Determine the amount of goodwill or gain on bargain purchase

Reference no: EM132709331

Questions -

Q1. On 1 July 2017, Sun Ltd acquired all the issued capital of Moon Ltd for a cash payment of $710,000 when the equity of Moon Ltd was:

Share capital $580 000Retained earnings $50,000

At 1 July 2017, all assets of Moon Ltd were fairly valued, with the exception of an item of plant, with a carrying amount of $330,000, but a fair value of $390,000. The plant was initially acquired by Moon Ltd on 1 July 2013 for $550,000 when it had an estimated useful life of 10 years, with no residual value. Tax rate is 30%. Sun Ltd also has small shareholdings in other companies.

a. Prepare an acquisition analysis and determine the amount of goodwill or gain on bargain purchase at acquisition.

b. Prepare the acquisition elimination journal entries for consolidation as at 30 June 2020.

c. Goodwill has been impaired by $10,000 for the year ending 30 June 2020. Previous impairments to goodwill recorded in prior years total $8,000.Prepare the consolidation elimination journal entries for the year ending 30 June 2020.

d. Moon Ltd is charged management fees every month by Sun Ltd. During the year ending 30 June 2020, Moon Ltd paid a total of $20,800 in management fees to Sun Ltd. Moon Ltd's management fee payable balance was $6,100 at 30 June 2019, but this had dropped to $4,200 on 30 June 2020.

Required - Prepare the consolidation elimination journal entries for the year ending 30 June 2020.

Q2. The following account balances existed at 30 June 2020

Sun Ltd Moon Ltd

Dividend revenue $18,000 -

Dividend declared $77,900 $9,000

Dividend receivable $6,200 -

Dividend payable $50,000 $2,000

Required - Prepare the consolidation elimination journal entry for the year ending 30 June 2020.

Q3. What is the primary criterion for determining whether or not to consolidate an entity? What are the three necessary elements to determine if this primary criterion exists?

Reference no: EM132709331

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