Case Scenario Alice Ltd acquired all the issued shares of Springs Ltd for $521 760 cash on 1 July 2019. At this date, the information below was provided: Springs Ltd's equity comprised of Share Capital, Retained earnings and General Reserve with the following account balances: Share Capital $161 700 Retained Earnings 151 200 General Reserve 72 000 Springs Ltd had recorded Goodwill of $5 760 (see Goodwill account in Consolidation Worksheet Template). Al the identifiable assets and liabilities of Springs Ltd were recorded at fair value equal to their carrying amounts except Buildings that were considered to have a further 5-year useful life. Carrying amount ($) Fair value ($) Buildings (Cost $352 800) 175 200 199 200 Other information included: 1) Goodwill: Goodwill relating to the acquisition of Springs Ltd was impaired by $8 640 during the year ended 30 June 2020. 2) Inventories: On 1 April 2020, Springs Ltd sold some inventories to Alice Ltd for $226 800. These inventories had originally cost Springs Ltd $189 000. At 30 June 2020, 50% of these inventories had been sold by Alice Ltd externally. Both companies used the perpetual method to account for inventory transactions. 3) Plant: On 1 July 2019, Alice Ltd sold an item of plant to Springs Ltd for $126 000. At this time, the carrying amount of the plant was $96 000. Springs Ltd depreciated the plant at 20% per annum on cost. 4) Dividends: Dividends of $16 320 were paid in May 2020. 5) The company income tax rate is 30%. Part A Problem Solving Practical (40 Marks) a) Prepare the acquisition analysis at 1 July 2019. Show all workings. (4 marks) b) Prepare the consolidation worksheet entries at 1 July 2019. Journal narrations are required. Prepare journal format based on the template below. (6 marks) Date Details Debit ($) Credit ($) ACCT6005 Assessment 2 Brief T1 2020.docx Page 4 of 7 c) Complete the consolidation worksheet for the group at 30 June 2020. Prepar consolidation worksheet using the template provided below. (24 marks) d) Prepare Consolidated Statement of Financial Performance for the group at 30 June 2020. (6 marks) Alice Ltd Group Consolidation Worksheet at 30 June 2020 Alice Ltd Springs Ltd Ref Adjustments Ref Group Dr ($) Cr ($) ($) Sales revenue 1 843 200 950 400 Cost of sales (1 464 960) (795 840) Gross profit 378 240 154 560 Proceeds from sale of Plant 126 000 - Dividend revenue 16 320 - Interest revenue - 5 760 Depreciation - Building Depreciation - Plant (53 760) (31 200) Carrying amount of Plant sold (100 800) - Impairment loss - Goodwill - - Interest expense (32 640) (12 480) Profit before tax 333 360 116 640 Income tax expense (72 240) (31 200) Profit after tax 261 120 85 440 Retained earnings (1/7/19) 269 760 151 200 Dividend paid (24 960) (16 320) Dividend declared (50 400) - Retained earnings (30/6/20) 455 520 220 320 Share capital 288 000 161 700 General reserve 96 000 72 000 BCVR - - Shareholders' equity 839 520 454 020 Liabilities Accounts payable 220 800 48 960 ACCT6005 Assessment 2 Brief T1 2020.docx Page 5 of 7 Dividend payable 50 400 - Long-term loan 782 880 60 960 Deferred tax liabilities 32 640 - Total liabilities 1 086 720 109 920 Total Liabilities & Equity 1 926 240 563 940 Assets Cash 75 840 36 000 Accounts receivable 25 920 12 480 Inventories 255 360 158 400 Deferred tax assets - - Land 400 800 89 700 Plant 306 240 162 240 Acc'd Dep'n - Plant (84 480) (75 840) Buildings 540 000 352 800 Acc'd Dep'n - Buildings (115 200) (177 600) Goodwill - 5 760 Acc'd Imp losses - Goodwill - - Investment in Springs Ltd 521 760 - Total assets 1 926 240 563 940 Problem Solving Discussion (40 Marks) Using the case scenario above and your responses to Part (1): a) In Transaction No. 2 Inventories, assuming Alice Ltd sold the remaining inventory in the year ended 30 June 2021. Discuss the tax effects of this transaction on the group for the years ended 30 June 2020 and 30 June 2021. (15 Marks) b) In Transaction No. 2 Inventories, assuming Alice Ltd sold all the inventories bought from Springs Ltd on 1 April 2020 by 30 June 2020. Discuss the tax effects of this transaction on the group for the years ended 30 June 2020 and 30 June 2021. (5 Marks) c) In Transaction No. 2 Inventories, assuming Alice Ltd classifies the inventory as a noncurrent asset and depreciates this asset on a straight-line basis for five years. Discuss the tax effects on the group for the years ended 30 June 2020 and 30 June 2021. (20 Marks)