Advanced Financial Accounting

3B:

Question 3 (20 points) On 1 July 2018 the shareholders' equity of Ossa Ltd was as follows: Share capital (ordinary shares) Revaluation surplus Retained earnings $ 12,000,000 1,240,000 2,600,000 $15,840,000 On the same day, Barn Ltd purchased 75 per cent of the issued ordinary shares of Ossa Ltd for $18,000,000. At the time of acquisition, the identifiable assets and liabilities of Ossa Ltd were recorded by that company at their fair value. Barn Ltd uses the partial goodwill method when calculating the Non-Controlling Interest share of goodwill. The following information relates to the year ended 30 June 2020: i. During the year Ossa Ltd declared and paid a dividend of $1,200,000. ii. Ossa Ltd sold inventory to Barn Ltd for $600,000. This inventory cost Ossa Ltd $400,000 to produce. On 30 June 2020 Barn Ltd was still holding 10% of this inventory. iii.Ossa Ltd paid interest of $13,000 to Barn Ltd on an intercompany loan of $150,000. iv. On 30 June 2020 it is decided that the goodwill on acquisition has been impaired by $100,000. In the previous year impairment of goodwill amounting to $50,000 had been recorded as part of the consolidation process. v. On 1 July 2019 Barn Ltd sold machinery to Ossa Ltd for $440,000. The machinery had been purchased by Barn Ltd for $720,000 on 1 July 2017 and was being depreciated on a straight line basis over 6 years (no residual). Ossa Ltd depreciates the asset over the 4 years of its effective life on a straight line basis (no residual). vi.Both Barn Ltd and Ossa Ltd use the perpetual method to account for inventory. Note: For the purposes of this question the company income tax rate is 30%. Required: a. Using the template provided, prepare an acquisition analysis. [3 marks] b. Using the template provided, prepare the pre and post-acquisition elimination and adjusting consolidation journal entries for the year ended 30 June 2020. Use narrations and show calculations under each journal entry. [17 marks] [Total 20 marks] Paragraph B 1 | ... : : Acquisition Analysis Fair value of identifiable net assets acquired: Question 3 (20 points) On 1 July 2018 the shareholders' equity of Ossa Ltd was as follows: Share capital (ordinary shares) Revaluation surplus Retained earnings $ 12,000,000 1,240,000 2,600,000 $15,840,000 On the same day, Barn Ltd purchased 75 per cent of the issued ordinary shares of Ossa Ltd for $18,000,000. At the time of acquisition, the identifiable assets and liabilities of Ossa Ltd were recorded by that company at their fair value. Barn Ltd uses the partial goodwill method when calculating the Non-Controlling Interest share of goodwill. The following information relates to the year ended 30 June 2020: i. During the year Ossa Ltd declared and paid a dividend of $1,200,000. ii. Ossa Ltd sold inventory to Barn Ltd for $600,000. This inventory cost Ossa Ltd $400,000 to produce. On 30 June 2020 Barn Ltd was still holding 10% of this inventory. iii.Ossa Ltd paid interest of $13,000 to Barn Ltd on an intercompany loan of $150,000. iv. On 30 June 2020 it is decided that the goodwill on acquisition has been impaired by $100,000. In the previous year impairment of goodwill amounting to $50,000 had been recorded as part of the consolidation process. v. On 1 July 2019 Barn Ltd sold machinery to Ossa Ltd for $440,000. The machinery had been purchased by Barn Ltd for $720,000 on 1 July 2017 and was being depreciated on a straight line basis over 6 years (no residual). Ossa Ltd depreciates the asset over the 4 years of its effective life on a straight line basis (no residual). vi.Both Barn Ltd and Ossa Ltd use the perpetual method to account for inventory. Note: For the purposes of this question the company income tax rate is 30%. Required: a. Using the template provided, prepare an acquisition analysis. [3 marks] b. Using the template provided, prepare the pre and post-acquisition elimination and adjusting consolidation journal entries for the year ended 30 June 2020. Use narrations and show calculations under each journal entry. [17 marks] [Total 20 marks] Paragraph B 1 | ... : : Acquisition Analysis Fair value of identifiable net assets acquired