QUESTION 3 30 marks Sky Ltd acquired all the issued shares (Ex div.) of Nu Ltd on 1 July 2018 for $100 000. At this date Nu Ltd recorded a dividend payable of $10 000 and equity of: Share capital Retained earnings Asset revaluation surplus $54 000 36 000 18 000 All the identifiable assets and liabilities of Nu Ltd were recorded at amounts equal to their fair values at acquisition date except for: Inventories Machinery (cost $100 000) Carrying amount 16 000 92 500 Fair value 18 000 94 000 The machinery was considered to have a further 5-year life. 90% of the inventory was sold by 30 June 2019. The remainder was sold by 30 June 2020. Both Sky Ltd and Nu Ltd use the valuation method to measure the land. At 1 July 2018, the balance of Sky Ltd's asset revaluation surplus was $13 500. In May 2019, Nu Ltd transferred $3 000 from the retained earnings at 1 July 2018 to a general reserve. The tax rate is 30%. The following information was provided by the two companies at 30 June 2019. The following information was provided by the two companies at 30 June 2019. Profit before tax Income tax expense Profit for the year Retained earnings (1/7/18) Sky Ltd $ 120 000 (56 000) 64 000 80 000 144 000 (0) $144 000 Nu Ltd $ 12 500 (4200) 8 300 36 000 44 300 (3 000) $41 300 | Transfer to general reserve Retained earnings (30/6/19) Share Capital Retained earnings General reserve Asset revaluation reserve Liabilities $360 000 144 000 10 000 18 500 42 500 $575 000 $54 000 41 300 3 000 20 000 13 000 $131 300 Land Plant & Machinery Accumulated depreciation Inventories Shares in Nu Ltd $160 000 360 000 (110 000) 55 000 110 000 $575 000 $20 000 125 600 (33 000) 18 700 Plant & machinery $131 300 Required A. Prepare the acquisition analysis and BCVR entries of Sky Ltd at 1 July 2018 (10 marks) B. Prepare the consolidation worksheet entries at 30 June 2019. (10 marks) C Complete the consolidation worksheet at 30 June 2019. (Suggested template below).(10 marks) Consolidation Worksheet at 30 June 2019 Sky Ltd Sky Ltd Nu Ltd Group Adjustments Dr Cr Profit before tax Income tax expense Profit Retained earnings (1/7/18) | Transfer from BCVR 120 000 (56 000) 64 000 80 000 12 500 (4200) 8 300 36 000 | Transfer to general reserve Retained earnings (30/6/19) Share capital BCVR General reserve 144 000 (0) 144 000 360 000 44 300 (3 000) 41 300 54 000 Asset revaluation surplus (1/7/18) Gains Asset revaluation surplus (30/6/19) 10 000 514 000 13 500 5 000 18 500 532 500 42 500 575 000 3 000 98 300 18 000 2000 20 000 118 300 13 000 131 300 Liabilities Land Plant & machinery Accum. depreciation Inventory Shares in Nu Ltd 160 000 360 000 (110 000) 55 000 110 000 575 000 20 000 125 600 (33 000) 18 700 131 300
