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Question 1 20 Marks North Ltd acquired 80% of the shares of South Ltd on 1 July 2014 for $800,000 when the equity of South Ltd consisted of: Share Capital General Reserve Retained Earnings $750,000 125,000 37,500 All identifiable assets and liabilities of South Ltd are recorded at fair value at this date except for an item of equipment that, as at 1 July 2014, had a carrying amount of $200,000 (original cost $400,000) and a fair value of $300,000. The equipment had a further 5-year life with depreciation based on the straight-line method. Selected financial information for both companies at 30 June 2017 is as follows: Sales revenue Cost of sales Other expenses Profit before tax Tax expense Profit for the period Retained earnings at 1/7/16 Dividend paid Dividend declared Retained earnings at 30/6/17 Share capital General reserve Total equity Dividend payable Other liabilities Total equity and liabilities Shares in South Ltd Other assets Total assets North Ltd $1,250,000 (750,000) (375,000) 125,000 (37,500) 87,500 287,500 375,000 (25,000) (50,000) 300,000 875,000 75,000 1,250,000 50,000 200,000 1.500.000 800,000 700,000 1.500.000 South Ltd $1,000,000 (750,000) (150,000) 100,000 (25,000) 75,000 150,000 225,000 (12,500) (25,000) 187,500 750,000 125,000 1,062,500 25,000 37,500 1.125.000 1,125,000 1.125.000 Question 1 continued over next page Question 1 (continued) The company income tax rate is 30%. The following transactions took place between North Ltd and South Ltd. During the year ending 30 June 2017, South Ltd sold some items of inventory to North Ltd for $40,000, recording a profit before tax of $10,000. North Ltd has since resold half of these items. During the year ending 30 June 2016, North Ltd sold some items of inventory to South Ltd. At 30 June 2016, South Ltd still had some of this inventory on hand on which North Ltd had recorded a before-tax profit of $8,000. South Ltd has since resold all of this inventory. Required (a) Prepare the acquisition analysis as at 1 July 2014. (3 marks) (b) Using the partial goodwill method, prepare the consolidation worksheet journal entries for the preparation of consolidated financial statements by North Ltd on 30 June 2017. (17 marks) Question 1 20 Marks Amber Ltd acquired 80% of the shares of Cobalt Ltd on 1 July 2016 for $325,000 when the equity of Cobalt Ltd consisted of: Share capital General reserve Retained earnings $300,000 50,000 15,000 All identifiable assets and liabilities of Cobalt Ltd are recorded at fair value at this date except for the following: Equipment (cost $130,000) Inventory Carrying Amount $80,000 50,000 Fair value $120,000 60,000 The equipment had a ther 5-year life with depreciation based on the straight-line method. The inventory was sold by 30 June 2017. Selected financial information for both companies at 30 June 2019 is as follows: Sales revenue Expenses Profit before tax Tax expense Profit for the period Retained earnings at 1/7/18 Amber Ltd $500,000 (450,000) 50,000 (15,000) 35,000 115,000 150,000 (10,000) (20,000) 120,000 350,000 30,000 500,000 Cobalt Ltd $400,000 (360,000) 40,000 (10,000) 30,000 60,000 90,000 (5,000) (10,000) 75,000 300,000 50,000 425,000 Dividend paid Dividend declared Retained earnings at 30/6/19 Share capital General reserve Total equity Question 1 continued over next page Question 1 (continued) Dividend payable Other liabilities Total equity and liabilities Shares in Cobalt Ltd Other assets Total assets 20,000 80,000 600.000 325,000 275,000 600.000 10,000 15,000 450,000 450,000 450.000 The company income tax rate is 30%. Amber Ltd uses the partial goodwill method. The following transactions took place between Amber Ltd and Cobalt Ltd: During the year ending 30 June 2019, Cobalt Ltd sold some items of inventory to Amber Ltd for $12,000, recording a profit before tax of $3,000. Amber Ltd has since resold half of these items. During the year ending 30 June 2019, Amber Ltd sold some items of inventory to Cobalt Ltd for $20,000, recording a profit before tax of $8,000. Cobalt Ltd has since resold all this inventory. During the year ending 30 June 2018, Amber Ltd sold some items of inventory to Cobalt Ltd. At 30 June 2018, Cobalt Ltd still had some of this inventory on hand on which Amber Ltd had recorded a before-tax profit of $4,000. Cobalt Ltd has since resold all this inventory. Required (a) Prepare the acquisition analysis and the consolidation worksheet journal entries necessary for the preparation of consolidated financial statements by Amber Ltd on 30 June 2019. (15 marks) (b) Explain the term 'gain on bargain purchase'. (2 marks) (c) If Amber Ltd recognised a gain on bargain purchase in its acquisition of Cobalt Ltd, explain how Amber Ltd would account for the gain on bargain purchase in the preparation of the consolidated financial statements for the years ending 30 June 