Question
Hello Tutors, Please help to provide solution with working?. ABC Ltd made a takeover bid for all the issued voting shares of XYZ Ltd offering
Hello Tutors,
Please help to provide solution with working?.
ABC Ltd made a takeover bid for all the issued voting shares of XYZ Ltd offering three ABC Ltd shares for every two XYZ Ltd shares. The offer from ABC Ltd was accepted by 90% of the shareholders of XYZ Ltd. The date control was obtained by ABC Ltd was deemed to be 1 January 20X7. The following information is available.
(a) Shareholders' equity of XYZ Ltd at balance date on 31 December 20X6:
$000
Share capital (200,000) shares 200
General reserve 300
Retained earnings 150
650
(b) Market value of each entity's shares at 1 January 20X7
ABC Ltd$3.20
XYZ Ltd$4.00
(c) In XYZ Ltd's accounting records, land was stated at $200,000 below its cost to the group. This is to be accounted for as a consolidation adjustment. Statements of comprehensive income and statements of financial position of ABC Ltd and XYZ Ltd for the year ended 31 December 20X8 are as follows:
Statements of Comprehensive Income
ABC LtdXYZ Ltd
$000$000
Sales50002000
Cost of sales25701025
Gross profit2430975
Dividend revenue 252-
2682975
Expenses2057300
Operating profit before tax 625 675
Income tax expense 280260
Operating profit after tax 345415
Retained earnings at 1.1.X8 294 200
Profit for the year 345 415
Interim dividend paid(100)(150)
Final dividend declared(160) (200)
Retained earnings at 31.12.X8 379 265
Statements of Financial Position
ABC LtdXYZ Ltd
$000$000
Assets
Current assets
Other current assets 385395
Total current assets385395
Non-current assets
Property, plant and equipment 550750
Investments864-
Total non-current assets 1414750
Total assets1799 1145
Liabilities
Current liabilities
Trade and other payables60180
Provision for final dividend 160200
Total current liabilities220380
Total liabilities220380
Net assets1579765
Shareholder's equity
Share capital1200200
General reserve-300
Retained earnings 379265
Total equity1579765
Additional information
- ABC Ltd records dividend revenue in the accounting period when the cash is received.
- The final dividend declared by XYZ Ltd for the 20X7 year was $130,000 and it was paid on 1 March 20X8.
- Impairment losses for goodwill arising on acquisition had not been recognised in any of the previous years' consolidated financial statements. The directors of ABC Ltd are of the opinion an impairment loss of $10 000 will be recognised in relation to its investment in XYZ Ltd in the consolidated financial statements for the year ended 31 December 20X8.
- Inter-company sales for 20X8
CostSales Price
From ABC and XYZ$300 000$500 000
From XYZ to ABC$200 000$350 000
5.In relation to the inventory sales in (d) above, inventory held by ABC Ltd and purchased from XYZ Ltd is as follows:
CostSales Price
As at 1 Jan 2008$50 000$120 000
As at 31 Dec 2008$75 000$150 000
6. The rate of company income tax is 30%.
7.Assume the directors of ABC Ltd have adopted the full goodwill method.
Required:
- For the accounting records of ABC Ltd show the general journal entries to record:
- the acquisition of the shares in XYZ Ltd on 1 January 20X7.
- the dividend received from XYZ in 20X8 but proposed by XYZ Ltd in 20X7; and
- the interim dividend received from XYZ Ltd in 20X8.
Prepare the consolidated financial statements at 31 December 20X8.
Show all consolidation journal entries and a worksheet and all workings for the calculation of NCI.
The consolidated financial statements should be presented in the same manner your textbook presents them.
Explain the partial and the full goodwill methods.In your discussion list the advantages and disadvantages of using each method.
Thank you.
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