Pico Ltd acquired 75% of the issued shares of Sigla Ltd on 1 July 2015. In exchange

for these shares, Pico Ltd gave a consideration of $26 000 cash and 10 000 shares

in Pico Ltd, which had a fair value of $2 each. At this date the shareholders equity of

Sigla Ltd consisted of:

Share capital (15 000 shares) $ 45 000

Retained earnings 9 000

On 1 July 2015, all the identifiable assets and liabilities of Sigla Ltd were recorded at

amounts equal to their fair values except for plant for which the fair value was $2 000

greater than the carrying amount of $25 000 (original cost was $35 000). The plant

was expected to have a further 5-year life. The fair value of the non-controlling

interest at 1 July 2015 was $15 000. Pico Ltd uses the full goodwill method.

Question 4 continued over next page

Term 1 Standard Examination 2019

Company Accounting ACCT20073

Page 5 of 5

Question 4 (continued)

Additional information:

(a) At 1 July 2019, Pico Ltd held inventories that had been sold to it by Sigla Ltd in

the previous year at a profit of $1 200.

(b) During the year ended 30 June 2020, Sigla Ltd sold inventories to Pico Ltd for

$28 500. At 30 June 2020, Pico Ltd still had on hand inventories that had been

sold to it by Sigla Ltd for a profit of $1 800 before tax.

(c) Sigla Ltd paid interest of $375 to Pico Ltd on both 30 June 2019 and

30 June 2020.

(d) Assets held by Sigla Ltd at 30 June 2020 include financial assets. Gains and

losses on these assets are recognised in other comprehensive income. During

the year ended 30 June 2020, Sigla Ltd recorded gains of $1 500 on these

assets.

(e) For the year ending 30 June 2020, Sigla Ltd made a profit after tax of $9 800

and paid a dividend of $3 600.

(f) Pico Ltd made a loan to Sigla Ltd. The balance of this loan was $3 750 as at

30 June 2020.

(g) The tax rate is 30%.

Required:

i. Prepare the acquisition analysis at 1 July 2015. (4 marks)

ii. Prepare the following consolidation elimination and adjustment journal entries of

Pico Ltd for the year ended 30 June 2020. (20 marks)

a) Business combination valuation entries

b) Pre-acquisition entries

c) NCI share of equity at acquisition date

d) NCI share of changes in equity from 1/7/19 to 30/6/20 (current period)

e) Unrealised profit in beginning inventories

f) Unrealised profit in ending inventories

g) NCI adjustment for unrealized profit in ending inventories

h) Dividend paid

i) Intragroup loans

j) Interest on intragroup loans