Question
X Ltd acquired on 1 July 2019 all the issued shares ( cum div .) of Y Ltd for $33000. At this date, the equity
X Ltd acquired on 1 July 2019 all the issued shares (cum div.) of Y Ltd for $33000. At this date, the equity of Y Ltd was as follows.
Share capital $20000
General reserve 2000
Retained earnings 5000
All the identifiable assets and liabilities of Y Ltd were recorded at amounts equal to their fair values except for the following.
Carrying amount | Fair value | |
Plant (cost $22000) | $18000 | $18 600 |
Land | 19000 | 21000 |
Inventories | 2000 | 2 800 |
The plants expected remaining useful life was 5 years with benefits being expected evenly over that period. The plant was sold on 1 January 2022 for $18 700. The land was sold in February 2021 for $25000. Of the inventories, 90% was sold by 30 June 2020 and the rest by 30 June 2021.
At 1 July 2019, Y Ltd had recorded a dividend payable of $1000 that was paid in September 2019. Y Ltd also had some unrecorded assets, in particular the brands relating to the clothing sold in the teenage market. X Ltd valued these brands at $1 200 and assessed them to have an indefinite life. In the notes to its financial statements at 30 June 2019, Y Ltd disclosed a contingent liability relating to a guarantee it had made to one of its related companies. X Ltd assessed the fair value of the guarantee payable as being $1000. In August 2021, Y Ltd was required to pay $250 in relation to the guarantee.
All transfers to the general reserve made by Y Ltd have been from retained earnings earned prior to 1 July 2019. The tax rate is 30%.
The financial information provided by the two companies at 30 June 2020 is as follows.
X Ltd | Y Ltd | |
Revenue | 19 000 | 11 000 |
Expenses | (8 000) | (7 600) |
11 000 | 3 400 | |
Gains on sale of non-current assets | 500 | 400 |
Profit before tax | 11 500 | 3 800 |
Income Tax expense | (4 000) | (600) |
Profit for the year | 7 500 | 3 200 |
Other Comprehensive income | ||
Gains on revaluation of plant | 1 200 | 0 |
Comprehensive income for the year | $8 700 | $3 200 |
Profit for the year | $7 500 | $3 200 |
Retained earnings (1/7/21) | 8 000 | 8 800 |
15 500 | 12 000 | |
Dividend Paid | (3 400) | 0 |
Transfer to general reserve | 0 | (1 500) |
(3 400) | (1 500) | |
Retained Earnings (30/6/22) | $12 100 | $10 500 |
Share Capital | $28 000 | $20 000 |
General reserve | 2 000 | 4 800 |
Asset revaluation surplus | 2 400 | 0 |
Retained earnings | 12 100 | 10 500 |
Total equity | 44 500 | 35 300 |
Provisions | 1 500 | 1 200 |
Payables | 4 000 | 800 |
Total Liabilities | 5 500 | 2 000 |
Total Equity and liabilities | $50 000 | $37 300 |
Cash | $1 200 | $3 000 |
Accounts Receivable | 2 800 | 1 200 |
Inventories | 3 000 | 5 100 |
Plant | 23 000 | 32 000 |
Accumulated Depreciation- Plant | (12 000) | (4 000) |
Shares in Brooks Ltd | 32 000 | 0 |
Total Asset | $50 000 | $37 300 |
Required
- Prepare the acquisition analysis at 1 July 2019.
- Prepare the consolidation worksheet entries for X Ltds group at 30 June 2022.
- Prepare the consolidation worksheet for X Ltds group at 30 June 2022
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started