Financial Statements Assignment Help Question 3 (30 Marks) On 1 July 2013, Samwell Ltd acquired 100% of the share capital of Gilly Ltd (cum div) for $810,000. Gilly Ltd’s balance sheet on acquisition date included: Dividend payable
$10,000
Retained earnings
200,000
Share capital
500,000
General reserve
50,000
At acquisition date, all of Gilly Ltd’s net assets were recorded at fair value except for: Carrying amount
Fair
Inventory
$34,000
$40
Land
67,000
75
Contingent liability
–
10
Buildings (Cost $96,000)
67,200
78
Additional Information: 2013. a) The dividend payable at acquisition date was subsequently paid in August 2013. 2014. b) The revalued inventory was sold during the year ended 30 June 2014.c) The contingent liability identified on the acquisition of Gilly Ltd still existed at 30 June 2017. d) The revalued land was sold during the year ended 30 June 2017 for $42,000. 2015. e) The revalued buildings were still held at 30 June 2017 being depreciated on the straight line basis at 10% p.a. 2016. f) Since acquisition, goodwill has been impaired by $4,000. $1,500 of this impairment occurred during the year ended 30 June 2017. 2017. g) Of the management fee revenues earned by Samwell Ltd during the year ended 30 June 2017, $12,000 was collected from Gilly Ltd. 2018. h) Gilly Ltd’s inventory balance at 1 July 2016 included an item previously purchased from Samwell Ltd. This inventory had been sold by Samwell Ltd to Gilly Ltd at a profit of $4,000. 2019. i) During the year ended 30 June 2017, Gilly Ltd sold a quantity of inventory to Samwell Ltd for $18,000. This inventory had originally cost Gilly Ltd $12,000 with 25% of this inventory still being held by Samwell Ltd at 30 June 2017. 2020. j) All dividends paid/declared by Samwell Ltd during the year ended 30 June 2017 was from post-acquisition profits. 1. k) Financial statements for the year ended 30 June 2017 are reproduced below: Samwell Ltd
Gi
Sales
$5,220,000
$2,
Cost of goods sold
(4,070,000)
(2,2
Gross profit
1,150,000
Dividend revenue
92,000
Interest revenue
–
Management fees revenue
25,000
Other income
30,000
Depreciation expense
(180,000)
(8
Finance costs
(91,000)
(3
Other expenses
(284,000)
(3
Profit before income tax
742,000
32
Income tax expense
(202,000)
(8
Profit after tax
540,000
23
Retained earnings at (01/07/16)
695,000
32
Interim dividend paid
(70,000)
(3
Final dividend declared
(140,000)
(6
Retained earnings at (30/06/17)
1,025,000
46
Share capital
800,000
50
General reserve
210,000
5
Total equity
2,035,000
Trade and other payables
413,000
13
Dividend payable
140,000
6
Loan from Gilly Ltd
250,000
46
2
1,0
(8% per year, interest payable 31 December)
Mortgage loan
1,453,000
40
Deferred tax liabilities
90,000
Total liabilities
2,346,000
59
Total liabilities and equity
4,381,000
1,6
Cash
194,000
11
Trade and other receivables
72,000
3
Dividends receivable
60,000
Inventory
750,000
44
Land
770,000
25
Buildings
1,500,000
78
Accumulated depreciation buildings
(320,000)
(49
Plant and equipment
790,000
45
Accumulated depreciation plant and equipment
(235,000)
(21
Investment in Gilly Ltd
800,000
Loan to Samwell Ltd (8% per year, interest payable 31 December) – Total Assets
4,381,000
Required: 1. Determine the gain on bargain purchase or goodwill as at acquisition date. (2 marks) 2. Prepare the consolidation journal entries for Samwell Ltd immediately after acquisition on 1 July 2013. (6 marks) 3. Prepare the consolidation journal entries for Samwell Ltd as at 30 June 2017. (14 marks) 4.Prepare the consolidation worksheet for the preparation of the consolidated financial statements by Samwell Ltd as at 30 June 2017. (8 marks)
25
1,6
(Source: adapted from Arthur, N., Luff, L., Keet, P. Accounting for corporate combinations and associations (7e), Pearson Education, Australia.) Question 4 (40 marks) Part A (30 marks) On 1 January 2013, Petyr Ltd acquired 80% of the share capital of Sansa Ltd for $4,400,000. At acquisition date, Sansa Ltd’s balance sheet included: Share capital
$5,000,000
Retained profits
350,000
General reserve
50,000
At acquisition date, all of Sansa Ltd’s net assets were recorded at fair value except for: Carrying Amount Equipment (cost $67,000) 1. 2. 3.
