On 1 July 2012 Sarah Ltd acquires all the shares in Jane Ltd for $707,000 cash T
ID: 2332887 • Letter: O
Question
On 1 July 2012 Sarah Ltd acquires all the shares in Jane Ltd for $707,000 cash
The financial statements of Jane Ltd as at 1 July 2012 shows the following:
Retained earnings 197,000
Share capital 259,000
The tax rate is 30%
At the date of acquisition all the net assets of Jane Ltd are at fair value except for the following:
Carrying amount
Fair value
Equipment (cost $257,000)
$101,000
$142,000
The equipment has a further 18 years of useful life.
All consolidation entries on 30 June 2017 are shown below:
Dr. Retained earnings
$197,000
Dr. Share capital
$259,000
Dr. BCVR
Dr. Goodwill
Cr. Investment in Jane Ltd
$707,000
Dr. Accumulated depreciation
257,000 – 101,000
Dr.(or Cr.) Equipment
Cr. BCVR
( 142,000 – 101,000 ) x 70%
Cr. DTL
( 142,000 – 101,000 ) x 30%
Dr. Retained earnings
xxx
Dr. Depreciation expense
( 142,000 – 101,000 ) / 18
Cr. Accumulated depreciation
Dr. DTL
Cr. Income tax expense
( 142,000 – 101,000 ) x 30% / 18
Cr. Retained earnings
Complete the consolidation journals above and enter the amount of xxx (retained earnings) in the answer block below:
Carrying amount
Fair value
Equipment (cost $257,000)
$101,000
$142,000
Explanation / Answer
As per Full Goodwill method
Acquisition analysis
1 July 2012,
Net fair value of identifiable assets and liabilities of Jane Ltd = ($197000 + $259 000)+$41 000 (1 – 30%) (equipment) = $484000
Consideration transferred = $707000
Goodwill = $707000 – $484000 = $222300
Consolidation Worksheet Entries - 1 July 2012
Dr. Retained earnings
$197,000
Dr. Share capital
$259,000
Dr. BCVR
Dr. Goodwill
Cr. Investment in Jane Ltd
$707,000
Dr. Accumulated depreciation
257,000 – 101,000=156,000
Dr.(or Cr.) Equipment
Cr. BCVR
( 142,000 – 101,000 ) x 70%=28,700
Cr. DTL
( 142,000 – 101,000 ) x 30%=12,300
Dr. Retained earnings
(11,390-2,278)= 9,112
Dr. Depreciation expense
( 142,000 – 101,000 ) / 18=2,278
Cr. Accumulated depreciation
(1/18 x $41,000 p.a. for 5 years)
Dr. DTL
Cr. Income tax expense
Cr. Retained earnings
Hence it is proved that the amount of retained earning is 9,112
(Please ask in comment section if any quaries)
Dr. Retained earnings
$197,000
Dr. Share capital
$259,000
Dr. BCVR
$28700Dr. Goodwill
$222300Cr. Investment in Jane Ltd
$707,000
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