Dean Ltd acquired all the issued share capital of Diane Ltd on 1 January 2012 fo
ID: 2488917 • Letter: D
Question
Dean Ltd acquired all the issued share capital of Diane Ltd on 1 January 2012 for cash $200,000. On the acquisition date, the equity of Diane Ltd is consisted of:
Share capital - $125,000
General reserve - $31,250
Retained earnings - $25,000
All the identifiable assets and liabilities of Diane Ltd were recorded at fair value except for some depreciable plant and machinery, which had a carrying amount of $106,250 (cost $125,000) and fair value of 112,500. The remaining useful life was 10 years. The fair value adjustments would be made on consolidation rather than on Diane's own accounting book.
Additional information shows:
During the current period, Dean Ltd sold inventory to Diane Ltd for $25,000. This had originally cost Dean Ltd $22,750 to manufacture. By 31 December 2016, Diane sold half of the inventory to Brit Ltd for $15,388.
Dean Ltd's opening inventory includes inventory purchased from Diane Ltd for $109,000. The inventory had originally costed Diane Ltd $89,000 to purchase.
At 1 January 2016, Diane Ltd sold a machine to Dean Ltd for $180,000. This item had a carrying amount at time of sale to Diane Ltd of $120,000 (original cost $200,000, accumulated depreciation $80,000). The remaining useful life of the machine is 12 years for both entities.
Dean Ltd provided computer services cost $36,000 to Diane Ltd during the current financial year. At 31 December 2016, $3,000 remained unpaid.
On 1 January 2015, Diane Ltd sold a plant to Dean Ltd for $22,000. Diane Ltd recorded a profit of $8,000 before tax. The remaining useful life was 10 years at the time of this intra-group transaction.
Diane Ltd declared final dividend of $10,000 from its current year's profit.
Goodwill had been impaired by 10% in the first year following the acquisition. During the year ended 31 December 2016 it was considered that the goodwill has been further impaired by an amount of $3,000.
The tax rate is 30%.
Required:
Prepare all necessary consolidation adjusting journal entries for the year ended 31 December 2016, according to the requirements of AASB 10 Consolidation Financial Statements (no narrations required for journal entries), assuming the financial year for Dean Ltd and Diane Ltd is as same as the calendar year.
Explanation / Answer
Calculation of Pre acquisition Profit
Retained Earnings as on July-1,2015
$1,00,000
Bonus Dividend
-$10,000
Interim Dividend paid out of preaquisition profit
-$11,000
General Reserve as on July 2015
$50,000
Profit on revaluation of asset
Land
$5,000
Truck (cost $30,000)
$4,000
Equipment (cost $420,000)
$15,000
Goodwill
$24,000
Inventory
$3,000
Share of Black Ltd. On Melbourne Ltd.'s Equity
$1,80,000
Investment in Melbourne Ltd.
$7,22,000
Share Capital
$4,00,000
Bonus Dividend
$1,00,000
Share of Preaquisition profit on Melbourne Ltd.'s Equity
$1,80,000
Amount paid for Goodwill
$42,000
Solution-(b)
Carrying Amount
Fair Value
Difference in Fair Value over Carrying Amount
Land
$75,000
$80,000
$5,000
Truck (cost $30,000)
$25,000
$29,000
$4,000
Equipment (cost $420,000)
$2,94,000
$3,09,000
$15,000
Goodwill
$48,000
$72,000
$24,000
Inventory
$88,000
$91,000
$3,000
BVCR and pre-acquisition worksheet entries ONLY at 30 June 2016
Land………………..Dr.
$5,000
Truck ……………..Dr.
$4,000
Equipment………..Dr.
$15,000
Goodwill……………Dr.
$24,000
Inventory……………..Dr.
$3,000
Investment in Melbourne Ltd.
$51,000
Solution-(c)
Prepare the consolidation worksheet entries (Inc. BCVR, pre-acquisition entries and inter-group transactions) at 30 June 2018.
Depreciation on truck per year ($29000/4)=
$7,250
Depreciation on truck upto Dec 2017=
$18,125
Carrying Value of truck on January 2018 =
$10,875
Depreciation on equipment per year ($309000/5)=
$61,800
Amortization on Internal Trademark per year ($90000/10)=
$9,000
Dividend Payable Account…………..Dr.
$30,000
Bank Account
$30,000
Bank Account……………….Dr.
$91,000
Inventories
$91,000
Investment in Melbourne Ltd. Account……………..Dr.
$8,000
Retained Earnings
$8,000
Dividend Receivable……………Dr.
$1,00,000
Investment in Melbourne Ltd. Account
$1,00,000
Impairment Loss on Goodwill……………..Dr.
$4,000
Goodwill Account
$4,000
Internal Trade Mark Account…………….Dr.
$90,000
Contingent Liability Account………….Dr.
