QUESTION 4 - Total of 15 marks

On 1 July 2013, Kay Ltd acquired 72% of the share capital of Bach Ltd for $805 000 when the equity of Bach Ltd consisted of:

$

Sharecapital 400,000

Retainedearnings 468,000

At the date of acquisition,

All of the identifiable assets and liabilities of Bach Ltd except for land were recorded at amounts equal to fairvalue.

The carrying amount for land in the financial records of Bach Ltd was $80,000. The fair value of land was$75,000.

The following information is relevant to preparing the consolidated financial statements for the year ended 30 June2014:

oBach Ltd sold Kay Ltd inventory at a profit before tax of $5,000 (the inventory cost Bach Ltd $16,000). One quarter of the inventory was still on hand as at 30 June2014.

oOn 1 May 2014, Kay Ltd lent Bach Ltd $120,000 at 5% interest. Interest was payable on 30 June2014.

oThe tax rate is30%

The following figures were extracted from the consolidation worksheet for the year ended 30 June 2014:

Required:

(a)Determine the amount of goodwill or gain on bargain purchase involved in the acquisition. Show allcalculations.

(2 marks)

(b)Prepare the adjusting journal entries required for the preparation of the consolidation worksheet at 30 June 2014. Show allcalculations.

(9 marks)

(c)Measure the non-controlling interest in net profit after tax and closing retained earnings for the year ended 30 June2014.

The following figures were extracted from the consolidation worksheet for the year ended 30 June 2014: Kay Ltd Bach Ltd $ $ Net profit after tax 400 000 80 000 Add: Opening retained earnings 238 000 468 000 638 000 548 000 Less: Dividends paid 50 000 12 500 Closing retained earnings 588 000 535 500