On 1 July 2015, Tuna Ltd acquired all the issued shares of Brim Ltd. Tuna Ltd paid $30 000 in cash and 20 000 shares in Tuna Ltd valued at $3 per share. At this date, the equity of Brim Ltd consisted of $66 000 share capital and $6000 retained earnings.

At 1 July 2015, all the identifiable assets and liabilities of Brim Ltd were recorded at amounts equal to their fair values except for:

Carrying amountFair value

Plant (cost $150000)

$120000

$123000

Patents

90000

105000

Inventory

18000

22500

The plant was considered to have a further 5-year life. The patents were sold for $120 000 to

an external entity on 18 August 2015. The inventory was all sold by 30 June 2016.

Additional information

(a) Tuna Ltd sells certain raw materials to Brim Ltd to be used in its manufacturing process.

At 1 July 2016, Brim Ltd held inventory sold to it by Tuna Ltd in the previous year at a profit of $600. During the 2016-17-year, Tuna Ltd sold inventory to Brim Ltd for $21 000. None of this was on hand at 30 June 2017.

(b) Brim Ltd also sells items of inventory to Tuna Ltd. During the 2016-17 year, Brim Ltd sold goods to Tuna Ltd for $4500. At 30 June 2017, inventory which had been sold to Tuna Ltd at a profit of $300 was still on hand in Tuna Ltd.'s inventory.

(c) On 1 July 2016, Brim Ltd sold an item of plant to Tuna Ltd for $15 000. This plant had a

carrying amount in the records of Brim Ltd of $14 000 at time of sale. This type of plant is

depreciated at 10% p.a. on cost.

(d) On 1 January 2015, Tuna Ltd sold an item of inventory to Brim Ltd for $18 000. The

inventory had cost Tuna Ltd $16 000. This item was classified by Brim Ltd as plant. Plant of this type is depreciated by Brim Ltd at 20% p.a.

(e) On 1 March 2017, Brim Ltd sold an item of plant to Tuna Ltd. Whereas Brim Ltd classified this as plant, Tuna Ltd classified it as inventory. The sales price was $9000 which included a profit to Brim Ltd of $1500. Tuna Ltd sold this to another entity on 31 March for $9900.

(f) The tax rate is 30%.

At 30 June 2017, the following financial information was provided by the two companies:

Tuna Ltd

Brim Ltd

Dr

Cr

Dr

Cr

Sales revenue

64500

78000

Cost of sales

30900

46350

Trading expenses

4800

9000

Office expenses

7950

4050

Depreciation expenses

1800

3900

Proceeds on sale of plant

9000

15000

Carrying amount of plant sold

7500

14000

Income tax expense

11100

7300

Share capital

96000

66000

Retained earnings (1/7/16)

48000

31500

Current liabilities

21100

10500

Deferred tax liability

11000

15000

Plant

57000

107250

Accumulated depreciation - plant

18300

33450

Intangibles

12000

11100

Deferred tax assets

8100

9450

Shares in Brim Ltd

90000

0

Inventory

28500

24600

Receivables

8250

12450

267900

267900

249450

249450

Required

1.Calculate acquisition analysis for Tuna Ltd (10 marks)

2.Prepare consolidation journal entries for Tuna Ltd (10 marks)

3.Prepare a consolidated set of financial statements for the group. Use the worksheet provided. (10 marks)

Worksheet for requirement 3.

Tuna

Ltd

Brim

Ltd

Journal number

Adjustments

Journal number

Group

Dr

Cr

Sales revenue

64 500

78 000

Cost of sales

30 900

46 350

Gross profit

33 600

31 650

Trading expenses

4 800

9 000

Office expenses

7 950

4 050

Depreciation

1 800

3 900

14 550

16 950

Profit from trading

19 050

14 700

Proceeds from sale of plant

9 000

15 000

Carrying amount of plant sold

7 500

14 000

Gain/loss on sale of machinery

1 500

1 000

Profit before tax

20 550

15 700

Tax expense

11 100

7 300

Profit

9 450

8 400

Retained earnings (1/7/16)

48 000

31 500

Retained earnings (30/6/17)

57 450

39 900

Share capital

96 000

66 000

BCVR

--

--

Total equity

153 450

105 900

Current liabilities

21 100

10 500

Deferred tax liability

11 000

15 000

Total liabilities

32 100

25 500

Total equity and liabilities

185 550

131 400

Dr

Cr

Plant

57 000

107 250

Accumulated depreciation

(18 300)

(33 450)

Intangibles

12 000

11 100

Shares in Brim Ltd

90 000

-

Deferred tax asset

8 100

9 450

Inventory

28 500

24 600

Receivables

8 250

12 450

Goodwill

0

0

Total assets

185 550

131 400