2017, 2018 and 2019. (3 marks) Question 1 20 Marks North Ltd acquired 80% of the shares of South Ltd on 1 July 2014 for $800,000 when the equity of South Ltd consisted of: Share Capital General Reserve Retained Earnings $750,000 125,000 37,500 All identifiable assets and liabilities of South Ltd are recorded at fair value at this date except for an item of equipment that, as at 1 July 2014, had a carrying amount of $200,000 (original cost $400,000) and a fair value of $300,000. The equipment had a further 5-year life with depreciation based on the straight-line method. Selected financial information for both companies at 30 June 2017 is as follows: Sales revenue Cost of sales Other expenses Profit before tax Tax expense Profit for the period Retained earnings at 1/7/16 Dividend paid Dividend declared Retained earnings at 30/6/17 Share capital General reserve Total equity Dividend payable Other liabilities Total equity and liabilities Shares in South Ltd Other assets Total assets North Ltd $1,250,000 (750,000) (375,000) 125,000 (37,500) 87,500 287,500 375,000 (25,000) (50,000) 300,000 875,000 75,000 1,250,000 50,000 200,000 1.500.000 800,000 700,000 1.500.000 South Ltd $1,000,000 (750,000) (150,000) 100,000 (25,000) 75,000 150,000 225,000 (12,500) (25,000) 187,500 750,000 125,000 1,062,500 25,000 37,500 1.125.000 1,125,000 1.125.000 Question 1 continued over next page Question 1 (continued) The company income tax rate is 30%. The following transactions took place between North Ltd and South Ltd. During the year ending 30 June 2017, South Ltd sold some items of inventory to North Ltd for $40,000, recording a profit before tax of $10,000. North Ltd has since resold half of these items. During the year ending 30 June 2016, North Ltd sold some items of inventory to South Ltd. At 30 June 2016, South Ltd still had some of this inventory on hand on which North Ltd had recorded a before-tax profit of $8,000. South Ltd has since resold all of this inventory. Required (a) Prepare the acquisition analysis as at 1 July 2014. (3 marks) (b) Using the partial goodwill method, prepare the consolidation worksheet journal entries for the preparation of consolidated financial statements by North Ltd on 30 June 2017. (17 marks) Question 1 20 Marks Amber Ltd acquired 80% of the shares of Cobalt Ltd on 1 July 2016 for $325,000 when the equity of Cobalt Ltd consisted of: Share capital General reserve Retained earnings $300,000 50,000 15,000 All identifiable assets and liabilities of Cobalt Ltd are recorded at fair value at this date except for the following: Equipment (cost $130,000) Inventory Carrying Amount $80,000 50,000 Fair value $120,000 60,000 The equipment had a ther 5-year life with depreciation based on the straight-line method. The inventory was sold by 30 June 2017. Selected financial information for both companies at 30 June 2019 is as follows: Sales revenue Expenses Profit before tax Tax expense Profit for the period Retained earnings at 1/7/18 Amber Ltd $500,000 (450,000) 50,000 (15,000) 35,000 115,000 150,000 (10,000) (20,000) 120,000 350,000 30,000 500,000 Cobalt Ltd $400,000 (360,000) 40,000 (10,000) 30,000 60,000 90,000 (5,000) (10,000) 75,000 300,000 50,000 425,000 Dividend paid Dividend declared Retained earnings at 30/6/19 Share capital General reserve Total equity Question 1 continued over next page Question 1 (continued) Dividend payable Other liabilities Total equity and liabilities Shares in Cobalt Ltd Other assets Total assets 20,000 80,000 600.000 325,000 275,000 600.000 10,000 15,000 450,000 450,000 450.000 The company income tax rate is 30%. Amber Ltd uses the partial goodwill method. The following transactions took place between Amber Ltd and Cobalt Ltd: During the year ending 30 June 2019, Cobalt Ltd sold some items of inventory to Amber Ltd for $12,000, recording a profit before tax of $3,000. Amber Ltd has since resold half of these items. During the year ending 30 June 2019, Amber Ltd sold some items of inventory to Cobalt Ltd for $20,000, recording a profit before tax of $8,000. Cobalt Ltd has since resold all this inventory. During the year ending 30 June 2018, Amber Ltd sold some items of inventory to Cobalt Ltd. At 30 June 2018, Cobalt Ltd still had some of this inventory on hand on which Amber Ltd had recorded a before-tax profit of $4,000. Cobalt Ltd has since resold all this inventory. Required (a) Prepare the acquisition analysis and the consolidation worksheet journal entries necessary for the preparation of consolidated financial statements by Amber Ltd on 30 June 2019. (15 marks) (b) Explain the term 'gain on bargain purchase'. (2 marks) (c) If Amber Ltd recognised a gain on bargain purchase in its acquisition of Cobalt Ltd, explain how Amber Ltd would account for the gain on bargain purchase in the preparation of the consolidated financial statements for the years ending 30 June 2017, 2018 and 2019