4.
5.
6.
$50,000
Fair
$58
Additional information: a) Petyr Ltd adopts the partial goodwill method. b) The revalued equipment was still held at 30 June 2017, being depreciated on the straight-line basis over 5 years. c) On 1 January 2016, Sansa Ltd sold an item of equipment to Petyr Ltd, recognising a gain of $22,000 on the sale. This equipment was still held at 30 June 2017 and at the time of the sale it was estimated that it would have a further useful life of 10 years. d) During the year ended 30 June 2017, Sansa Ltd sold a quantity of inventory to Petyr Ltd for $28,000. Sansa Ltd received a gain of $8,500 on the sale and Petyr Ltd still held 25% of this inventory at 30 June 2017. e) During the year ended 30 June 2017, Petyr Ltd sold an item of plant to Sansa Ltd at a gain of $80,000. This machinery was held as inventory in the books of Sansa Ltd at 30 June 2017. f) Financial statements for the year ended 30 June 2017 are reproduced below: Petyr Ltd
Sans
Sales
$3,283,750
$1,80
Cost of goods sold
(1,490,000)
(1,46
Gross profit
1,793,750
Gain on sale of plant
80,000
Other income
16,250
340
Depreciation expense
(320,000)
(240
Other expenses
(180,000)
(130
Profit (loss) before income tax
1,390,000
(30,
Income tax expense/income
(440,000)
10,
Profit (loss) after tax
950,000
(20,
Retained earnings at 01/07/16
1,100,000
600
Dividends paid
(500,000)
Dividend declared
–
(25,
Trans. from general reserve
–
15,
Retained earnings at 30/06/17
1,550,000
570
Share capital
7,000,000
5,00
General reserve
–
Total Equity
8,550,000
Current tax liability
480,000
Other liabilities
960,000
Borrowings
–
Deferred tax liability
–
Total Liabilities
1,440,000
2,35
Total liabilities and equity
9,990,000
7,96
Inventory
420,000
543
Other current assets
930,000
2,18
Property, plant and equipment
4,210,000
1,99
Accumulated depreciation
(1,050,000)
(800
35,
5,60
855
1,50
Investments
5,400,000
Deferred tax asset
80,000
Total assets
9,990,000
3,58
460
7,96
Required: 1. Determine the gain on bargain purchase or goodwill as at acquisition date. (2 marks) 2. Prepare the consolidation journal entries for Petyr Ltd at 1 January 2013, immediately after acquisition. (4 marks) 3. Prepare the consolidation journal entries for Petyr Ltd as at 30 June 2017. (16 marks) 4.Prepare the consolidation worksheet for the preparation of the consolidated financial statements by Petyr Ltd as at 30 June 2017. (8 marks) (Source: adapted from Arthur, N., Luff, L., Keet, P. Accounting for corporate combinations and associations (7e), Pearson Education, Australia.) Part B (10 marks) On 1 July 2017, Tywin Ltd acquired 75% of the shares (cum div.) of Shae Ltd for $120,500. At this date the equity of Shae Ltd consisted of: Share capital
$ 40,00
General reserve
3,000
Retained earnings
25,000
At the date of the business combination, all the identifiable assets and liabilities of Shae Ltd had carrying amounts equal to their fair values except for: Carrying amount
Fair
Plant (cost $60,000)
$40,000
$5
Inventory
25,000
31
Receivables
33,000
30
Additional information: 1. a) One of the liabilities of Shae Ltd at 1 July 2017 was a dividend payable of $5,000. 2. b) The tax rate is 30% Required: 1. Prepare the acquisition analysis as at acquisition date using the partial goodwill method. Show all workings. (2 marks) 2. Prepare the acquisition analysis as at acquisition date using the full goodwill method and the fair value of the non-controlling interest at the date of acquisition is $20,000. Show all workings. (3 marks