Question 4 (35 marks)

High Ltd purchased 75% of the issued shares of Low Ltd for $260,000 on 1 July 2013 when the equity of Low Ltd was as follows:

Share capital

$100,000

General reserve

60,000

Retained earnings

40,000

At this date, Low Ltd had not recorded any goodwill, and all identifiable assets and liabilities were recorded at fair value except for the following assets:

Carrying amount

Fair value

Inventory

$75,000

$100,000

Plant (cost $170,000)

150,000

190,000

Land

60,000

100,000

At 30 June 2019, the trial balances of High Ltd and Low Ltd are as follows:

High Ltd

Low Ltd

Debit balances:

Current assets

$162,000

$74,000

Shares in Low Ltd

260,000

-

Plant

425,500

190,000

Land

110,000

60,000

Cost of sales

225,000

32,000

Other expenses

65,000

8,000

Income tax expense

50,000

16,000

1,297,500

380,000

Credit balances:

Share capital

400,000

100,000

General reserve

60,000

80,000

Retained earnings (1/7/18)

120,000

75,000

Sales revenue

510,600

89,000

Trade payables

82,900

12,000

Accumulated depreciation - plant

124,000

24,000

1,297,500

380,000

All the inventory on hand at 1 July 2013 was sold by 30 June 2014. The plant has a remaining useful life of 10 years, with benefits to be received evenly over this period. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation. The tax rate is 30%.

Assume a profit for Low Ltd for the year ended 30 June 2014 of $35,000 and no other changes in Low Ltd's equity since the acquisition date.

During the 2018-2019 period, Low Ltd sold inventory to High Ltd for $14,000. This inventory had cost Low Ltd $9,000. At 30 June 2019, one-fifth of this inventory still remained in High Ltd.

Required:

1.Determine the gain on bargain purchase or goodwill as at acquisition date using the full goodwill method. Assume the fair value of the Non-controlling interest at 1 July 2013 was $77,100.(3 marks)

2.Determine the gain on bargain purchase or goodwill as at acquisition date using the partial goodwill method.(2 marks)

3.Prepare the consolidation journal entries for High Ltd using the partial goodwill method at 1 July 2013, immediately after acquisition.(4 marks)

4.Prepare the consolidation journal entries for High Ltd using the partial goodwill method at 30 June 2014.(6 marks)

5.Prepare the consolidation journal entries for High Ltd using the partial goodwill method at 30 June 2019.(8 marks)

Note:Your consolidation journal entries for Required 5 should be prepared in the following format:

(a) Business combination valuation entries at 30 June 2019

(b) Pre-acquisition entries at 30 June 2019

(c) NCI share of equity at 1 July 2013

(d) NCI share of equity changes from 1 July 2013 to 30 June 2018

(e) NCI share of equity changes from 1 July 2018 to 30 June 2019

(f) Intragroup transaction adjustments required as at 30 June 2019

6.Prepare the consolidation worksheet for the preparation of the consolidated financial statements as at 30 June 2019.(6 marks)

7.Prepare the following financial statements as at 30 June 2019:(6 marks)

a)Consolidated statement of profit or loss and other comprehensive income;

b)Consolidated Statement of financial position;

c)Consolidated Statement of changes in equity.

(Source: adapted from Loftus, J., Leo, K., Daniliuc, S., Boys, N., Luke, B., Ang H., Byrnes, K. (2017). Financial Reporting. (2nd Ed.). Brisbane, Australia: John Wiley & Sons.).