Reference no: EM13341453
On 1 July 2011, Candle Ltd acquired all the shares of Power Ltd on a cum div basis. On this date, the equity of Power Ltd included the following balances:
Share Capital $198 000
General Reserve 42 000
Retained Earnings 90 000
At acquisition date, all the identifiable assets and liabilities of Power Ltd were recorded at amounts equal to fair value except for:
Carrying Fair
Amount Value
Vehicles (cost $96 000) $78 000 $84 000
Inventory $28 000 $30 200
Machinery (cost $132 000) 86 000 90 000
Land 165 000 185 000
At 1 July 2011 Power Ltd had recorded goodwill of $12 500 arising from a business combination transaction in 2009. The dividend payable in Power Ltd's books on 1 July 2011 was $8 000, this dividend was paid on 13 October 2011.
The vehicles and machinery were expected to have a further useful life of four (4) and five (5) years respectively. Inventory on hand at 1 July 2011 was all sold by 31 January 2012. The land owned at 1 July 2011 was sold in September 2012 for $215 000. The machinery on hand at 1 July 2011 was sold on 1 September 2013 for $63 500.
At 1 July 2011, Power Ltd owned, but had not recorded, an internally generated patent. This patent was considered by Candle Ltd to have a fair value of $48 000 and a remaining useful life of ten (10) years. An impairment test conducted with respect to the patent on 30 June 2013 concluded that its recoverable amount at that date was $2 000 less than its carrying amount. At 30 June 2014, due to deteriorating market conditions a further impairment loss of $10 000 was assessed.
Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold, lost or fully consumed.
In June 2012, the directors of Power Ltd declared a share dividend worth $35 000 from the general reserve on hand at 1 July 2011.
Additional information:
(a) On 1 July 2013, Power Ltd had on hand inventory worth $24 000, being transferred from Candle Ltd in June 2013. The inventory had previously cost Candle Ltd $17 000. The inventory was sold to external parties in the year ending 30 June 2014.
(b) On 1 January 2012, Candle Ltd sold a item of equipment to Power Ltd for $30 000. The equipment had a carrying amount at the date of sale of $35 000. Both entities charge depreciation at a rate of 20% p.a.
(c) On 1 August 2013, Power Ltd sold a machine to Candle Ltd for $12 000. The carrying amount at the date of sale was $9 500. Candle Ltd classified the machine as inventory. The inventory was sold to an external party in November 2013 for $13 500.
(d) All interest on the 8% Debentures has been bought to account in the records of both companies but has not yet been paid.
(e) On 30 September 2011, Candle Ltd sold a parcel of vacant land which had originally cost $135 000 to Power Ltd for $120 000
(f) During the current financial year Power Ltd sold inventory to Candle Ltd for $123 750. The cost of this inventory to Power Ltd was $115 750. Twenty percent (20%) of this inventory is still on hand at 30 June 2014.
(g) On 1 January 2014, Power Ltd sold an item of inventory to Candle Ltd who regarded the item as equipment. The inventory cost Power Ltd $9 000 to manufacture and was sold for $12 000. Candle Ltd assesses the equipment's useful life to be five years.
(h) The transfer to general reserve by Power Ltd in the current year was from retained earnings recorded at 1 July 2011.
(i) The movements in Available for Sale Financial Asset fair values for the year ended 30 June 2014 were $1 350 increase (Power Ltd) and $2 310 decrease (Candle Ltd)
(j) The employee entitlements liability in both companies relates to accumulated annual leave.
(k) The tax rate is 30%.
On 30 June 2014 the trial balances of Candle Ltd and Power Ltd were as follows:
Candle Ltd Power Ltd
Debit Balances $ $
Cash 4 125 2 050
Receivables 44 550 21 450
Inventory 65 505 40 400
Other receivables 25 080 13 530
Deferred tax assets 12 375 5 775
Shares in Power Ltd 412 500 -
Debentures in Candle Ltd - 45 000
Available for sale financial assets 112 200 25 000
Vehicles 133 200 97 500
Equipment 12 000 69 300
Machinery 15 000 25 000
Land 247 500 290 000
Goodwill 46 200 12 500
Dividend Paid 16 000 8 000
Dividend Declared 30 000 20 000
Transfer to General Reserve - 8 000
Cost of sales 350 000 486 190
Income Tax Expense 49 500 52 800
Depreciation and Amortisation 43 000 46 000
Other expenses 41 000 48 700
1 659 735 1 317 195
Credit Balances
Share capital 330 000 233 000
General Reserve 58 000 15 000
Retained earnings (1/7/13) 84 600 111 375
Available for sale financial assets reserve 28 050 14 750
Accounts Payable 84 825 51 150
Loan Payable (due 30/6/17) 40 000 25 000
Other payables 40 000 30 000
Employee entitlements 20 625 15 300
Current Tax Liability 70 950 56 100
Deferred Tax Liability 19 420 8 250
8% Debentures (Mature 30 June 2015) 90 000 0
Accumulated depreciation - Vehicles 24 860 96 500
Accumulated depreciation - Equipment 1 200 56 900
Accumulated depreciation - Machinery 1 000 2 000
Sales 692 895 560 520
Dividend Revenue 36 500 -
Other income 18 810 28 050
Gain on sale of NCA 18 000 13 300
$1 659 735 $1 317 195
Required
Prepare the following:
- Acquisition analysis at 1 July 2011.
- The BCVR & pre-acquisition worksheet journal entries ONLY at 30 June 2013.
- The consolidation worksheet journal entries at 30 June 2014.
- The consolidation worksheet for Candle Ltd at 30 June 2014.
- The consolidated financial statements for Candle Ltd at 30 June 2014.