$15,000
Retained Earnings
$75,000
Net Income for the year ended June 2018
Victoria Ltd
Melbourne Ltd
Sales
480000
437000
Other revenue & income
74000
56000
Total Revenue
554000
493000
Cost of sales
338000
307000
Other expenses
80000
72000
Income tax expense
41000
40000
Interim dividend paid
21000
11000
Net Income
74000
63000
Note-2 Retained earnings on 30th June 2018
Net Income of Victoria Ltd. on June 30th 2018 =
$74,000
Add: Share of Net Income of Melbourne Ltd. on 30th June 2018 =
$63,000
Add: Internal Trade Mark
$90,000
Less: Contingent Liability
$15,000
Less: Amortization of Trade Mark
$27,000
Less: Unrealised Profit on sale of warehouse
$18,000
Add: Depreciation overcharged on warehouse
$7,500
Less: Depreciation undercharged on Truck
$2,500
Less: Depreciation undercharged on Equipment
$9,000
Less: Transfer from General Reserve
$8,000
Add: Bonus Dividend from preaquisition
$1,00,000
Less: Unrealised Profit on sale of land to Melbourne Ltd
$9,000
Less: Unrealised Profit on sale of goods to Melbourne Ltd
$2,000
Add: interim dividend paid out of preaquisition profit
$11,000
Less: Unrealised Profit on sale of plant to Victoria Ltd
$9,000
Add: Depreciation overcharged on plant
$450
Less: Unrealised Profit on sale of goods to Victoria Ltd
$16,000
Retained earnings of Victoria on July 1 2017
$4,90,000
Retained earnings of Melbourne Ltd. from July 2015 to July 1 2017
$1,49,000
Consolidated Profit for Balance Sheet June 2018
$8,69,450
Solution-(d)
Financial Statements
Victoria
Melbourne
Adjustments
Group
Ltd
Ltd
Dr
Cr
Sales revenue
4,80,000
4,37,000
9,17,000
Other revenue & income
74,000
56,000
1,30,000
5,54,000
4,93,000
10,47,000
Cost of sales
3,38,000
3,07,000
6,45,000
Other expenses
80,000
72,000
1,52,000
4,18,000
3,79,000
7,97,000
Profit before tax
1,36,000
1,14,000
115500
271950
4,06,450
Tax expense
41,000
40,000
81,000
Profit
95,000
74,000
115500
271950
3,25,450
Retained earnings
4,90,000
2,28,000
7,18,000
(1/7/2017)
Transfer from BCV reserve
--
--
5,85,000
3,02,000
8,87,000
Dividend paid
21,000
11,000
32,000
Dividend declared
22,000
15,000
37,000
43,000
26,000
69,000
Retained earnings
5,42,000
2,76,000
(30/6/2018)
8,18,000
Share capital
8,74,000
4,10,000
12,84,000
Share options
80,000
60,000
1,40,000
General Reserve
84,000
72,000
8000
1,64,000
BCVR
-
-
Total Equity
15,80,000
8,18,000
8000
24,06,000
DTL
-
-
Dividend Payable
22,000
15,000
37,000
Current Tax Liabilities
8,000
7,000
15,000
Other liabilities
96,000
65,000
1,61,000
Debentures
4,00,000
-
4,00,000
Loan from Victoria Ltd
-
29,000
29000
0
Total Liabilities
5,26,000
1,16,000
29000
6,13,000
Total Liabilities + Equity
21,06,000
9,34,000
30,75,500
Victoria
Melbourne
Adjustments
Group
Ltd
Ltd
Dr
Cr
Cash
1,81,000
90,000
2,71,000
Dividend receivable
15,000
0
15,000
Other receivables
2,06,000
2,27,000
4,33,000
Inventory
2,44,000
1,32,000
3000
-18000
3,97,000
Deferred tax assets
35,000
0
35,000
Land
1,30,000
1,23,000
5000
2,58,000
Trucks
82,000
72,000
1,54,000
Accumulated depreciation – Trucks
-25,000
-22,000
-47,000
Plant & equipment
6,48,000
3,80,000
15000
10,43,000
Accumulated depreciation – Plant & Equipment
-3,88,000
-2,28,000
-9000
-6,25,000
Warehouses
1,80,000
90,000
2,70,000
Accumulated depreciation – Warehouses
-27,000
-18,000
7500
-37,500
Trademark
90000
90000
Accumulated amortization - Trademark
-27000
-27000
Debentures in Victoria Ltd
-
40,000
-40000
0
Shares in Melbourne Ltd
7,22,000
-
0
Goodwill
74,000
48,000
42000
1,64,000
Accumulated impairment losses
-
-
-4000
-4000
Loan to Melbourne Ltd
29,000
-
-29000
0
Total assets
21,06,000
9,34,000
162500
-127000
30,75,500
Calculation of Pre acquisition Profit
Retained Earnings as on July-1,2015
$1,00,000
Bonus Dividend
-$10,000
Interim Dividend paid out of preaquisition profit
-$11,000
General Reserve as on July 2015
$50,000
Profit on revaluation of asset
Land
$5,000
Truck (cost $30,000)
$4,000
Equipment (cost $420,000)
$15,000
Goodwill
$24,000
Inventory
$3,000
Share of Black Ltd. On Melbourne Ltd.'s Equity
$1,80,000
Investment in Melbourne Ltd.
$7,22,000
Share Capital
$4,00,000
Bonus Dividend
$1,00,000
Share of Preaquisition profit on Melbourne Ltd.'s Equity
$1,80,000
Amount paid for Goodwill
$42,000
Solution-(b)
Carrying Amount
Fair Value
Difference in Fair Value over Carrying Amount
Land
$75,000
$80,000
$5,000
Truck (cost $30,000)
$25,000
$29,000
$4,000
Equipment (cost $420,000)
$2,94,000
$3,09,000
$15,000
Goodwill
$48,000
$72,000
$24,000
Inventory
$88,000
$91,000
$3,000
BVCR and pre-acquisition worksheet entries ONLY at 30 June 2016
Land………………..Dr.
$5,000
Truck ……………..Dr.
$4,000
Equipment………..Dr.
$15,000
Goodwill……………Dr.
$24,000
Inventory……………..Dr.
$3,000
Investment in Melbourne Ltd.
$51,000
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