Question
On 1 July 2020, Bowie Ltd acquired all the shares of David Ltd for $500,000 on an ex-div . basis. On this date, the equity
On 1 July 2020, Bowie Ltd acquired all the shares of David Ltd for $500,000 on an ex-div. basis. On this date, the equity and liabilities of David Ltd included the following balances:
Share capital | $100,000 |
General reserve | 25,000 |
Retained earnings | 145,000 |
Dividend Payable -ex div basis | 8,000 |
At acquisition date, all the identifiable assets and liabilities of David Ltd were recorded at
amounts equal to fair value except for:
Carrying amount | Fair value | Useful life at acquisition date | |
Land | 700,000 | 900,000 | Sold 30/4/2022 |
Plant and equipment (cost $500,000) | $400,000 | $404,000 | 5 years |
Trade mark | 50,000 | 60,000 | Indefinite life |
Motor vehicle (cost $90,000) | 60,000 | 75,000 | 5 years |
Inventories | 2,000 | 12,000 | 100% sold externally during the year ended 30/6/2021 |
Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed.
Additional information
- On 1 July 2021, Bowie Ltd has on hand inventory worth $34 000, being transferred from David Ltd in June 2021. The inventory had previously cost David Ltd $30 000.
- On 1 January 2022, David Ltd sold an item of plant with a carrying amount of $115 000 to Bowie Ltd for $125 000. Bowie Ltd treated this item as inventory. The item was still on hand at the end of the year. David Ltd applied a 20% depreciation rate to this plant.
- On 1 March 2022, David Ltd acquired $9 000 inventory from Bowie Ltd. This inventory originally cost Bowie Ltd $5 000. 25% of this inventory has been sold to external parties for $35,000.
- On 1 January 2021, Bowie Ltd sold office equipment to David Ltd for $2,000. This office equipment had originally cost Bowie Ltd $5 000 and had a carrying amount at the time of sale of $1,000. Both entities charge depreciation at a rate of 20% p.a.
- On June 2021 Bowie Ltd gave David Ltd a loan of $425 000. David Ltd has not made any repayments on the loan. Interest is charged at 15% per annum on the loan and the last interest payment was made on 31 March 2022. Both companies have recorded accruals at year end.
The corporate tax rate is 30%.
1. Prepare the acquisition analysis as at 1 July 2020 for the Bowie Ltd Group
2. Prepare the consolidation entries as at 30 June 2022 for the Bowie Ltd Group. Notes: CONSOLIDATION ENTRIES PLEASE, NOT WORKSHEET.
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