltd


 $


 $

 Assets




 Current assets




 Inventories

500,000


607,361

 Other current assets 

1,150,000


1,016,727

 Non current assets




 Investment in associates  

200,000


-

 Property, plant and equipment

800,000


650,000

Accumulated depreciation - ppe

-140,000


-80,000

 Total assets

2,510,000


2,194,088

 Current liabilities




 Trade and other payables

850,000


1,544,353

 Total liabilities

850,000


1,544,353

 Net assets

1,660,000


649,735

 Shareholders' equity




 Issued capital

600,000


231,000

 Revaluation surplus

340,000


130,000

 Retained earnings 

720,000


288,735

 Total shareholders' equity

1,660,000

 

649,735

Additional information

1 On 30 June 2012 L Ltd carried inventory sold to it by P Ltd at a mark-up of $49,365.

2 On 30 June 2011 L Ltd had carried inventory sold to it by P Ltd at a mark-up of $66,481.  The entire inventory had subsequently been sold.

3 L Ltd has not recognized an impairment loss in relation to its investment in P Ltd in its financial statements for the year ended 30 June 2012.

4 P Ltd revalued its property plant and equipment on 30 June 2012.

5 The company tax rate is 30%

Required:

Apply the equity method to L's investment in P Ltd. Prepare the statement of comprehensive income, changes in equity, financial position and any other relevant disclosures for the notes to the financial statement of L Ltd as required by AASB 128 for the year ended 30 June 2012.

Q2

On 1 July 2006 ABC Ltd acquired 75% of the share capital in XYZ Ltd for $150,000 cash.  In addition to the cost of the shares ABC Ltd paid valuation fees associated with the acquisition of $6,000.  At acquisition date the equity of XYZ Ltd consisted of:

Share capital

$90,000

General reserve

10,000

Retained earnings

20,000

All the assets and liabilities of XYZ Ltd at the date of acquisition were recorded at fair value other than the following:

 

Carrying amount

Fair value

Plant (Cost $92,000)

$60,000

85,000

Land

40,000

75,000

Contingent liability

0

12,000

All fair value adjustments are recorded on consolidation.  The plant has a remaining useful life of 8 years.  The revalued land was sold outside the group on 1 July 2007 for $85,000.  The contingent liability was settled for $12,000 on 1 December 2006.  The tax rate is 30%.

ABC Ltd uses the full goodwill method.  The value of the non-controlling interest has been estimated at $50,000.

Other information:

a) The inventory of XYZ Ltd on 1 July 2009 included inventory purchased from ABC Ltd for $5,000.  The original cost of the inventory was $17,000.  The inventory was not considered impaired at the time of the sale by ABC Ltd.  The inventory was sold outside the group in September 2009.
b) The inventory of ABC Ltd on 1 July 2009 included inventory purchased from XYZ Ltd for $5,000 above cost.  The inventory was sold outside the group in December 2009.
c) ABC Ltd sold inventory to XYZ Ltd on 1 February 2010 for $15,000.  The original cost of the inventory was $8,000.  The inventory had been entirely sold outside the group by 30 June 2010.
d) XYZ Ltd sold inventory to ABC Ltd for $25,000 on 1 June 2010.  The sale price represented a mark-up of 25% on cost.  By 30 June 2010 ABC Ltd had sold 90% of this inventory outside the group.
e) On 1 July 2008 XYZ Ltd sold an item of plant to ABC Ltd for $10,000.  The carrying amount at the time of sale was $15,000 (cost was $25,000).  At the time of the sale the asset had a remaining useful life of 10 years.
f) ABC Ltd charged XYZ Ltd a management fee of $12,000 for the current financial year.
g) On 30 June 2010 XYZ Ltd owes ABC Ltd $20,000.  XYZ Ltd paid $500 to ABC Ltd in interest on 30 June 2010.
h) Goodwill on acquisition is not considered impaired.

Required

1) Prepare an acquisition analysis.

2) Prepare all necessary consolidation adjustment entries needed to prepare the consolidated financial statements as at 30 June 2010.  The balance sheets and income statement of ABC Ltd and XYZ Ltd can be found on the worksheet below.

3) Using the adjustments you prepared in 2) complete the worksheet as at 30 June 2010.

4) Prepare the disclosures of the NCI in profit and equity for the year ended 30 June 2010.

 

ABC

Ltd

XYZ

Ltd

Adjustments

Group

Data

Debit

Credit

Sales revenue

$1,200,000

$125,000

 

 

 

Cost of goods sold

850,000

55,000

 

 

 

Gross profit

$350,000

$70,000

 

 

 

Add dividend revenue

7,500

0

 

 

 

Add interest revenue

600

0

 

 

 

Add management fee

12,000

0

 

 

 

Add: Gain on sale of plant

0

1,000

 

 

 

Less depreciation expense

15,000

9,000

 

 

 

Less interest expense

25,000

1,000

 

 

 

Less other expenses

150,100

13,000

 

 

 

Profit before tax

180,000

48,000

 

 

 

Less income tax expense

50,000

11,700

 

 

 

Profit for the year

130,000

36,300

 

 

 

Add retained earnings July 1 2009

120,000

22,000

 

 

 

Less dividends paid

15,000

5,000

 

 

 

Less dividends declared

20,000

5,000

 

 

 

Retained earnings June 30 2010

215,000

48,300

 

 

 

General reserve

50,000

10,000

 

 

 

Share capital

240,000

90,000

 

 

 

NCI equity (goodwill)

0

0

 

 

 

Fair value adjustment

0

0

 

 

 

Shareholders' equity

505,000

148,300

 

 

 

 

====

====

 

 

 

Assets

 

 

 

 

 

     Cash

60,000

49,000

 

 

 

     Accounts receivable

102,000

29,000

 

 

 

     Inventory

73,000

40,000

 

 

 

     Dividend receivable

7,500

0

 

 

 

     Investment in XYZ

150,000

0

 

 

 

     Land

130,000

57,000

 

 

 

     Plant

245,000

147,000

 

 

 

     Accumulated depreciation

-108,000

-80,000

 

 

 

     Goodwill

 

 

 

 

 

     Loan receivable

88,500

0

 

 

 

     Deferred tax asset

75,000

30,000

 

 

 

Total assets

823,000

272,000

 

 

 

Less liabilities

 

 

 

 

 

     Accounts payable

75,000

6,700

 

 

 

     Dividend payable

15,000

5,000

 

 

 

     Tax payable

25,000

7,000

 

 

 

     Loans payable

200,000

100,000

 

 

 

     Deferred tax liabilities

3000

5,000

 

 

 

Net assets

505,000

148,300

 

 

 

 

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M9132406
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