Topic 4: Investment in associates

Ingram Ltd acquired 35% of ordinary shares issued in A Ltd for $300,000 on 1 July 2017. The equity of A Ltd at that date was as follows.

$

Ordinary share capital: 560,000

Retained earnings: 54,000

All assets were recorded at fair value at acquisition date, except for plant and equipment which had a fair value of $20,000 above its carrying amount. This plant and equipment were estimated to have a remaining useful life of 5 years.

On 1 July 2017, the land was recorded in the books of A Ltd at $100,000. The fair value of this asset has since risen by $40,000, with $28,000 ($40,000 less 30% tax) being credited to a revaluation surplus account by A Ltd on 30 June 2018.

On 1 January 2018, A Ltd sold a motor vehicle to Ingram Ltd for $34,000. The vehicle had originally cost A Ltd $68,000, and had a carrying amount of $20,000 at 1 January 2018. The motor vehicle had a remaining useful life of 4 years.

At 30 June 2018, Ingram Ltd had inventory costing $40,000 on hand which had been purchased from A Ltd during the financial year. A profit before tax of $10,000 had been made on the sale.

As at 30 June 2018, the following relates to A Ltd:

$

Operating profit before income tax: 180,000

Income tax expense: 54,000

Dividends paid: 30,000

The tax rate is 30%.

Required:

Prepare an acquisition analysis in relation to the acquisition made by Ingram Ltd. Assume Ingram Ltd does prepare consolidated financial statements. Prepare the consolidated worksheet entries for the year ended 30 June 2018 for inclusion of the equity-accounted results of A Ltd.

Question 2 [9 marks] Topic 4: Investment in associates Ingram Ltd acquired 35% of ordinary shares issued in A Ltd for S300 000 on 1 July 2017. The equity of A Ltd at thatdate was as follows. Ordinary share capital Retained earnings 560,000 54,000 All assets were recorded at fair value at acquisition date, except for plant and equipment which had a fairvalue of $20,000 above its carrying amount. This plant and equipment was estimated to have a remaining useful life of s years. On 1 July 2017, land was recorded in the books of A Ltd at S 100,000. The fair value of this asset has since risen by S40,000 with $28,000 on 30 June 2018 $40,000 less 30% tax being credited to a revaluation surplus account by A Ltd On 1 January 2018, A Ltd sold a motor vehicle to Ingram Ltd for S34,000. The vehicle had originally cost A Ltd $68,000, and had a carrying amount of $20,000 at 1 January 2018. The motor vehicle had a remaining useful life of 4 years. At 30 June 2018, Ingram Ltd had inventory costing $40,000 on hand which had been purchased from A Ltd during the financial year. A profit before tax of $10,000 had been made on the sale. As at 30 June 2018, the following relates to A Ltd: Operating profit before income tax Income tax expense Dividends paid 180,000 54,000 30,000 The tax rate is 30%. Required: 1. Prepare an acquisition analysis in relation to the acquisition made by Ingram Ltd. 2. Assume Ingram Ltd does prepare consolidated financial statements. Prepare the consolidated worksheet entries for the year ended 30 June 2018 for inclusion of the equity-accounted results of A Ltd