On 1 July 2019, Seacome Ltd acquired all issued shares of Heights Ltd on a cum dividend

basis, paying $578 160 cash. At this date, Heights Ltd had recorded $24 000 dividend

payable and an equity consisting of:

Share capital $259 200

Retained earnings 172 800

General reserve 86 400

All the identifiable assets and liabilities of Heights Ltd were recorded at the amounts equal to

their fair values at acquisition date except for:

Asset Carrying Amount ($) Fair Value ($)

Inventories 67 200 76 800

Plant (cost $480 000) 444 000 451 200

Additional information:

The plant was considered to have a further 5-year life, and depreciated at 20% per

annum on cost. All inventories were sold by 30 June 2020.

In April 2020, Heights Ltd transferred $14 400 from Retained Earnings existing at 1

July 2019 to General Reserve.

The dividend payable at the acquisition date was paid in May 2020.

The company tax rate is 30%.

Part A

Problem Solving Practical

i. Prepare the acquisition analysis at 1 July 2019. Show all workings.

ii. Prepare the consolidation worksheet entries at 1 July 2019. Journal narrations are

required.

iii. Complete the consolidation worksheet for the group at 30 June 2020.

iv. Prepare Consolidated Statement of Changes in Equity and Consolidated Statement of

Financial Position for the group at 30 June 2020.

Seacome Group Ltd

Consolidation Worksheet at 30 June 2020

Seacome

Ltd ($)

Heights

Ltd ($)

Adjustments Group

Dr ($) Cr ($) ($)

Revenue 1 200 000 266 400

Costs of sales (432 000) (110 400)

Depreciation - Plant

Other expenses (192 000) (96 000)

Profit before tax 576 000 60 000

Income tax expense (268 800) (20 160)

Profit 307 200 39 840

Retained earnings

(1/7/19)

384 000 172 800

Transfer from BCVR - -

Transfer from General

reserve

(0) (14 400)

Retained earnings

(30/6/20)

691 200 198 240

Share capital 1 816 800 259 200

BCVR - -

General reserve 48 000 100 800

Total Equity 2 556 000 558 240

Deferred tax liability 9 600

Other liabilities 204 000 28 800

Total Liabilities 204 000 38 400

Total Equity & Liab 2 760 000 596 640

Cash 90 720 18 000

Inventories 147 120 47 760

Land 768 000 86 400

Plant 1 728 000 602 880

Acc'd depreciation (528 000) (158 400)

Goodwill

Shares in Heights Ltd 554 160 -

Total Assets 2 760 000 596 640

Problem Solving Discussion

Using the case scenario above and your responses to Part (a):

i. Identify the adjustment entries, which are made in the consolidation worksheet for

Seacome Group Ltd for the year ended 30 June 2020, will also be made in the

group's consolidation worksheet for the year ended 30 June 2021 and 30 June 2022.

Discuss the effects of these adjustment entries on the group's consolidation

worksheet.

ii. Discuss how the business combination valuation entries affect the pre-acquisition

entries at the acquisition date and in the year ended 30 June 2020. You should make

references to the relevant assets and liabilities in Seacome Group Ltd.