Question
On 1 July 2015 Sarah Ltd acquires all the shares in Jane Ltd for $535,000 cash The financial statements of Jane Ltd as at 1
On 1 July 2015 Sarah Ltd acquires all the shares in Jane Ltd for $535,000 cash
The financial statements of Jane Ltd as at 1 July 2015 shows the following:
Retained earnings 207,000
Share capital 220,000
The tax rate is 30%
At the date of acquisition all the net assets of Jane Ltd are at fair value except for the following:
Carrying amount | Fair value | |
Inventory | $101,000 | $134,000 |
Internally-generated brand name | Nil | $81,000 |
Contingent liabilities | Nil | $316,000 |
Assume the brand name is assessed to have a useful life of 37 years. The whole process of consolidation adjustments are listed below:
Acquisition analysis:
Purchase Consideration: | $ xxx | |
Less fair value of identifiable net assets: | ||
FVA | $ xxx | |
Share capital | $ xxx | |
Retained earnings | $ xxx | ($ xxx) |
Goodwill on acquisition | $ xxx |
The consolidation adjustment required to eliminate the investment asset at 30 June 2023 is as below:
Dr. Share capital | $ xxx | |
Dr. Retained earnings | $ xxx | |
Dr. FVA | $ xxx | |
Dr. Goodwill | $ xxx | |
Cr. Investment in Jane Ltd | $ xxx |
The consolidation adjustment required for the group to record the FVA entries for the three asset or liability accounts on behalf of Jane Ltd. (subsidiary) at 30 June 2023 are shown as the following:
Dr. Inventory | $ xxx | |
Cr. FVA | $ xxx | |
Cr. DTL | $ xxx | |
Dr. Brand name | $ xxx | |
Cr. FVA | $ xxx | |
Cr. DTL | $ xxx | |
Dr. FVA | $ xxx | |
Dr. DTA | $ xxx | |
Cr. Contingent liability | $ xxx |
The additional consolidation adjustment entry in related to the brand name is shown below:
Dr. Retained earnings | $ xxx | |
Dr. Amortisation expense | $ xxx | |
Cr. Accumulated amortisation | $ xxx | |
Dr. Deferred tax liability | $ xxx | |
Cr. Income tax expense | $ xxx | |
Cr. Retained earnings | BBB |
What is the balance of retained earnings (part of tax effect) marked as ‘BBB’ above?
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