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On 1 July 2018, A Ltd acquired all of the issued shares (cum div.) of B Ltd for $200,000. At this date, the equity of

On 1 July 2018, A Ltd acquired all of the issued shares (cum div.) of B Ltd for $200,000. At this date, the equity of B Ltd consisted of: Share capital $120,000; General reserve $24,000; Retained earnings $16,000. At 1 July 2018, one of the liabilities of B Ltd was a dividend payable of $10,000. This was paid on 1 September 2018. One of the assets recorded by B Ltd was goodwill of $5,000. At 1 July 2018, all the identifiable assets and liabilities of B Ltd were recorded at amounts equal to their fair values except for:

Carrying amount and Fair value

Plant (cost $100,000) $80,000; $88,000

Land 60,000; 80,000

Inventories 40,000; 52,000

In relation to these assets:

1. The plant had an expected useful life of 4 years.

2. At 1 July 2018, subsequent to the acquisition of shares by A Ltd, B Ltd adopts the fair value basis of measurement for land. The land on hand at 1 July 2018 was sold by B Ltd on 8 February 2020. On sale any related asset revaluation surplus is transferred to retained earnings.

3. The inventory was all sold by 30 June 2019.

Additional information

1. In June 2019, B Ltd transferred $8,000 from the general reserve existing at 1 July 2018 to retained earnings. There were no other transfers relating to the general reserve in 201819.

2. At 30 June 2019, B Ltd recognised gains on revaluation of land of $6,000 in other comprehensive income for the period.

3. In June 2019, B Ltd sold inventory to A Ltd for $7000. This had originally cost B Ltd $5,000. 20% of this inventory remained unsold by A Ltd at 30 June 2019.

4. During the 201920 period, B Ltd inventory to A Ltd for $120,000. At 30 June 2020, A Ltd holds inventory sold to it by B Ltd for $20,000 which had cost B Ltd $15,000.

5. On 1 January 2019, B Ltd sold an item of inventory to A Ltd at a before tax profit of $5,000. This asset was classified as plant by A Ltd and depreciated over a 5-year period.

6. The tax rate is 30%.

7. Financial information provided by the companies at 30 June 2020 was as follows:

A Ltd

B Ltd

Sales revenue

910,000

624,000

Other revenue

60,000

65,600

Total revenue

970,000

689,600

Cost of sales

625,000

464,000

Other expense

225,000

129,600

Total expense

850,000

593,600

Profit before tax

120,000

96,000

Tax expense

30,000

32,000

Profit for the period

90,000

64,000

Retained earnings at 1 July 2019

100,000

48,000

Transfer from asset revaluation surplus

0

14,000

Transfer to general reserve

0

12,000

Dividend paid

20,000

12,000

Dividend declared

30,000

16,000

Retained earnings at 30 June 2020

140,000

86,000

Share capital

400,000

120,000

General reserve

0

28,000

Asset revaluation surplus

0

10,000

Total equity

540,000

244,000

Provisions

40,000

30,000

Payables

30,000

40,000

Deferred tax liabilities

12,000

15,000

Non current liabilities

78,000

75,000

Total liabilities

160,000

160,000

Total equity and liabilities

700,000

404,000

Shares in B Ltd

153,400

0

Plant

800,000

320,000

Accumulated depreciation-plant

-544,000

-120,000

Land

60,000

90,000

Intangibles

75,000

60,000

Deferred tax assets

15,000

8,000

Cash

20,000

5,000

Receivables

40,600

6,000

Inventories

66,000

30,000

Goodwill

14,000

5,000

Total assets

700,000

404000

Prepare acquisition analysis, business combination valuation entries, and pre-acquisition entries at 30 June 2020.

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