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On 1 July 2015, Black Ltd acquired 70% of the shares of White Ltd for $526,000 on a cum div. basis. Black Ltd had acquired 30% of the shares of White Ltd two years earlier for $180,000. This investment, classified as an available-for-sale investment, was recorded at a fair value on 1 July 2015 of $226,000. At 1 July 2015, the equity and liability sections of White Ltd‘s statement of financial position showed the following balances:
Share Capital$400,000
Share Options60,000
General Reserve50,000
Retained Earnings100,000
Other Liabilities82,000
Dividend Payable30,000
At acquisition date, all the identifiable assets and liabilities of White Ltd were recorded at amounts equal to fair value except for:
Carrying Fair
Amount Value
Land$75,000$80,000
Truck (cost $30,000)25,00029,000
Equipment (cost $420,000)294,000309,000
Goodwill48,00072,000
Inventory88,00091,000
The truck, which was estimated to have a further four year life at acquisition date, was sold on 1 January 2018. The equipment had a further five year life at acquisition date and was expected to be used evenly over that time. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation.
White Ltd had not recorded an internally developed trademark. Black Ltd valued this at $90,000 and was assumed to have a ten year life. It also had a contingent liability of $19,000 that Black Ltd considered to have a fair value of $15,000. This liability was settled in July 2017.
The dividend liability was paid on 1 September 2015. All inventories on hand at acquisition date were sold by June 2016. The land was sold on 1 June 2018 to Peters Ltd. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed.
On 30 June 2017, White Ltd transferred $8,000 from the general reserve (pre-acquisition) to retained earnings. A bonus dividend of $10,000 was paid in December 2017 out of pre-acquisition profits.
Goodwill was tested annually for impairment. For the year ended 30 June 2017, an impairment loss on goodwill of $4,000 was recorded.
Additional information:
(i)White Ltd sold a warehouse with a carrying amount of $82,000 to Black Ltd for $100,000. The transaction took place on 1 January 2017. Black Ltd charges depreciation at 5% p.a. on a straight-line basis.
(ii)On 31 March 2017, Black Ltd sold some land to White Ltd. The land had originally cost Black Ltd $64,000, but was sold to White Ltd for $73,000. To help White Ltd pay for the land, Black Ltd gave White Ltd an interest-free loan of $29,000. White Ltd has as yet made no repayments on the loan.
(iii)In April 2017, Black Ltd sold inventory to White Ltd for $12,000, at a mark-up of 20% on cost. One quarter of this inventory was unsold by White Ltd at 30 June 2017. The remaining inventory was sold in the following three months.
(iv)On 1 October 2017, Black Ltd issued 1,000 15% debentures of $100 at nominal value. White Ltd acquired 400 of these. Interest is payable half-yearly on 31 March and 30 September. Accruals have been recognised in the legal entities’ accounts.
(v)On 18 February 2018, interim dividend was paid by White Ltd from profits before acquisition date. The final dividend was from current year profits. Shareholder approval is not required in relation to dividends.
(vi)On 1 April 2018, White Ltd transferred an item of plant with a carrying amount of $32,000 to Black Ltd for $41,000. Black Ltd treated this item as inventory. The item was still on hand at the end of the year. White Ltd applied a 20% depreciation rate to this plant.
(vii)During the year ending 30 June 2018, White Ltd sold inventory to Black Ltd for $50,000, recording a before-tax profit of $16,000. One quarter of this inventory was unsold by Black Ltd at 30 June 2018.
(viii)The tax rate is 30%.
On 30 June 2018 the trial balances of Black Ltd and White Ltd were as follows:
Black LtdWhite Ltd
Cost of sales $338,000$307,000
Other expenses80,00072,000
Income tax expense41,00040,000
Interim dividend paid21,00011,000
Final dividend declared22,00015,000
Cash181,00090,000
Dividend receivable15,000-
Other receivables206,000227,000
Inventory244,000132,000
Deferred tax assets35,000-
Trucks82,00072,000
Plant & equipment648,000380,000
Land130,000123,000
Warehouses180,000 90,000
Debentures in Black Ltd-40,000
Shares in White Ltd722,000-
Goodwill74,00048,000
Loan to White Ltd29,000-
3,048,0001,647,000
Sales480,000437,000
Other revenue & income74,00056,000
Share capital874,000410,000
Share options80,00060,000
General reserve84,00072,000
Retained earnings (1/7/2017)490,000228,000
Final dividend payable22,00015,000
Current tax liabilities8,0007,000
Other liabilities96,00065,000
Debentures400,000-
Loan from Black Ltd- 29,000
Accumulated depreciation – P & E 388,000228,000
Accumulated depreciation – Trucks25,00022,000
Accumulated depreciation – Warehouses27,00018,000
3,048,0001,647,000
Required
a)Prepare the acquisition analysis at 1 July 2015.
b)Prepare the BVCR and pre-acquisition worksheet entries ONLY at 30 June 2016.
c)Prepare the consolidation worksheet entries (Inc. BCVR, pre-acquisition entries and inter-group transactions) at 30 June 2018.
d)Complete the worksheet below.
Financial Statements
Black
Ltd
White
Ltd
Adjustments
Group
Dr
Cr
Sales revenue
480,000
437,000
Other revenue & income
74,000
56,000
554,000
493,000
Cost of sales
338,000
307,000
Other expenses
80,000
72,000
418,000
379,000
Profit before tax
136,000
114,000
Tax expense
41,000
40,000
Profit
95,000
74,000
Retained earnings
(1/7/2017)
490,000
228,000
Transfer from BCV reserve


585,000
302,000
Dividend paid
21,000
11,000
Dividend declared
22,000
15,000
43,000
26,000
Retained earnings
(30/6/2018)
542,000
276,000
Share capital
874,000
410,000
Share options
80,000
60,000
General Reserve
84,000
72,000
BCVR


Total Equity
1,580,000
818,000
DTL


Dividend Payable
22,000
15,000
Current Tax Liabilities
8,000
7,000
Other liabilities
96,000
65,000
Debentures
400,000

Loan from Black Ltd

29,000
Total Liabilities
526,000
116,000
Total Liabilities + Equity
2,106,000
934,000
Black
Ltd
White
Ltd
Adjustments
Group
Dr
Cr
Cash
181,000
90,000
Dividend receivable
15,000

Other receivables
206,000
227,000
Inventory
244,000
132,000
Deferred tax assets
35,000

Land
130,000
123,000
Trucks
82,000
72,000
Accumulated depreciation – Trucks
(25,000)
(22,000)
Plant & equipment
648,000
380,000
Accumulated depreciation – Plant & Equipt.
(388,000)
(228,000)
Warehouses
180,000
90,000
Accumulated depreciation – Warehouses
(27,000)
(18,000)
Trademark
Accumulated amortisation – Trademark
Debentures in Black Ltd

40,000
Shares in White Ltd
722,000

Goodwill
74,000
48,000
Accumulated impairment losses


Loan to White Ltd
29,000

Total assets
2,106,000
934,000

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