Explain how the calculations used in 1 (i) and 1 (ii) above meet the requirements of AASB 3 Business Combinations

2103AFE Company Accounting Link Ltd acquired 80% of the shares of Connect Ltd on 1 July 2012 for $115 000. At this date the equity of Connect Ltd consisted of: Share capital (100 000 shares) General reserve Retained earnings $ 80 000 2 400 29 600 All the identifiable assets and liabilities of Connect Ltd were recorded at amounts equal to their fair values except for: Carrying amount Plant (cost $65 000) Land Inventory $52 000 40 000 25 000 Fair value $56 000 45 000 28 000 The plant was expected to have a further useful life of 10 years. The land was sold on 1 January 2015. The inventory was all sold by 30 June 2013. Link Ltd uses the full goodwill method. The fair value of the noncontrolling interest (NCI) at 1 July 2012 was $28 000. At 1 July 2012, Connect Ltd had unrecorded brands that had a fair value of $18 000. These had an indefinite life. Additional information Connect Ltd had inventory on hand at 30 June 2014 that included inventory at cost of $8000 that had been sold to it by Link Ltd. This inventory had cost Link Ltd $6000. It was all sold by Connect Ltd by 30 June 2015. During the 201415 year, Connect Ltd sold inventory to Link Ltd for $48 000. At 30 June 2015, Link Ltd still had some of this inventory on hand. This inventory had been sold to it by Connect Ltd at a profit of $4000. On 1 January 2014, Connect Ltd sold plant to Link Ltd for $16 000. This had a carrying amount in Connect Ltd at time of sale of $12 000. Plant of this class is depreciated at 20% per annum. Management and consultation fees derived by Link Ltd are all from Connect Ltd and represent charges for administration $1760 and technical services for the manufacturing section $2240. All debentures issued by Connect Ltd are held by Link Ltd. Other components of equity relate to movements in the fair values of financial assets held by the entities. Gains and losses on these financial assets are recognised in other comprehensive income. The balance of the other components of equity account at 1 July 2014 was $8000 (Link Ltd) and $6400 (Connect Ltd). The tax rate is 30% Financial information at 30 June 2015 of Link Ltd and its subsidiary company, Connect Ltd, is shown below. Assignment: 2103AFE Company Accounting, Semester 2 2015 1 Sales revenue Debenture interest Management and consultation fees Dividends Total revenue Link Ltd $252 800 4 000 4 000 9 600 270 400 Connect Ltd $176 000 176 000 Cost of sales Manufacturing expenses Depreciation on plant Administrative expenses Financial expenses Other expenses Total expenses (104 000) (82 000) (12 000) (12 000) (8 800) (11 200) 230 000 (68 000) (53 000) (12 000) (6 400) (4 000) (9 600) 153 000 40 400 10 000 23 000 5 000 Profit before income tax Income tax expense 50 400 (20 000) 28 000 (13 600) Profit for the year Retained earnings at 1 July 2014 30 400 40 000 70 400 (8 000) (8 000) (16 000) 14 400 36 000 50 400 (8 000) (4 000) (12 000) Retained earnings at 30 June 2015 Share capital General reserve Other components of equity Debentures Current tax liability Dividend payable Deferred tax liabilities Other current liabilities Total equity and liabilities 54 400 240 000 37 600 10 400 160 000 20 000 8 000 12 000 60 000 $602 400 38 400 80 000 8 000 8 000 80 000 13 600 4 000 5 600 9 600 $247 200 Shares in Connect Ltd Debentures in Connect Ltd Plant Less: Accumulated depreciation Intangibles Less: Accumulated amortisation Deferred tax assets Financial assets Land Inventory Receivables Total assets $115 000 80 000 96 000 (52 000) 60 800 (32 000) 58 600 40 000 120 000 72 000 44 000 $602 400 $81 600 (44 000) 44 000 (20 000) 24 000 48 000 45 600 44 000 24 000 $247 200 Profit from trading Gains on sale of non-current assets Dividend paid Dividend declared Assignment: 2103AFE Company Accounting, Semester 2 2015 2 Required 1. Prepare: (i) The acquisition analysis; and (ii) The business combination valuation reserve and pre-acquisition entries for the year ended 30 June 2015 2. Explain how the calculations used in 1 (i) and 1 (ii) above meet the requirements of AASB 3 Business Combinations 3. Calculate NCI share of equity at: (i) 1 July 2012; (ii) 1 July 2012 - 30 June 2014; and (iii) 1 July 2014 - 30 July 2015 4. For the year ended 30 June 2015, prepare: (i) The consolidation journal entries for intra-group transactions (ii) The consolidation worksheet given all consolidation journal entries as required by 14 (iii) Consolidated statement of profit and loss and other comprehensive income (iv) Consolidated statement of changes in equity; and (v) Consolidated statement of financial position Assignment: 2103AFE Company Accounting, Semester 2 2015 3 Link LTD ------- Connect LTD Q1: (1) Acquisition Analysis: At 1 July 2012: Net fair value of assets = and Liabilities of Connect Ltd (a)Consideration transferred (b)NCI Aggregate of (a) and (b) Goodwill $80,000+2,400+29,600(equity ) = = +4,000*(1-30%) (Plant) +5,000*(1-30%) (Land) +3,000*(1-30%) (Inventory) +18,000*(1-30%)(Brands) $133,000 $115,000 = = $28,000 $143,000 = $10,000 Goodwill of Connect Ltd: Fair value of Connect Ltd $28,000/20% = Net fair value of identifiable assets and liabilities of Connect Ltd Goodwill of Connect Ltd Goodwill of Link Ltd: Goodwill acquired Goodwill of Connect Ltd Goodwill of Link Ltd: Control Premium $140,000 = $133,000 = $7,000 = = $10,000 $7,000 = $3,000 Q1 (2) 1.BCVR entries: At 30 June 2015: Accumulated Depreciation 13,000 Plant 9,000 Deferred Tax Liability 1,200 BCVR 2,800 Depreciation expense 400 Retained earnings (1/7/2014) 800 Accumulated depreciation Deferred tax liability 1,200 360 Income tax expense 120 Retained earnings (1/7/2014) 240 Brands 1,800 Deferred tax liability 5,400 BCVR 12,600 Carrying amount of land sold 5,000 Income tax expense 1,500 BCVR 3,500 Goodwill BCVR 7,000 7,000 (2) 2.Pre-acquisition entries: Retained earnings (1/7/2014) 25,360 Share capital 64,000 General reserve 1,920 BCVR 20,720 Goodwill 3,000 Shares in Connect Ltd 115,000