Question
Financial information at 30 June 2020 of Great Ltd and its subsidiary company, Wall Ltd, is shown below. At 1 July 2017, the date Great
Financial information at 30 June 2020 of Great Ltd and its subsidiary company, Wall Ltd, is shown below.
At 1 July 2017, the date Great Ltd acquired its 80% shareholding in Wall Ltd, all the identifiable assets and liabilities of Wall Ltd were at fair value except for the following assets:
Carrying amount
Fair value
Plant (cost $75,000)
$49,000
$55,000
Land
29,000
37,000
The plant has an expected life of 10 years, with benefits being received evenly over that period. Differences between carrying amounts and fair values are adjusted on consolidation. The land on hand at 1 July 2017 was sold on 1 February 2018 for $40,000. Any valuation reserve in relation to the land is transferred on consolidation to retained earnings.
Great Ltd uses the full goodwill method. The fair value of the non-controlling interest at 1 July 2017 was $31,500.
Great Ltd
Wall Ltd
Sales revenue
$
316,000
$
220,000
Other revenue:
Debenture interest
5,000
Management and consulting fees
5,000
Dividend from Wall Ltd
12,000
Total revenues
338,000
220,000
Cost of sales
130,000
85,000
Manufacturing expenses
90,000
60,000
Depreciation on plant
15,000
15,000
Administrative
15,000
8,000
Financial
11,000
5,000
Other expenses
14,000
12,000
Total expenses
275,000
185,000
Profit before tax
63,000
35,000
Income tax expense
(25,000
)
(17,000
)
Profit
38,000
18,000
Retained earnings (1/7/19)
50,000
45,000
88,000
63,000
Transfer to general reserve
3,000
Interim dividend paid
10,000
10,000
Final dividend declared
10,000
5,000
23,000
15,000
Retained earnings (30/6/20)
65,000
48,000
General reserve
50,000
10,000
Other components of equity
13,000
10,000
Share capital
300,000
100,000
Debentures
200,000
100,000
Current tax liability
25,000
17,000
Dividend payable
10,000
5,000
Deferred tax liability
7,000
Other liabilities
90,000
12,000
$
753,000
$
309,000
Financial assets
$
50,000
$
60,000
Debentures in Wall Ltd
100,000
Shares in Wall Ltd
131,600
Plant (cost)
120,000
102,000
Accumulated depreciation - plant
(65,000
)
(55,000
)
Other depreciable assets
76,000
55,000
Accumulated depreciation
(40,000
)
(25,000
)
Inventory
90,000
85,000
Deferred tax asset
85,400
30,000
Land
201,000
57,000
Dividend receivable
4,000
$
753,000
$
309,000
Additional information
- At the acquisition date of 80% of its issued shares by Great Ltd, the equity of Wall Ltd was:
Share capital (100,000 shares)
$100,000
General reserve
3,000
Retained earnings
37,000
- Inventory on hand of Wall Ltd at 1 July 2019 included a quantity priced at $10,000 that had been sold to Wall Ltd by its parent. This inventory had cost Great Ltd $7,500. It was all sold by Wall Ltd during the year.
- In Great Ltd's inventory at 30 June 2020 were various items sold to it by Wall Ltd at $5,000 above cost.
- During the year, intragroup sales by Wall Ltd to Great Ltd were $60,000. It was also learned that Wall Ltd had sold to Great Ltd an item from its inventory for $20,000 on 1 January 2019. Great Ltd had treated this item as an addition to its plant and machinery. The item was put into service as soon as received by Great Ltd and depreciation charged at 20% p.a. The item had been fully imported by Wall Ltd at a landed cost of $15,000.
- Management and consulting fees derived by Great Ltd were all from Wall Ltd and represented charges made for administration $2,200 and technical services $2,800. The latter were charged by Wall Ltd to manufacturing expenses.
- All debentures issued by Wall Ltd are held by Great Ltd.
- Other components of equity relate to movements in the fair values of the financial assets. The balance of this account at 1 July 2019 was $10,000 (Great Ltd) and $8,000 (Wall Ltd).
- The tax rate is 30%.
Required:
Section 1 (Total 70 marks):
a)Conduct the acquisition analysis. (10 marks)
b)Prepare the consolidation journals as at 30 June 2020. (48 marks)
c)What is the total amount of non-controlling interests? (5 marks)
d)What is the total amount of Business Combination Revaluation Reserve (BCVR) shown in the group account? (4 marks)
e)What is the total amount of Goodwill shown in the group account? (3 marks)
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Fundamentals Of Human Resource Management
Authors: Raymond Noe
5th Edition
0471737933, 9780471737933
